“Inflation is the silent killer” an investment manager told CNBC. He was referring to those who live on fixed incomes, but he might as well have been talking about presidencies.
Joe Biden’s standing with voters has taken a beating on multiple fronts. He is perceived as not focusing on issues they care about. People doubt his competence to fight COVID. They were dismayed by his handling of the withdrawal from Afghanistan. And perhaps above all, they are worried about rising prices and believe that his policies are making things worse, not better.
Biden’s response to inflation fears, so far, has been to create a bogeyman—greedy corporations raising prices to pad their profits and stick it to the working guy. In a letter to the Federal Trade Commission, he urged an investigation into “anti-consumer” behavior by oil and gas companies. But as the Washington Post’s Catherine Rampell objects, “Corporations are always greedy. It’s their job to make a buck. They didn’t suddenly remember to become greedy in the past year.”
Biden’s team would be well-advised to consider what inflation has done to other presidents. In the 1970s, the supposedly conservative Richard Nixon imposed wage and price controls in an attempt to keep prices stable, but predictably, when the controls came off, prices exploded even faster. The timing wasn’t good for Nixon because Watergate was coming to a head. Would Nixon have been removed if the economy had been better? Impossible to say, but worth speculating about.
Inflation was running at about 11 percent when Gerald Ford succeeded Nixon. Ford was equally unable to tackle rising prices. He issued red and white lapel pins proclaiming “WIN,” which stood for “Whip Inflation Now.” Inflation was unimpressed. Ford got whipped by Jimmy Carter in the 1976 election.
Inflation dogged the Carter presidency as well. Carter did eventually appoint a determined inflation hawk, Paul Volcker, to lead the Federal Reserve, who proceeded to do the only thing policy makers can do once inflationary expectations have become entrenched—he threw the nation into recession by hiking interest rates. Reagan defeated Carter in 1980. As with Nixon’s removal and Ford’s defeat, inflation wasn’t the only factor, but it played a part.
Anyone who attains the office of president of the United States should be aware that he will be credited for things he did not affect and blamed for events he could not possibly control. Does Biden deserve the blame for inflation? Not nearly to the degree some are suggesting, though his resort to “greedy corporations” talk is a pathetic response. There are things he can do, but first, a word about his critics.
Republicans are in full cry. Senate Republicans held a press conference in July blaming the “insane tax and spending spree of President Biden and the Democrats for six straight months of raging inflation.” After December’s inflation numbers were released, Mitch McConnell tweeted: “It is unthinkable that Senate Democrats would try to respond to this inflation report by ramming through another massive socialist spending package in a matter of days.”
Whoa there. Biden did pass a large COVID bill early in his term, the American Rescue Plan. But the rest of the “socialism” Republicans are fulminating about did not pass. Yes, there was a $1 trillion infrastructure package, but 1) its spending will be spread out over 10 years so no one believes it contributes to inflation now or probably ever, and 2) many Republicans voted for it, including 19 senators.
Republicans are suddenly crying “socialism!” and eagerly blaming Biden for the spike in prices, but let’s be fair. While the government has been pumping money into the economy at a record clip over the past 14 years, most of that has been the work of the Federal Reserve, and President Donald Trump was the most vociferous proponent of easy money we’ve ever seen.
Milton Friedman taught that “Inflation is always and everywhere a monetary phenomenon.” Since the financial crisis of 2008, the Federal Reserve has been shoveling money out the door with pitchforks, and in the wake of COVID, both the central bank and the federal government have been “dropping money from helicopters,” to use the image also coined by Friedman.
Many economists believe the Fed was right to do this as a response to the financial crisis of 2008. The controversy arises about when it was time to stop. Certainly, by the advent of the Trump administration, when growth was steady and unemployment low, the prudent course would have been to scale back the money geyser, and that’s what the Fed started to do. But that’s not what the Trump-led GOP favored.
Trump’s money gusher began in 2017 with the $1.9 trillion tax cut that wasn’t matched with any spending cuts. The GOP didn’t sniff out socialism then, despite estimates that the Trump tax cuts increased the deficit by $3.9 trillion.
Seeking a compliant central banker, Trump, the self-styled “king of debt,” appointed Jerome Powell but quickly soured on him when he didn’t increase the money supply quickly enough for Trump’s taste. Powell was soon on the receiving end of Trump tweets. “Where did I find this guy, Jerome?” he asked in one of the milder tweets, but soon escalated to “No guts! No sense! No vision!” He argued that the “federal reserve doesn’t know what it’s doing,” adding “we need rate cuts and easing” (exactly the opposite of what we needed). Eventually, Trump dubbed Powell an “enemy of the state.”
If Republicans were worried about inflation, they might have spoken up about Trump’s attempt to flood the economy with easy cash (to say nothing of eroding the norm about political influence on the Fed).
Then came COVID. Most people think the big federal cash infusion, the $2.2 trillion CARES Act, was a necessary response to the emergency. It saved many from destitution. But that money, combined with the trillions of dollars of quantitative easing and near-zero interest rates over the past decade and a half, certainly set the stage for inflation. Congress passed an additional $900 billion in December 2020—which Trump signed—for a grand total of over $3 trillion in COVID relief.
Again, all of this money sloshed into the economy before Joe Biden took the oath of office.
Was it wise for Biden to pass yet another COVID relief package, the $1.9 trillion American Rescue Plan, in 2021? I don’t think so. Bank deposits were at record highs. People had more money in their pockets than places to spend it since normal activities like dining out, concerts, vacations, and sports events were canceled. It makes sense that they spent on tangible items like sofas, TVs, cars (if they could find them), and gaming systems. By the time Biden came into power, there was enough relief money already in circulation.
But did the American Rescue Plan cause the inflation we’re experiencing now?
The annual inflation rate for most things Americans buy was already at the highest level in a decade before Biden entered the White House. And it isn’t as if the United States is the only country facing inflation problems in the wake of COVID-induced supply chain problems. According to the Organization for Economic Cooperation and Development, inflation among its 38 member states is running higher than at any point since 2008. A Reuters report described the situation in France, which sounds familiar: “Like many economies, France saw inflation surge over the last year as demand for goods and services snapped back after the COVID-19 crisis, snarling business supply chains and driving up energy prices.”
So even if Biden is only partially responsible for the inflation we’ve got, there are steps he can take. One would be to remove the Trump-imposed tariffs, which are taxes that raise the price of goods to Americans. Another would be to promote more legal immigration. We are suffering a severe labor shortage in all areas, including truck drivers. More labor would ease bottlenecks at ports and in transportation. Make keeping schools open a priority. We need better ventilation, better masks, more tests, and some pushback against recalcitrant unions. Remote learning has been terrible for kids, and many parents cannot work if their kids are not in school.
More important than anything is that Biden forthrightly address what’s on voters’ minds. He’s gotten tangled up in internecine fights with other Democrats over matters voters don’t know or care about and that he can’t even win. If they sense he’s not really engaged in controlling the inflation menace, it could well do to him what it has done to other presidents.