The Stagflation President

By Matthew Continetti

Saturday, October 15, 2022

 

Another month, another bad report. On October 13, the Bureau of Labor Statistics announced that consumer price inflation, at an 8.2 percent annualized rate, was higher than expected through September. Americans continue to endure the worst inflation in four decades. They continue to experience a decline in real average hourly earnings. They continue to tell pollsters that the economic recession has arrived. Blerina Uruci, an economist at T. Rowe Price, does not like what she sees. “This is very troubling,” Uruci told the New York Times. “The trend is very troubling.”

 

Not at the White House. It doesn’t see any troubles. According to President Biden, the most recent BLS data are superfluous. After all, everybody already knows that “Americans are squeezed by the cost of living: that’s been true for years, and they didn’t need today’s report to tell them that.” As a matter of fact, Biden said in a statement, rising costs are “a key reason I ran for President.” And anyway, the situation is under control. “My policies — that Democrats delivered — directly tackles [sic] price pressures we saw in today’s report.”

 

End of story, thank you all very much, nothing to see here, move along, move along.

 

Just a minute. Biden’s reading of recent economic history is filled with evasions, half-truths, and “yarns.” They deserve comment and rebuttal. I don’t remember Biden staking his 2020 candidacy on inflation. He couldn’t have. The inflation hadn’t happened. It didn’t arrive until the spring of 2021. By which time Biden was living — during weekdays, at least — at 1600 Pennsylvania Avenue.

 

Nor do I recall Biden warning the country about the coming threat of rising prices. To the contrary: Varsity Joe was captain of “Team Transitory.” The “temporary” inflation would subside, he and his teammates argued, as kinks in the supply chain got worked out and the Federal Reserve tightened the money supply.

 

They were wrong, of course. Inflation persisted. By the winter of 2022, Biden was blaming 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 isn’t into causality. “If Republicans take control of Congress,” Biden warns, “everyday costs will go up — not down.”

 

It’s unlikely that voters see things the same way. At the 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 parlous state of the economy. Indeed, one eminent Democrat, former Treasury secretary Lawrence Summers, drew such a line before Biden’s policies ever became law.

 

The American Rescue Plan Act, Summers famously observed in February 2021, was much larger than it needed to be. If combined with the trillions in pandemic-related emergency spending from 2020, Summers said, the plan would result in inflation. The White House dismissed him. The act passed Congress on a party-line vote. Biden signed it into law on March 11, 2021. Inflation spiked that April.

 

Biden was just getting started. On top of 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). Senator Joe Manchin (D., W.Va.) whittled the ambitious and partisan Build Back Better plan down to the ridiculously named — but just as partisan — Inflation Reduction Act ($740 billion). Economists at the Penn Wharton School estimated the Inflation Reduction Act’s effect. “The impact on inflation,” they concluded, “is statistically indistinguishable from zero.”

 

Not long after Biden signed the Inflation Reduction Act, he issued a constitutionally dubious executive order forgiving college debt. It will increase the government’s cost of student loans by an estimated $400 billion. Meanwhile, to lower gasoline prices ahead of the midterm election, he drained the Strategic Petroleum Reserve to its lowest level in 40 years. Now the returns on that strategy are diminishing. The cost of gasoline is rising once again. Is this a chance to deregulate domestic energy production and build more refineries? That would be a serious response. Instead, Biden threatens reprisals against OPEC+ and the Kingdom of Saudi Arabia.

 

The economy shrank during the first half of 2022. In March, the Federal Reserve began ratcheting up interest rates to squash inflation. The hikes haven’t resulted in price stability. But they have led to the highest mortgage rates in 20 years, growing volatility in debt markets, and the increasing likelihood of a prolonged recession and financial crisis. National Economic Council director Brian Deese likes to say that the U.S. economy is “in a period of transition.” The transition is from bad to worse.

 

By subsidizing demand while restricting supply, President Biden has revived the economic maladies that afflicted the American economy when he entered public life a half century ago. Biden has turned gold into dross and, amazingly, expects to be rewarded for it. “The president and I were talking at lunch today about this,” Vice President Kamala Harris said in a recent interview with the Nation magazine. “We are so proud—and I hope I don’t give off any bravado in saying this—but we are so proud that we will end up being the most pro-labor administration probably ever.”

 

Sorry, madame vice president, but your bravado is showing. The unions might be happy. The other 90 percent of the workforce is not. Expect to hear from them in November.