Inflation is a continuous process shaped by societal, fiscal, and institutional dynamics, not merely a one-time event triggered by specific economic shocks. Inflationary trends arise from deep-rooted fiscal mismanagement, institutional erosion, and social reactions to governmental policies rather than isolated incidents such as wars or pandemics. Recent events, particularly the COVID-19 pandemic, underscore how inflation is deeply intertwined with societal structures.
The U.S. deficit expanded dramatically during the COVID-19 pandemic, surpassing previous historic deficits incurred during World War I and World War II. In 2020, the deficit reached an unprecedented 14.7% of GDP, compared to 13.5% in 1918 during World War I and 12.4% in 1942 during World War II. This massive fiscal expansion, unlike past shocks, has not been normalized, even four years post-pandemic. Historically, previous fiscal shocks were followed by swift fiscal consolidation, as seen after both world wars and the Great Financial Crisis (GFC), but today’s deficit is projected to remain at an elevated average of 6.2% of GDP over the next decade, based on current projections by the Congressional Budget Office (CBO).
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