The president of stagflation
Another month, another bad report. On October 13, the Bureau of Labor Statistics announced that consumer price inflation, at an annualized rate of 8.2%, was higher than expected through September. Americans continue to suffer the worst inflation in four decades. They continue to experience a decline in their real average hourly earnings. They keep telling pollsters that the economic recession is here. Blerina Uruci, an economist at T. Rowe Price, doesn’t like what she sees. “It’s very disturbing,” Uruci told the New York Times. “The trend is very worrying.”
Not at the White House. He sees no problem. According to President Biden, the most recent data from the BLS is redundant. After all, everyone already knows that “Americans are pressured by the cost of living: it’s been true for years, and they didn’t need today’s report to tell them that.” In fact, Biden said in a statement that rising costs are “one of the main reasons I ran for president.” Anyway, the situation is under control. “My policies – which the Democrats have put in place – directly attack [sic] pricing pressures that we saw in today’s report.”
End of story, thank you very much everyone, nothing to see here, move on, move on.
Just a minute. Biden’s reading of recent economic history is filled with evasions, half-truths, and “leads.” They deserve comments and refutation. I don’t recall Biden betting his 2020 candidacy on inflation. He couldn’t have. Inflation had not taken place. It didn’t happen until the spring of 2021. At that time, Biden was living — at least on weekdays — at 1600 Pennsylvania Avenue.
Nor do I recall Biden warning the country of the coming threat of a price hike. On the contrary: Varsity Joe was captain of “Team Transitory”. “Temporary” inflation would decline, he and his teammates argued, as supply chain issues were resolved and the Federal Reserve tightened the money supply.
They were wrong, of course. Inflation persisted. In the winter of 2022, Biden blamed the high prices on corporate greed and “Putin’s price hike.” Now he says inflation is the fault of the opposition party. No reason is provided; this president is not in causation. “If Republicans take control of Congress,” Biden warns, “everyday costs will go up, not down.”
Voters are unlikely to see things the same way. At least a Republican Congress will check Biden’s big spending instincts for the next two years. And most people draw a straight line between Biden’s policies and the dire state of the economy. Indeed, a prominent Democrat, former Treasury Secretary Lawrence Summers, drew such a line before Biden’s policies have become law.
The American Rescue Plan Act, Summers observed in February 2021, was far bigger than it needed to be. If combined with the trillions in pandemic-related emergency spending from 2020, Summers said, the plan would drive inflation. The White House fired him. The law was passed by Congress on a party-line vote. Biden signed it into law on March 11, 2021. Inflation spiked in April.
Biden was just getting started. In addition to the $5 trillion regular budget, new spending included the bipartisan Infrastructure Investment and Jobs Act ($550 billion) and the CHIPS and Science Act ($250 billion). Sen. Joe Manchin (D., W.Va.) has whittled down the ambitious, partisan Build Back Better plan to the ridiculously named — but equally partisan — Inflation Reduction Act ($740 billion). Penn Wharton School economists estimated the effect of the law on reducing inflation. “The impact on inflation,” they concluded, “is statistically indistinguishable from zero.”
Shortly after Biden signed the Cut Inflation Act, he issued a constitutionally questionable executive order canceling college debt. It will increase the cost of government student loans by about $400 billion. Meanwhile, to drive down gasoline prices ahead of the midterm elections, he emptied the strategic oil reserve to its lowest level in 40 years. Now the returns of this strategy are decreasing. Gasoline prices are rising again. Is this a chance to deregulate domestic energy production and build more refineries? That would be a serious answer. Instead, Biden is threatening retaliation against OPEC+ and the Kingdom of Saudi Arabia.
The economy contracted in the first half of 2022. In March, the Federal Reserve began raising interest rates to crush inflation. The increases did not lead to price stability. But they have led to the highest mortgage rates in 20 years, growing volatility in debt markets and the growing likelihood of a prolonged recession and financial crisis. National Economic Council Director Brian Deese likes to say that the US economy is “in a period of transition.” The transition goes from bad to worse.
By subsidizing demand while limiting supply, President Biden has reignited the economic diseases that plagued the US economy when he entered public life half a century ago. Biden has turned gold into dross and, surprisingly, expects to be rewarded for it. “The president and I were talking about it over lunch today,” Vice President Kamala Harris said in a recent interview with the Nation magazine. “We’re so proud — and I hope I’m not exuding any bravado in saying this — but we’re so proud that we’ll probably end up being the most worker-friendly administration.”
Sorry, Madam Vice-President, but your bravado shows. The unions could be happy. The remaining 90% of the workforce is not. Expect to hear from them in November.