Bidenflation? Trumpflation? No. The real problem is Covidflation.

Justin Merriman/Bloomberg

Monetary econ pop quiz: Who is to blame for inflation? A) President Joe Biden, B) Former President Donald Trump, C) Biden and Trump are equally to blame or D) Neither is to blame.

If you incorrectly answered A, B or C, you might want to be armed with the economic facts the next time someone challenges you to the inflation blame game.

Most polls indicate that inflation "far and away" is the No. 1 issue in the upcoming presidential election, and it was the basis for one of the most heated exchanges in the recent presidential debate.

Everyone has heard about Bidenflation, but why not Trumpflation?.

Both presidential candidates share some blame to different degrees in how inflation was made worse by their actions and how it was managed — actually mismanaged — by the Federal Reserve.

Neither person, however, is to be blamed for our current inflation problem, since the underlying cause was COVID-19, so, let's call it what it is: Covidflation.

Yes, our inflation problem is bad, but we must never forget that COVID-19 took millions of lives and changed the lives of the rest of us.

During my decades of teaching monetary economics at Wharton, I would start my inflation lecture with the basic demand and supply definition: "Too much money chasing too few goods." Too much demand in the first instance, and not enough supply in the second.

Worst possible case? Both things happening at the same time and in a very big way. That was COVID-19.

The Fed's monetary policy tools and Treasury's fiscal policy tools were immediately put to work to try stabilizing the economy, which went into a sharp but brief recession.

The result was a record amount of money, most commonly measured by M2, injected in the economy. Meanwhile, COVID-19 shut down most supply lines causing shortages in virtually every sector of the economy.

Either event, too much money or too few goods, is inflationary, but both of these happening overnight in a record way was super-inflationary.

The supply shortages were immediately apparent in COVID-19's early months in 2020, and they peaked in 2021 but began to improve in early 2022 as supply channels reopened.

When they say, "money is the root of all evil," that also goes for inflation. This is because there is a long and variable inflationary impact lag when a massive amount of M2 is injected in the economy.

Yes, massive, as in the three-month annualized M2 growth rate exploding from 5.1% in February 2020 to 77.2% in May 2020, shattering previous records. M2 growth in the 34% to 65% range in the summer of 2020 gradually declined to the 10% to 20% range throughout the remainder of 2020 and 2021, still two to four times the pre-pandemic rate.

The biggest evil of too much money is inflation. The late great Nobel laureate Milton Friedman famously said that "inflation is always and everywhere a monetary phenomenon." In other words, money matters. The supply-side problem was improving into 2022. The demand-side problem, with a record amount of money in the system starting in March 2020 and festering throughout late 2020 and into 2021, was ticking like an inflationary bomb about to explode. Just as Professor Friedman predicted, inflation, with its usual 1-2 year or longer lag, reached a 40-year peak of 9.1% in June 2022.

Powell says fixing inflation is 'the best thing we can do' for housing

Anyone in the government, especially banana republics, can shower the public with cash to grow the economy and keep politicians in office. That is why we established the monetary policy police in 1913, aka the Fed, to keep the economy growing but with the responsibility of maintaining stable prices.

A little bit, say 2% to 3%, of inflation is not bad, as long as people are fully employed, and the economy is growing.

But, if the Fed is not willing or able to nip inflation in the bud, especially when there is ample evidence of rapid M2 growth, we have a problem … an inflationary problem.

This, unfortunately, exactly describes the Fed, based on Fed Chair Jerome Powell's mistaken belief that "the growth of M2 … doesn't really have important implications for the economic outlook." 

With all the M2 and inflationary writing on the wall in 2020 and throughout 2021, the Fed chair, who was hoping to get reappointed by President Biden in late 2021, did nothing to combat inflation. In fact, he made matters worse for the public and financial markets throughout 2021 claiming repeatedly that inflation was "transitory."

By the time he was reappointed and realized inflation was serious in 2022, it was too late. To combat inflation, he raised rates more quickly than ever before, but the inflation genie was out of the bottle.

M2 actually declined in April 2022 and continued downward reaching -5% in November 2022. Within three years Powell took monthly M2 growth from +5% to a record +77% and then down to -5%. Not exactly the recipe for stable prices and economic growth.

Worse yet was the public's shocked and puzzled reaction to the worst inflation in over 40 years — a span longer than about half our population has been alive.

Nobel laureate Robert Solow succinctly explained that, "We have inflation because we expect it, but we expect inflation because we've had it!"

This vicious inflationary expectations circle continues to play out today, with the Fed forced to keep current record interest rates higher for longer until inflation is sustainably down to its 2% goal, which will likely not happen anytime soon.

Bottom line: If anyone in this country is to be blamed for inflation, it would be Powell, who should have nipped it in the bud in 2020 and 2021.

Trump, however, appointed him as Fed chair, the first one in recent history without an economics doctorate, which probably explains his shocking dismissal of M2's inflationary impact. Powell's on-the-job economic training has been a dismal failure, and he will likely be remembered as one of the worst Fed chairs in modern history.

So, Trump is partially to blame for hiring him, something that will likely be quickly reversed if Trump is elected in November.

Biden can also be blamed for reappointing Powell and making inflation worse by putting more money in the system with trillion-dollar fiscal programs and also cutting back domestic energy production.

True that Bidenflation can be much better-documented than Trumpflation, but neither Biden nor Trump caused inflation. They both made matters worse, one more than the other, but the person they appointed and reappointed should be blamed for not doing his inflation fighting job.

Taking the most relevant global view, there is no doubt that the underlying cause of our inflation was COVID-19.

So, if you want to play the inflation blame game during this presidential election cycle, don't point your finger up at either presidential candidate but at the pandemic.