By Jim Geraghty
Thursday, February 17, 2022
The latest
Quinnipiac poll asked Americans to choose the most urgent issue facing
the country today, and inflation topped the list at 27 percent, followed by
immigration at 12 percent and Covid-19 at 10 percent. Unemployment — which is
pretty darn low these days — was mentioned by just 2 percent. And this
is not an outlier; a recent CNN poll found that 42 percent said inflation was one
of the two important issue for the U.S. government to address this year;
“ensuring that borders are secure” came in second at 29 percent.
If Biden and the team around him had a lick of political
sense, they would be spending as much time as possible talking about all the
things they’re doing to reduce inflation. They would recognize that this is one
of the rare times when Americans feel just fine about the number of jobs
available and don’t want to hear about job-creation plans, because other
economic issues are making their lives much more stressful.
Alas, today, President Biden travels to Lorain, Ohio, to
“deliver remarks on how the Bipartisan Infrastructure Law
delivers for the American people by investing in clean-up and
restoration efforts in the Great Lakes region and surrounding waterways.” Yes,
he’s announcing that his latest big-spending plan will create more jobs when
the country is experiencing a labor shortage and has 10.9
million unfilled positions.
Americans don’t want Biden to talk about the federal
government going on a hiring spree. Americans want to be able to afford
more when they go to the grocery store and when they go
to fill up their tanks of gas, not have their rent hiked, and maybe not see their hope of
buying a house slip out of reach.
Inflation is, arguably, the biggest problem facing the
Biden administration right now. And yet, when asked about it, Biden
offered word salad:
NBC NEWS’ LESTER HOLT: Inflation
skyrocketing to 7.5 percent, a 40-year high. Prices still spiking on everything
from used cars to gas to food. Inflation now costing the average American an
extra 275 dollars a month compared to last year. I think it was back in July,
you said inflation was going to be temporary. I think a lot of Americans are
wondering what your definition of ‘temporary’ is.
BIDEN: Well, you’re being a wise
guy with me a little bit. I understand that’s your job. But look — at the time
what happened was the, uh . . . let’s look at the reason for the inflation. The
reason for the inflation is the supply chains were cut off, meaning that the
products, for example, automobiles, the lack of computer chips to be able to
build those automobiles, so they could function, they need those computer chips.
They were not available, so what happens? With the number of cars were reduced,
the new cars reduced — it made up at one point one-third the cost of inflation,
because the price of automobiles were up. So, what I did, when I went out and
made sure we started to make those domestically. We got Intel to come in and
provide 20 billion dollars to build a new facility. A number of organizations
are doing the same kinds of things.
Those two new Intel semiconductor-chip plants in Ohio
that Biden mentioned are “expected to be completed in 2025.” I’m as happy as the next
guy to see huge numbers of new, high-tech jobs created in Ohio, but let’s not
pretend that these factories are going to do anything to mitigate inflation in
the here and now:
NBC NEWS’ LESTER HOLT: When can
Americans expect some relief from this soaring inflation?
BIDEN: According to Nobel
laureates, 14 of them, that contacted me and a number of corporate leaders,
it’s ought to be able to start to taper off as we go through this year. In the
meantime, I’m going to do everything in my power to deal with the big points
that are impacting most people in their homes.
Nor is Biden the only national leader whose language
becomes gobbledygook on the topic of inflation. Our Dominic Pino observes that
House speaker Nancy Pelosi contending that a ten-year, $3 trillion spending plan is what
is needed to reduce inflation, and stated that low unemployment causes high
inflation. (That assessment does not align with the evidence of the U.S.
economy of the past six decades or so.)
Even Steve Rattner, President Obama’s former “car czar”
who managed the bailout of GM (which was making cars that would kill you if your key chain was
too heavy, but that’s another story), writes in the New York Times today that
Biden’s explanations about inflation are both “simplistic and misleading”:
For starters, the supply chains
have not been “cut off,” just stretched. And supply issues are by no means the
root cause of our inflation. Blaming inflation on supply lines is like
complaining about your sweater keeping you too warm after you’ve added several
logs to the fireplace.
The bulk of our supply problems are
the product of an overstimulated economy, not the cause of it. Sure, there have
been some Covid-related challenges, such as health-related worker shortages in
factories and among transportation workers. But most of our supply problems
have been homegrown: Americans have resumed spending freely, and along the way,
they have been creating shortages akin to those in a shopping mall on Black
Friday.
All that consumption has resulted
from vast amounts of government rescue aid (including three rounds of stimulus
checks) and substantial underspending by consumers during the lockdown phase of
the Covid crisis. There has also been an unforeseen shift in what
consumers are buying: With travel still sluggish and many people still wary of
returning to entertainment venues, a hunk of purchasing has moved to goods —
particularly “durables” like cars, electronics and building materials for
housing — for which production and distribution capacity is limited.
It’s a classic economic case of
“too much money chasing too few goods,” resulting in both higher prices and,
given the extreme surge in demand, shortages. A spending increase of the
magnitude we’re seeing — 25 percent on durable goods in 2021 over 2020,
according to the Bureau of Economic Analysis — would have challenged the
capabilities of manufacturers under the best of circumstances.
Rattner’s assessment lines up with a perfectly succinct and clarifying piece by Andy Puzder, the
former CEO of CKE Restaurants and a senior fellow at the Pepperdine University
School of Public Policy, who writes over at NR’s Capital Matters:
Our federal government spent
an enormous amount of money on Covid-19 relief, in both
absolute terms and as a share of our world-leading GDP. We’ve spent over $5.3
trillion in total, amounting to nearly 27 percent of our GDP. The European
Union, which has a combined GDP almost as large as China’s, spent only about 11
percent on Covid relief. The U.K. spent just over 18 percent. Canada clocked in
just shy of 20 percent. All are experiencing inflation. None are experiencing
it to the extent the U.S. is.
When you factor in additional
outlays — such as the recent $1.2 trillion “infrastructure” bill, plus our
pre-pandemic annual budget deficit of about $1 trillion (which is not going
away) — the federal government is spending like a drunken sailor, even compared
with our most profligate competitors.
The first $4 trillion or so in
bipartisan Covid relief was arguably justifiable. If you plot out the inflation
rate from the start of the pandemic, the relatively modest increase over the
course of 2020 merely canceled out the precipitous drop in inflation that took
place early in the pandemic, when demand was suddenly cut by lockdowns.
But inflation took off in early
2021, when the Biden administration insisted on another $1.9 trillion in Covid
relief because the new president wanted to take credit for the inevitable
post-pandemic recovery.
In other words, with an economy that shrunk a little
to about $21 trillion in 2021, the U.S. government chose to
borrow about $2 trillion to $2.5 trillion or so more than it really needed and
tossed it out from sea to shining sea as companies were already hiring after
the worst initial months of the pandemic. That’s a whole lot of boosted demand,
without a commensurate increase in supply. Sure, the supply-chain problems and
labor shortages don’t help, but it all starts with the government throwing
around gobs of money and not remembering the lesson from Duck Tales: If
you make everyone a millionaire, every producer will hike prices, because now
all their customers are millionaires.
And the fine print on Biden pledging “It ought to be able
to start to taper off as we go through this year” is not a declaration that
inflation should get better from here on out. Our Andrew Stuttaford relays
the frightening assessment of Heineken chief executive Dolf van den Brin:
“In my 24 years in the business
I’ve never seen anything like it, not even close,” van den Brink said of the
cost inflation. “Across the board we are faced with crazy increases. . . .
There’s no model that can handle this kind of inflation. It’s kind of off the
charts. So it’s anybody’s guess . . . what the impact is going to be on volumes
due to all these price increases.”
Now, the Federal Reserve is expected to hike interest
rates — and perhaps much faster than it was expected to just a month or
so ago. Last year, just
paying the interest on the national debt came to $413 billion. This year,
if interest rates get higher, we’ll be paying more.
It is ironic that the economics crowd is currently having
a loud and angry argument about “modern monetary theory” — the notion that
because the U.S. Treasury creates the money, the federal government can spend
as much as it likes year after year and everything will turn out just fine.
We’ve been inadvertently practicing “modern monetary theory” for a long while
without formally declaring it; this is what happens when no one in Washington
even pretends to care about the deficit and the debt. Spending is high and bad
when at least one of the parties pretends to care; when everybody, including
most Republicans, stop pretending to care, the borrowing and spending gets so
high that it sets off runaway inflation.
It would be a better world if lawmakers actually cared
about the deficit and debt. But pretending to care, or needing to look like
they care, forced them to mitigate their spending proposals at least a bit. The
pandemic, the rise of a more leftist Democratic Party, and Democratic control
of Congress all aligned to boost federal spending way higher than it had ever been before.
And now we’re paying for all of that “free” money.
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