In 2021, a used Toyota Camry cost more than a new one did in 2019. A sheet of plywood that cost $10 in January 2020 cost $60 by May 2021. A dozen eggs went from $1.50 to over $4. People who had never thought about monetary policy in their lives suddenly had strong opinions about the Federal Reserve.

Welcome to the inflation story. It is not new. It has been running for about eighty years. The 2020s version was just the latest episode, and understanding the full arc explains why it keeps happening, why governments keep causing it, and why nobody seems able to stop.

The Universal Symptom

Inflation is not a random event. It is not caused by greedy corporations, supply chain disruptions, or bad luck. These things can affect individual prices, but inflation – the sustained increase in the general price level – has one cause: the expansion of money supply beyond the growth of actual goods and services.

This is not controversial among economists. It is as settled as gravity is among physicists. Yet every time inflation appears, politicians and pundits discover exciting new explanations. In 2021, it was “supply chains.” In 2022, it was “corporate greed.” In 2023, it was “the war in Ukraine.” Each explanation contained a kernel of truth about specific prices and was completely wrong about the general phenomenon.

The M2 money supply in the United States went from approximately $15.4 trillion in February 2020 to $21.7 trillion by March 2022. That is a 41% increase in two years. If you increase the number of dollars by 41% without increasing the quantity of goods by 41%, prices go up. There is no mechanism by which this does not happen. Calling it “transitory” does not make it transitory. Blaming it on supply chains does not unbring the dollars into existence.

Government Spending: The Engine of Money Creation

Where did those dollars come from? Government spending.

The CARES Act: $2.2 trillion. The Consolidated Appropriations Act: $900 billion. The American Rescue Plan: $1.9 trillion. PPP loans: $800 billion. Add state and local spending, Federal Reserve bond purchases, and various other programs, and the total pandemic-era fiscal and monetary intervention exceeded $10 trillion.

To put that in perspective, total US GDP in 2019 was about $21 trillion. The government created new money equivalent to roughly half of the entire economy’s annual output in about two years.

This was not paid for by taxes. It was paid for by the Federal Reserve buying government bonds with newly created money – the modern, sanitized version of printing. The mechanism is more sophisticated than running a printing press, but the result is identical. More dollars chasing the same amount of stuff.

The pattern is not unique to COVID. It is the story of government finance for the better part of a century. The specifics change – wars, recessions, pandemics, social programs – but the dynamic is always the same. Government wants to spend more than it collects. It borrows. When borrowing becomes expensive or politically difficult, it prints. The printing causes inflation. The inflation causes new problems. The new problems justify new spending. The cycle continues.

Deficit Spending: The Cure That Is the Disease

The intellectual framework for this cycle is remarkably durable. The argument goes: when the economy is weak, the government should spend more to stimulate demand. The deficit is not a problem because the spending generates growth, which generates tax revenue, which eventually pays off the debt.

In theory, this means deficits during recessions and surpluses during booms. In practice, it means deficits always. The United States has run a budget surplus in exactly four years since 1970. The national debt has gone from $371 billion in 1970 to over $36 trillion in 2025. That is not a misprint. The debt increased by a factor of almost 100.

And the deficit spending is no longer even pretending to be counter-cyclical. By 2024, the US was running trillion-dollar deficits during a period of economic growth, low unemployment, and stock markets at all-time highs. This is not stimulus. This is structural. The government spends more than it collects not because the economy needs help, but because the spending is politically impossible to cut.

Each program creates a constituency. Each benefit creates a dependency. Each promise becomes an obligation. The spending ratchets up because the political cost of cutting any program always exceeds the political benefit of fiscal responsibility.

The Welfare Ratchet

Social Security is the clearest example of how this works. When it launched in 1935, it was presented as a self-funding insurance program. Workers paid in during their careers and drew benefits in retirement. The math worked because the ratio of workers to retirees was 16 to 1.

Today that ratio is approximately 3 to 1. The math stopped working decades ago. The Social Security trust fund – which was never really a “fund” in the way a normal person understands the word – is projected to be depleted by the mid-2030s. At that point, benefits would need to be cut by roughly 20% to match incoming revenue.

But cutting Social Security benefits is what politicians accurately describe as “the third rail” – touch it and you die politically. So instead, the program runs increasingly large deficits, funded by general revenue, which is funded by borrowing, which is funded by money creation, which is funded by inflation, which is funded by you, the person holding dollars.

This is not unique to Social Security. Medicare follows the same pattern. Medicaid follows the same pattern. Every major entitlement program follows the same pattern. Benefits are promised. Demographics shift. The promises become unaffordable. But cutting them is political suicide. So they are funded by borrowing. The borrowing becomes unaffordable. So it is funded by printing. The printing causes inflation. The inflation hurts the very people the programs were designed to help. And the response to that hurt is – more programs.

The US federal government spent approximately $6.1 trillion in fiscal year 2023. Mandatory spending – programs that run on autopilot without annual congressional approval – accounted for over 60% of that. Interest on the debt consumed another 15%. Discretionary spending, the part Congress actually votes on each year, was less than a quarter of total spending. The budget is on autopilot, and the autopilot is heading toward a mountain.

The “Transitory” Lie

When inflation first appeared in 2021, the Federal Reserve called it “transitory.” This was not a mistake. It was a strategy. If people believe inflation is temporary, they do not change their behavior. They do not demand higher wages. They do not accelerate purchases. They do not lose faith in the currency. The expectation of temporary inflation is self-fulfilling – for a while.

The problem is that it was not temporary. CPI hit 9.1% in June 2022, the highest in 40 years. Even after aggressive rate hikes, inflation remained “sticky” through 2023 and into 2024, well above the Fed’s 2% target. By the time the Fed admitted inflation was not transitory, the damage was done. Real wages had fallen for two straight years. Savings had been eroded. The cost of housing, food, and energy had reset permanently higher.

“Transitory” was not an economic assessment. It was a communication strategy designed to manage expectations. It failed because reality is not managed by press conferences.

Inflation as Redistribution

Here is what rarely gets said plainly: inflation is not an accident. It is a policy choice. Specifically, it is the policy choice of governments that want to redistribute wealth without the political difficulty of explicit taxation.

Every dollar the government creates and spends is a dollar of purchasing power taken from everyone who holds dollars. It is a tax. It is the most regressive tax possible because it falls hardest on people who hold cash – which means the poor, the elderly, and the financially unsophisticated. The wealthy hold real estate, equities, and other inflation-hedged assets. The poor hold cash and fixed-income savings. Inflation is a wealth transfer from the bottom to the top, dressed up as economic stimulus.

This is why crypto exploded in popularity during 2020-2021. Whatever you think about Bitcoin’s viability as currency, the narrative was clear: people saw their government creating trillions of dollars from nothing and thought, reasonably, that holding those dollars was a losing proposition. Bitcoin’s fixed supply was the anti-thesis of unlimited money printing. The fact that much of crypto turned out to be speculation and fraud does not invalidate the underlying impulse. People were looking for an escape from a currency being systematically devalued.

The same impulse drove the surge in real estate investment, the rise of “inflation hedge” portfolios, and the popularity of I-bonds and TIPS. Millions of ordinary people, many of whom had never thought about monetary policy, were suddenly trying to protect themselves from their own government’s currency management. That is not a sign of a healthy monetary system.

The International Blame Game

One of the more absurd features of modern monetary policy is countries criticizing each other for not inflating enough. Throughout the 2010s, the US and Europe pressured Japan to inflate its way out of stagnation. The IMF regularly advises countries to maintain “accommodative monetary policy” – economist-speak for keeping rates low and money loose. Countries that pursue fiscal discipline get lectured about “austerity.”

The result is a race to debase. Every major central bank is printing. The dollar loses value against goods, but because the euro, yen, and pound are also losing value, the exchange rates between currencies can look stable. You are on a sinking ship, but because all the other ships are sinking at the same rate, it looks like you are standing still.

This is why you feel poorer even when your salary goes up. Your paycheck is 10% larger. Your rent is 15% higher. Your grocery bill is 20% more. Eggs are $5. Your salary “increase” is an illusion. You are running faster on the treadmill while the belt speeds up beneath you.

Where This Goes

The fiscal trajectory of major Western economies is not a secret. It is published annually by their own budget offices. The Congressional Budget Office projects that US debt-to-GDP will exceed 180% by 2050 at current trends. Interest payments are already the fastest-growing line item in the federal budget. At some point – and reasonable people can disagree about when – the debt becomes unsustainable without either dramatic spending cuts, dramatic tax increases, or dramatic inflation.

History suggests which option governments will choose. Explicit tax increases are politically dangerous. Spending cuts are politically suicidal. Inflation is invisible, deniable, and diffuse. It hurts everyone a little rather than anyone a lot. By the time people realize what happened, the politicians who caused it are retired.

This is not a prediction of hyperinflation. The US dollar is the world’s reserve currency, which gives the US more room to print than any other country. But “more room” is not “infinite room.” The 2020-2023 inflation episode was a warning shot. The underlying dynamics – rising mandatory spending, aging populations, expanding entitlements, structural deficits – have not changed. They have gotten worse.

The Takeaway

Inflation is not a natural disaster. It is a policy choice. Governments spend more than they collect, borrow the difference, and when borrowing becomes unsustainable, print the difference. The printing devalues the currency. The devaluation hurts the poor more than the rich. The political response to the hurt is more spending, more borrowing, and eventually more printing.

This cycle has repeated in every major economy, in every era, under every political system. The details vary. The mechanism does not. And it continues because the costs are invisible and diffuse while the benefits are visible and concentrated. The politician who approves a new spending program gets credit. The millions of people whose savings lose 3% of their value that year do not connect the cause to the effect.

Understanding this cycle will not stop it. But it will stop it from fooling you. When someone promises free money, free programs, free benefits – you now know who pays. When a politician says “we can afford it,” you now know what “afford” means. It means inflate. It means you pay, slowly, silently, through the depreciation of every dollar you hold.

The inflation story is not over. The next chapter is already being written by the same people who wrote the last one. The only question is whether you read it as fiction or as a warning.