The Washington Post reports that “the White House was thrown on the defensive Wednesday by an inflation report that showed the largest annual increase in prices in three decades.” The inflation report, says the Post, “trigger[ed] fresh criticisms of President Biden’s legislative plans on Capitol Hill and rais[ed] questions about what the administration can do to stem the politically perilous tide of rising prices.”
Here’s one way Team Biden can try to stem the inflationary tide. Don’t pour another $2 trillion into the economy via the “build back better” boondoggle.
According to the Post’s sources, “senior White House officials were greatly disappointed by Wednesday’s report and surprised at how serious the inflationary problems are throughout the economy.” Really?
I was taught that inflation occurs due to “demand pull” and/or “wage push.” The injection of enormous amounts of federal money into the economy, coupled with labor shortages caused in part by some of these cash payments, fueled both phenomena. Biden’s economic team should not have been surprised by the resulting inflation.
Larry Summers, a leading liberal economist and Secretary of Treasury under Bill Clinton, isn’t surprised. As the Post, acknowledges, he has been warning of the coming inflation for months.
Now, another leading Dem economist has weighed in. Biden’s line is that the pandemic caused inflation. But former Obama administration economic adviser Jason Furman tells AP that policymakers poured kerosene on the fire with federal spending. They were so intent on staving off an economic collapse that they “systematically underestimated inflation,” Furman says.
Furman cites as an example Joe Biden’s $1.9 trillion coronavirus relief package, with its $1,400 checks to most households in March. This money overstimulated the economy, he states. Furman adds:.
Inflation is a lot higher in the United States than it is in Europe. Europe is going through the same supply shocks as the United States is, the same supply chain issues. But they didn’t do nearly as much stimulus.
Another Democrat has been ahead of his party when it comes to anticipating inflation and its discontents. I’m referring to Joe Manchin.
He too has been warning about inflation for months, and has cited this concern as a reason to pause before pumping “reconciliation” money into the economy. Yesterday, he complained that inflation is not “transitory” (as the White House has been insisting) but rather “real” and “getting worse.”
During the summer, Manchin said “Congress should hit a strategic pause on the budget-reconciliation legislation. . .because [a pause] will provide more clarity on the trajectory of the pandemic, and it will allow us to determine whether inflation is transitory or not.” (Emphasis added) Now, Manchin has determined that inflation is not transitory, so it’s reasonable to expect him to “pause” reconciliation spending legislation indefinitely.
Manchin has the power to do so. And with the infrastructure-plus bill done, dusted, and no longer “hostage” to reconciliation, he has no special incentive to get on board the reconciliation train.
That doesn’t mean Manchin will follow through with an indefinite pause, but it provides reason to hope that he might.