Nothing paints Joe Biden and fellow Democrats so out of touch as their lame rhetoric about inflation being “Putin’s price hike.” The editorial board of the Wall Street Journal brings the receipts on the true origins of the inflationary wave, and not just the origins but the impacts felt in every American household. While the recent global effects have had an impact, rapid inflation began a year ago — and so did the erosion of American income:
White House aides were out in force on Monday warning that Tuesday’s inflation report would be ugly and blaming it on Vladimir Putin. No doubt that beats blaming your own policies. But inflation didn’t wait to appear until the Ukraine invasion, and by now it will be hard to reduce. …
The nearby chart shows that the inflation trend began in earnest a year ago at the onset of the Biden Presidency. It has accelerated for most of the last 12 months. That’s long before Mr. Putin decided to invade. The timing reflects too much money chasing too few goods, owing mainly to the combination of vast federal spending and easy monetary policy.
Here’s the first chart:
It’s worth noting that inflation remained fairly steady throughout 2020 even though the pandemic lockdowns and subsequent re-openings hammered the overall economy and supply chains. By the fall of 2020, the economy had begun a robust recovery both in terms of GDP and employment even while suffering through severe supply-chain issues. Our second chart comes from the Bureau of Economic Analysis, which shows the quarterly GDP changes over the same period:
Comparisons between quarters in a disrupted environment can be tricky, but we can use the chained-dollar (2012) measure instead. The GDP growth from 2020-Q3 to Q4 was about $207 billion. Growth throughout all of 2021 amounted to $1.04 trillion, a pace only slightly faster than the 2020-Q3/4 change, which the chart itself makes clear once we get past the huge deviations in 2020-Q1/2. And yet, look how flat inflation remained until the end of 2021Q1 — and how much it began escalating almost immediately thereafter. High inflation was clearly not a function of massive increases in GDP, and it preceded Vladimir Putin’s aggression against Ukraine by almost a full year.
Furthermore, American households have felt the impact of that inflation nearly ever since it began. The WSJ’s second chart shows the erosion of buying power in the Bidenflation wave, and it didn’t start on February 24th, either:
The March surge means that real wages fell 0.8%, or a decline of 2.7% in the last year. (See the nearby chart.) Real average weekly earnings fell a striking $4.26 in March alone, and they’ve fallen nearly $18 during the Biden Presidency. If you want to know why Americans are sour about the economy even as jobs are plentiful, this is it. Their real wages are falling while the prices of everyday goods and services are rising fast. The average worker Democrats invoke when they demand more federal spending is getting crushed by the inflationary consequences of too much federal spending.
Only in two months has Bidenomics produced results favorable to workers’ buying power, and the last such outcome was almost eight months ago. That has accelerated of late, but it was noticeable last fall — noticeable enough, in fact, for the White House to float a series of lies about inflation to try to dodge responsibility for it. Before blaming Putin, they claimed inflation didn’t exist, then that it was great news about economic growth, then flirted with corporate greed for a while, and sometimes mixed and matched those messages until Putin invaded Ukraine.
Moreover, this is accelerating a trend that had been putting workers at a disadvantage for many years already, thanks to exhaustive monetary supply expansions — such as the one Biden triggered with the American Rescue Act:
One thing I'll highlight from the new @FREOPP newsletter is how dramatically Americans' purchasing power has declined in the period of *low* inflation since 1982. Since '82, according to CPI-U, the dollar's purchasing power has declined 67%. The Fed calls that a policy success! pic.twitter.com/Ty0dXnYhq1
— Avik Roy 🇺🇦 (@Avik) April 13, 2022
That is what happens when a nation consistently spends far more than it receives and has to sell debt to expand its monetary supply to cover the difference. That clearly didn’t start with Joe Biden, but it’s accelerating under his leadership. Biden’s preferred policy for dealing with inflation amounts to a hair-of-the-dog strategy, and even his normal allies are finally bailing on the idea, John Fund notes:
How bad is the environment for Democrats this fall? So bad, that Mark Zandi, the chief economist at Moody’s Analytics and the most prominent Biden apologist on Wall Street, is throwing in the towel on the White House’s inflation problem. Today’s Washington Post quotes the “go-to” economist for Democrats as saying: “I think the economic backdrop is as dark as it has been since the start of the administration. It’s just a very, very dark and deep problem. . . . There’s nothing more pernicious on the collective psyche than having to pay more. And it’s only set to get worse.”
In February, Zandi was already worried enough about inflation that he warned against passing chunks of Biden’s $5 trillion Godzilla bill by saying: “None of these ideas so far will help to a meaningful degree, and could do some harm because they could juice up demand at a time supply is constrained by the pandemic and worsen inflation.”
In short, Joe Biden and his team are in total denial about economic reality and have no plans that will address the inflationary wave in any direction except to make it worse. That all but guarantees that the Fed will have to create a recession to counter inflation and stop a wage-price spiral that could otherwise set us up for years of stagnation. But even that will only go so far to address the corrosive impact of Biden’s spending impulses and economic incoherence.