President Biden was warned. Back in February 2021, as Congress debated the $2 trillion American Rescue Plan, former Treasury secretary Lawrence Summers made the case in a Washington Post op-ed that the bill might “set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”
His argument was textbook economics: The proposed legislation simply spent too much relative to the size of the economy. It would come on top of an unprecedented $4 trillion in deficit spending Congress had appropriated the year before. The Federal Reserve, meanwhile, was doubling its balance sheet. And the economy in 2021 was growing. “There is the risk of inflation expectations rising sharply,” Summers concluded.
It was a risk Biden was willing to take. Neither the president nor his administration paid attention to their fellow Democrat. Biden kept saying that a smaller coronavirus-relief package wouldn’t be enough to help the economy recover from the pandemic. Longtime Biden adviser Jared Bernstein, who sits on the Council of Economic Advisers, called out Summers by name. “I think he’s wrong,” Bernstein told CNN. “I think he is wrong in a pretty profound way.” Biden signed the rescue plan into law on March 12.
By July, it was becoming clear that Bernstein, not Summers, was wrong “in a pretty profound way.” The Labor Department reported that prices rose 5.4 percent in June 2021, the largest increase since 2008. The inflation ate into wage gains and left Americans with a declining standard of living. Rather than admit error, the Biden administration and its supporters launched into a series of rhetorical dodges, pirouettes, non sequiturs, and dangerous cartwheels in order to duck responsibility for the consequences of their own policies. The performance was spirited and creative. But it was also more than a little batty and pathetic—a routine of stupid inflation tricks.
The first stunt was to assert that the inflation was transitory. On July 19, 2021, Biden said, “Our experts believe and the data shows that most of the price increases we’ve seen are—were expected and expected to be temporary.” Treasury Secretary Janet Yellen and White House press secretary Jen Psaki echoed his comments. In August, Federal Reserve chair Jerome Powell told a group of central bankers, “Current high inflation readings are likely to prove transitory.”
True, there was reason to suspect—or to hope—that inflation wouldn’t last. The pandemic warped the global economy. Disrupted supply chains cause shortages. Fewer workers made labor more expensive. Companies passed these costs on to consumers, who were eager to spend the savings and stimulus checks they had accumulated during the lockdowns. When too much demand chases too little supply, prices rise. It was understandable to assume that once the Biden administration got the pandemic under control, inflation would come under control, too.
Except the Biden administration didn’t get the pandemic under control. The pandemic endured. But Biden’s people insisted that inflation was transitory. And they didn’t really understand what all the fuss was about. They treated inflation as a first-world problem. Asked about supply-chain troubles on October 19, a condescending Psaki replied sarcastically, “The tragedy of the treadmill delayed.” On November 14, NBC’s Stephanie Ruhle downplayed the continued increase in prices, saying, “We need to put all of this in perspective.” She wasn’t talking about the perspective of the consumer whose grocery bill had jumped up. On November 17, MSNBC’s Joy Reid suggested that the inflation debate was nothing more than partisan politics: “Republicans,” she said, “jump on the inflation buzzword bandwagon.” On Reid’s bandwagon that day was Sarah “#CancelWhitePeople” Jeong of the New York Times, who tweeted, “All the stuff you see about inflation in the news is driven by rich people flipping their s—t.”
The data that came out in December, however, was enough to make the administration flip its script. On December 10, the Labor Department reported that prices had risen at a faster rate in November 2021 than they had in the previous 39 years. Suddenly, inflation wasn’t transitory anymore. “I am ready to retire the word ‘transitory,’” said Yellen. Powell changed his mind, too, announcing that the Fed would end its pandemic-era bond-buying program and increase interest rates three times in 2022. Psaki threw up her hands, telling a reporter who asked whether she still believed inflation was temporary, “It doesn’t really matter what you call it.”
The administration and its allies in Congress needed scapegoats. Their next trick was to blame price increases not on the $6 trillion in deficit spending that they (and the Trump administration) had appropriated over the past two years, or on the Fed’s ultra-loose monetary policy, but on greedy businessmen and corporate monopolies. On November 17, Biden told Federal Trade Commission chairwoman Lina Khan to investigate corporate price-fixing. “I do not accept hardworking Americans paying more for gas because of anticompetitive or otherwise potentially illegal conduct,” Biden wrote. Would he accept hardworking Americans paying more for gas because of competitive conduct?
On Thanksgiving Eve, Elizabeth Warren went after—this is not a joke—“big poultry” for “paying billions in dividends, giving CEOs raises & earning huge profits,” while “Americans are paying record high prices for their Thanksgiving turkey.” Then, on November 30, House Speaker Nancy Pelosi’s office issued a press release that read: “The jig is up—corporate earnings calls are revealing the hidden culprit behind the rising prices facing Americans: big corporations are raking in more cash than ever—squeezing working families and jacking up inflation with their price gouging and profiteering.”
Emphasis on the word “hidden.” Pelosi’s office never established that price-gouging was behind corporate profits. Instead, the speaker’s press flacks made the classic error of mistaking correlation for causation. Not that you can blame them. Economics has never been Pelosi’s subject.
But it is the specialty of White House National Economic Council director Brian Deese. Which made it rather baffling when Deese told the New York Times in late December that antitrust enforcement “will deliver lower prices for Americans right away.” Well, it hasn’t. And it can’t. As Larry Summers observed, if monopolies were behind the inflation, one would expect corporate consolidation to accompany the rise in prices. Problem: “There is no basis whatsoever,” Summers wrote, “in thinking that monopoly power has increased during the past year in which inflation has greatly accelerated.”
There is a basis, however, to worry about the direction the administration might take if inflation persists into the 2024 campaign cycle. Biden has neither the desire nor the will to cut spending. The window for tax increases is closing fast. Powell might not be able to tighten the money supply without causing a recession. And the Democrats might plunge deeper into economic irrationality.
On December 29, for example, the Guardian published an op-ed by Isabella Weber, an assistant professor of economics at UMass-Amherst and the author of How China Escaped Shock Therapy. The headline: “We have a powerful weapon to fight inflation: price controls. It’s time we consider it.” None other than New York Times columnist Paul Krugman, not exactly known for his libertarianism, called Weber’s advice “truly stupid.” Which it is. Not to mention ineffective (price controls don’t work) and perverse (price controls cause shortages).
Was Krugman’s diss a sign that Democrats have learned something from the stagflation of the 1970s? Afraid not. After economists to Krugman’s left attacked him on Twitter for being mean—this is like attacking the sky for being blue—the Nobel Prize–winning economist deleted the Tweet, “with extreme apologies,” where he had criticized Weber. The progressive rehabilitation of price controls gained momentum. And the stupid inflation tricks went on.
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