But the summer of stagflation also reveals that the Biden Administration’s Keynesian policy mix has been an historic bust. The White House and Democrats in Congress pushed out trillions of dollars in government spending to goose demand. Monetary policy has remained wide open, also in service of demand, though the pandemic recession ended in summer 2020 and there’s no shortage of money available.

But a shortage of demand hasn’t been the problem. The issue is the supply side of the economy, which has been experiencing a shortage of labor, resources and components to produce goods. Keynesians typically ignore, or even deride, supply problems because they don’t fit their academic models. The White House and Federal Reserve are dominated by economists who focus on demand, which is one reason they overestimated growth this year but underestimated inflation.

This bias has led to policy mistakes that have added to the supply woes. The flood of government money, untied to any work requirement, has reduced the incentive for millions to return to the labor force. Businesses are paying more but can’t find enough willing workers.

The uncertainty over the White House promise of higher taxes and more regulation has put a damper on investment. The resulting burst of inflation to 5.4% over the last 12 months has hit consumer confidence.