Not just dishonest but also self-incriminating, a point which Steve Rattner doesn’t press in this otherwise brutal New York Times rebuke of Joe Biden. Barack Obama’s former auto-bailout czar ripped Biden’s blameshifting on inflation to supply chains as “dishonest,” and pointed the finger for rapid inflation directly back to Biden himself. The start of this inflationary wave, Rattner argues, came from Biden’s insistence on dumping loads of cash into consumers’ hands to boost spending — and that’s exactly what created the supply-chain crisis:
For starters, the supply chains have not been “cut off,” just stretched. And supply issues are by no means the root cause of our inflation. Blaming inflation on supply lines is like complaining about your sweater keeping you too warm after you’ve added several logs to the fireplace.
The bulk of our supply problems are the product of an overstimulated economy, not the cause of it. Sure, there have been some Covid-related challenges, such as health-related worker shortages in factories and among transportation workers. But most of our supply problems have been homegrown: Americans have resumed spending freely, and along the way, they have been creating shortages akin to those in a shopping mall on Black Friday.
All that consumption has resulted from vast amounts of government rescue aid (including three rounds of stimulus checks) and substantial underspending by consumers during the lockdown phase of the Covid crisis. There has also been an unforeseen shift in what consumers are buying: With travel still sluggish and many people still wary of returning to entertainment venues, a hunk of purchasing has moved to goods — particularly “durables” like cars, electronics and building materials for housing — for which production and distribution capacity is limited.
If this sounds familiar, it should. Former Clinton administration Treasury Secretary Larry Summers warned about this precise problem in early February when it became clear that Joe Biden wanted a massive third stimulus package immediately after Congress had passed a second stimulus. That much stimulus into an economy where supply chain issues already existed and where consumer spending had already largely rebounded would have a predictable result, Summers warned at the time:
First, while there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will 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. This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply. Stimulus measures of the magnitude contemplated are steps into the unknown. For credibility, they need to be accompanied by clear statements that the consequences will be monitored closely and, if necessary, there will be the capacity and will to adjust policy quickly.
The Biden administration scoffed at Summers’ warning, and then failed to prepare for the eventuality of events proving him correct. In fact, the Biden administration spent months denying inflation would be a problem and ignoring the supply-chain crisis it helped exacerbate. As late as October, Biden chief of staff Ron Klain approvingly echoed a claim that both were “high-class problems.”
Furthermore, as Rattner points out, rampant inflation isn’t limited to goods, which puts lie to the idea that the supply chain crisis is a cause rather than a symptom:
The Great Resignation has created shortages of a different kind — labor shortages — in the service sector, both for businesses for which demand remains mixed (like restaurants) and those for which demand has increased during the pandemic (just try to get a plumber or an electrician to show up at your house). As a result, inflation in service prices, while more moderate than those in goods, remains higher than the Federal Reserve’s target of 2 percent.
Note to Mr. Biden: You can’t blame clogged ports for that.
As for Biden’s favored policy, Rattner scoffs at his dishonest approach there as well:
For its part, the White House needs to be more honest as it rolls out initiatives. It has promised robust antitrust enforcement, but while that is long overdue, it will have no discernible impact on competition or prices for years. And the high prices of meat and hearing aids, both of which Mr. Biden has vowed to address, are not at the heart of the current problem. …
But here again, Mr. Biden has been disingenuous. His Build Back Better plan claims to be deficit neutral, but that assertion is made credible only by using the fuzziest math. Over the first five years, the plan would add about $750 billion to the deficit, according to an analysis of the Congressional Budget Office’s estimates. With this year’s fiscal gap estimated at $1.3 trillion, any new version of the plan should reduce the deficit substantially in its early years using honest math.
The attempt to shoehorn decades of progressive wish lists into reconciliation was dishonest just in terms of math. Attempts to spin it as an answer to inflation were even less tethered to reality. It has become clear that neither Biden nor Democratic leaders in Congress take inflation seriously, except as a political risk for the midterms. And their answer to that is yet another series of dishonest panders that will make inflation appreciably worse in both the short and long terms.
That leaves the Federal Reserve as the only entity that might take serious action. The New York Times reported yesterday that the Fed might act sooner than expected after this week’s reports on CPI and PPI inflation:
Officials at the Federal Reserve expressed concern about inflation at their meeting in January, in particular that it had spread beyond pandemic-affected sectors into other areas, and agreed it would be warranted to begin scaling back their support for the economy faster than they previously had anticipated, minutes of the meeting released Wednesday showed. …
Most officials still expect inflation to moderate over the year as pandemic-related supply bottlenecks ease and the Fed removes some of its support for the economy. But some participants warned that inflation could continue to accelerate, pointing to factors like rising wages and rents. If inflation does not move down as they expect, most Fed officials agreed that they might need to pare back their support for the economy even more quickly, though that could carry some risk.
The outlook for inflation could be worsened by China’s zero-tolerance policy toward Covid, which has led to expansive lockdowns that have shuttered factories; a clash in Ukraine that could push up global energy prices; or the spread of another variant, they said.
The central bank emphasized that the pace of interest rate increases would hinge on how the economy developed. But most officials agreed that the Fed should take a faster approach to cooling the economy than it did in 2015, when it began raising rates at a slow and plodding pace in the wake of the Great Recession.
That would be a blunt instrument rather than a surgical approach, no matter how well-tuned the interest rate hikes might be. The Fed would likely have to tip the US economy into a mild recession to calm inflation at this point, having also ignored it for too long as a supposedly “transitory” phenomenon. Biden’s dishonest fecklessness has steered the US into the worst inflation in generations and his incompetence leaves few other options than a recessionary monetary squeeze, an outcome for which Democrats had better expect harsh punishment in 2022 and 2024.
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