An impressive list of problems has descended on the Biden presidency. Almost all of them have been brought about or exacerbated by—Joe Biden. Not only that, the Biden method for dealing with them is to (1) insist that the problem doesn’t exist, and then insist that (2) enacting his agenda is just what is needed to remedy the non-existent problem.
Take inflation. This morning the Bureau of Labor Statistics (BLS) reported that year-over-year inflation surged to 6.2%, the highest it has been in 30 years. The surge in inflation is no statistical fluke. It simply continues the trend that has been in train since January of this year. Moreover the rise in inflation is accelerating and becoming more broad based.
According to the BLS report:
“The monthly all items seasonally adjusted increase was broad-based, with increases in the indexes for energy, shelter, food, used cars and trucks, and new vehicles among the larger contributors. The energy index rose 4.8 percent over the month, as the gasoline index increased 6.1 percent and the other major energy component indexes also rose. The food index increased 0.9 percent as the index for food at home rose 1.0 percent.”
Back in July, Biden was dismissive of the inflation threat (See #1 above in paragraph 1). Bloomberg reports “President Joe Biden dismissed concerns that the U.S. would experience persistent inflation as the economy emerges from the pandemic…” He went on to say “There will be near-term inflation” because the economy is picking back up, [He] said Wednesday night at a CNN town hall in Cincinnati. But most economists believe that “it’s highly unlikely that it’s going to be long-term inflation that’s going to get out of hand,”.
Well, here we are 4 months later and inflation is becoming both pervasive and persistent. But not to worry says President Biden. Enacting his agenda is all we have to do. (See point #2 in the first paragraph).
Consider for example the musings of Transportation Secretary Pete Buttigieg, only one of the many incompetents who serve in the Administration. In a breathtaking display of economic illiteracy, Buttigieg actually said that, among other things, paid family leave is part of the Biden Administration’s tool kit to fight inflation. He went on to say that passing the Biden agenda would bring inflation down.
“Because if we can act to reduce the costs that Americans face: The cost of childcare, the cost of schooling, cost of access to pre-K, just literally putting more money in people’s pocket with the child tax credit that represents thousands of more dollars a year for most families with kids. That’s something that can help at a time when we see other issues like what’s going on in global oil markets increasing the prices people face,”.
Nothing like stoking up demand to reduce price pressures.
Never one to miss an opportunity to mutter a non sequitur, President Biden headed off to Baltimore to argue that the spending (in the $1 trillion infrastructure bill) “…can strengthen global supply chains to help lower prices, reduce shortages and add union jobs…”. How exactly this miracle is supposed to happen was left unstated.
In any event, Mr. Biden suddenly decided that addressing rising inflation (that didn’t exist until this morning) is a “priority” for his administration.
We are now about at the stage where the kid in the crowd points out the obvious, namely that the emperor has no clothes. The fact is Mr. Biden and his advisors, with the exception of Treasury Secretary Janet Yellin, are clueless as to why the inflation rate has taken off, and why it is liable to be persistent.
Secretary Yellin has already signaled that she is a team player, so it is unlikely that she will spoil the party by telling Mr. Biden that the problem is largely his fault along with the progressives that have been leading him around by the nose.
Quite simply, rising prices—inflation—is the result of too much money chasing too few goods. There is too much money floating around for 2 reasons. The first is that the Fed has been recklessly printing money for going on 2 years.The second is that the Fed has kept short term rates near zero while buying an astonishing amount of Treasury debt. As of July 2021, the Fed held $8.3 trillion in Treasury securities, an increase of $3.6 trillion from March of 2020.
The result has been to blur the line between fiscal and monetary policy thus drastically reducing incentives for fiscal sobriety. Mr. Biden and Congressional progressives have, not surprisingly, taken this as a green light and have ramped up spending on Bernie Sanders wish list of progressive causes.
Printing all that money stokes demand. At the same time, the supply side is constrained. To be sure, some of the supply side is hindered by COVID effects. But plenty of the constraints are the result of policy choices. For example, President Biden shut down the Keystone Pipeline in one of his first official acts as president. He is considering doing the same to the Michigan pipeline.
World oil and gas prices have exploded and now the President of the United States is reduced to begging OPEC to ramp up production. All this while he is deliberately reducing domestic production of U.S. energy.
Similarly, the ports on the coast have been backed up for months. One of the reasons is union rules that restrict the time they can be open. Another is that they are not nearly as automated as they should be because that would threaten union jobs. And we can’t have that. In fact the infrastructure bill—really an exercise in corporate welfare—spends money not to automate, but to subsidize the use of more manpower.
The list of policy errors is almost endless. But the point is that the inflation problem we most assuredly have didn’t just fall out of the sky. It is the result of policy error. And those policy errors are likely to continue because the progressive wish list has a price tag that extends to infinity.
The progressives are quite clear that they mean to transform the structure of the U.S. economy. Which means command and control from Washington, D.C.
Strap in because it is going to get worse before it gets better.
JFB
