Our increasingly ugly inflation problem is a perfect illustration of the Biden administration’s uncanny ability to get everything everywhere wrong all at once.
The Biden administration’s first response to any problem is to pretend that it isn’t a problem. That’s how inflation went from a minor problem to a major one. Unwilling to take the necessary steps to rein in inflation early — pushing the Fed to raise interest rates and slowing down the torrent of money going out the Treasury’s doors — Biden and congressional Democrats at first insisted that inflation wasn’t a real problem: “Transitory,” they called it.
And then when inflation turned out not to be transitory, they thought they could just pin it on the Russians. Jen Psaki sniffed smugly at the “Putin price hike,” as though Americans were too stupid to understand that inflation at home had started long before the Russian invasion of Ukraine. That gambit fizzled, too.
When you don’t have any fresh ideas or real principles — and when your long-term goals are limited by the fact that the president, who was born during the Roosevelt administration, isn’t exactly buying any green bananas — then the easiest thing to do is to throw money at every problem.
Throwing money at things is how you make inflation worse.
Washington had already thrown a lot of money at the economy during the COVID-19 emergency, and, predictably, the emergency spending outlasted the emergency. By the time Biden was elected in 2020, Washington had thrown $2.6 trillion in budgetary resources at COVID and had authorized as much as $4 trillion in subsidized federal lending. That was new money amounting to about a third of GDP sloshing around the economy. Biden’s first priority was pushing out another $1 trillion in a phony infrastructure bill (that has little to do with actual infrastructure) and a $1.9 trillion stimulus bill, even though the Consumer Price Index was already rising steeply, according to the Federal Reserve.
Our inflation problem is only partly an issue of dovish monetary policy and reckless spending. There are problems in the real-world physical economy, too, those “supply-chain issues” we hear about. The Biden administration has done extraordinarily dumb things to make these worse, too, keeping in place the worst of the Trump administration’s anti-trade policies. That “Made in the USA” talk sounds good on the stump, but the truth is we need a lot that we don’t make at home and aren’t going to — including much of the steel and other vital inputs for the high-value manufacturing we actually do here.
The incredible fact is the Biden administration still had punitive tariffs on Ukrainian steel while it was seeking financial aid for the Ukrainians — it wasn’t until the Chamber of Commerce and conservative critics started making a stink that the administration changed its stance.
Biden has rejected obvious reforms such as waiving the Jones Act, which keeps goods — and fuel — from moving from one US port to another via ship. It has backed union efforts to prevent operators from improving the capacity and efficiency of our ports through automation, sacrificing that progress in favor of a make-work policy for the benefit of longshoremen. Nearly none of that “infrastructure” money has made its way to any project that would actually ease supply-chain issues.
Interfering with trade during a supply-chain crisis is how you make inflation worse.
The United States, Canada and Mexico together make up a formidable energy superpower. But it does not matter how much oil and gas you have if you cannot get it to refineries and then get the refined products to consumers. Biden killed the Keystone XL pipeline, and his EPA is standing on the neck of developing any new conventional energy infrastructure. As gasoline prices skyrocket, US refineries in the Gulf are sending much of their gasoline to Mexico to be sold, because there is no economic way to get it to the Northeast or the West Coast.
Biden is contemplating a trip to Saudi Arabia to beg OPEC to produce more oil —apparently, nobody has told him that Midland, Texas, is a hell of a lot closer.
Driving up energy prices for no good reason is how you make inflation worse.
Inflation is sometimes associated with a booming economy, but our economy shrank in the last quarter. Biden, who was in the Senate in the 1970s, is old enough to remember the word “stagflation,” which is what you get when you have a stagnant economy and inflation at the same time.
And it is what you get when you combine the wrong monetary policy with the wrong fiscal policy, the wrong trade policy, the wrong regulatory policy, and the wrong energy policy.
And that’s how you make inflation worse.