The specter of inflation haunts Joe Biden’s presidency
Treasury Secretary Janet Yellen got into trouble Tuesday for telling the truth. That morning, at a conference sponsored by the Atlantic, she raised the possibility that one day the Federal Reserve may raise interest rates “to make sure our economy doesn’t overheat.”
Anyone with a basic understanding of economics knew what she was talking about. The combination of President Joe Biden’s gargantuan spending and the accelerating economic recovery may well lead to a rise in consumer prices and hikes in interest rates. But an end to the Federal Reserve’s program of easy money would hurt asset prices and possibly employment as well.
Which is not what most investors want to hear. When Yellen’s words reached Wall Street, the market tanked. By the afternoon she was in retreat, telling the Wall Street Journal CEO summit that she had been misunderstood. “So let me be clear,” she said. “That’s not something I’m predicting or recommending.”
No, of course not. But it still might happen anyway.
A specter is haunting the Biden administration—the specter of inflation. Past inflations have not only harmed consumers, savers, and people on fixed incomes. They have also brought down politicians. Among the risks to the Democratic congressional majority is a rise in prices that lifts inflation to near the top of voters’ concerns, coupled by the type of Fed rate increase that hits stocks and housing. Inflation is one more signpost on the road to Republican revival, along with illegal immigration, crime, and semi-closed public schools embracing far-left critical race theory.
The classic definition of inflation is too much money chasing too few goods. That might also describe America sometime soon—if not already. The economy has started its post-virus comeback. Jobs and growth are on the upswing. U.S. households sit on a trillion-dollar pile of savings. Over the last year, on top of its regular spending, the federal government has appropriated a mind-boggling amount of money: a $2 trillion CARES Act, a $900 billion COVID-19 relief bill, and a $2 trillion American Rescue Plan. And President Biden wants to spend about $4 trillion more.
Surging this incredible amount of cash into an economy that is rapidly approaching capacity may have unintended and harmful consequences. But the Biden administration is either unconcerned about inflation or afraid of bringing it up in public.
Why? Well, one reason is that earlier warnings, after the global financial crisis in particular, didn’t seem to come true. (The inflation may have shown up in the dramatic ascent in prices of stocks and bonds, as well as in odd places such as the market for high-end art.) Another reason is that some economists think a little bit of inflation would be a good thing. But the main explanation may be related to status-quo bias: Inflation hasn’t been a driving force in our economic and public life for decades, and so we blithely assume it won’t be in the future.
Which is why an experienced leader worries about repeating the mistakes of the past. And yet, for a politician who came to Washington in 1973, Joe Biden has a lackadaisical attitude toward inflationary fiscal and monetary policy. Was he paying attention? It was the great inflation of the ’60s and ’70s, caused in part by high spending, the Arab oil embargo, and spiraling wages and prices in a heavily regulated and unionized economy, that helped ruin the presidencies of Gerald Ford and Jimmy Carter.
Inflation led to bracket creep, with voters propelled into higher income tax brackets by monetary forces over which they had no control. And bracket creep inspired the tax revolt, supply-side economics, and the Reaganite idea that, “In this present crisis, government is not the solution to our problem; government is the problem.” The eventual cure for inflation was the painful “shock therapy” administered by Federal Reserve chairman Paul Volcker and what at the time was the worst recession since the Great Depression.
Why anyone would want to repeat this experiment in the dismal science is a mystery. Biden, however, is fixated not on inflation but on repudiating the legacy of the man known for describing it as “always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
Milton Friedman, whose empiricism led him to embrace free market public policy, was the most influential economist of the second half of the 20th century. But Biden has a weird habit of treating Friedman as a devilish spirit who must be exorcised from the nation’s capital. For Biden, Friedman represents deregulation, low taxes, and the idea that a corporation’s primary responsibility is not to a group of politicized “stakeholders” but to its shareholders. “Milton Friedman isn’t running the show anymore,” Biden told Politico last year. “When did Milton Friedman die and become king?” Biden asked in 2019. The truth is that Friedman, who died in 2006, has held little sway over either Democrats or Republicans for almost two decades. But Biden wants to mark the definitive end of Friedman and the “neoliberal” economics he espoused by unleashing a tsunami of dollars into the global economy and inundating Americans with new entitlements.
The irony is that Biden’s rejection of Friedman’s teachings on money, taxes, and spending may bring about the same circumstances that established Friedman’s preeminence. In a year or two, the American economy and Biden’s political fortunes may look considerably different than when Janet Yellen blurted out the obvious about inflation. Voters won’t like the combination of rising prices and declining assets. Biden’s experts might rediscover that it is difficult to control or stop inflation once it begins. And Milton Friedman will have his revenge.
Today is one hell of a hump day already: New government figures show that the Biden administration is getting it wrong on the border, getting it wrong on the economy and job creation, and getting it wrong on inflation.
No, Mr. President, This Is Not the Usual Seasonal Migration
I told you, back on April 19, that this month’s immigration numbers were going to be high, and represent a blinking red light. On May 4, I reminded Jen Rubin that no, nothing “happened” to the border crisis, the media just stopped discussing it. On Monday, I pointed out that the federal government’s official statistics were undermining Biden’s argument that what Americans were seeing on the border was just a routine seasonal pattern.
“The truth of the matter is, nothing has changed,” President Biden insisted in his press conference on March 25. “It happens every single, solitary year: There is a significant increase in the number of people coming to the border in the winter months of January, February, March. That happens every year.”
I’m sorry, Mr. President, but that is a load of bull. It is not a regular seasonal pattern to break a two-decade-old record two months in a row. In the month of April, U.S. Customs and Border Protection caught 178,622 individuals attempting to cross the U.S.–Mexico border, one month after they had caught an eye-popping 173,348 individuals.
The Biden administration is going to try to take a victory lap over the fact that the number of unaccompanied minors dropped from 159 in March to 134 in April. (That’s what NBC News chose to spotlight in this headline.)
(Over at the Center for Immigration Studies, Andrew Arthur wondered why it took until May 11 to release the numbers for April. No doubt it takes time to check and collate all of the data, and as of now, there’s no indication of any deliberate delay from CBP. But any time that new information that makes the administration look bad takes a while to get released, some people will fairly wonder if someone in the chain of command was dragging his feet.)
On April 30, when asked about March’s numbers, Biden insisted in an interview with NBC News, “Look, it’s way down now. We’ve now gotten control.” But the April numbers are not way down; they’re up a bit over the previous month’s record. At the time of that interview, did Biden genuinely believe that CBP encounters at the border had dramatically declined? (The other day a commenter on our site had a good observation: Biden’s usual reflexive denial of making a mistake and his habitual fuzziness with the facts make it very tough to tell when he’s lying, when he’s misinformed, and when he’s having any memory issues.)
Biden told NBC News that he “inherited a Godawful mess” from Trump at the border, but in January, CBP had only 78,443 encounters at the southern border. The first big jump came in February when it rose to 101,120, and then it continued rising into March. Hey, what happened in late January?
These are cold, hard numbers which prove that Biden’s assessment of the situation in late March was completely wrong. Whether or not Biden wanted to tell Central America that the border is open, his first moves on immigration — halting construction of border fencing, new guidelines to ICE agents to sharply curb arrests and deportations, an attempted moratorium on deportations, proposing a path to citizenship — all sent a signal to migrants and human traffickers that the door was wide open and everyone was welcome.
Recall this anecdote at the border, reported in the New York Times in mid March:
Jenny Contreras, a 19-year-old Guatemalan mother of a 3-year-old girl, collapsed in a seat as Mr. Valenzuela handed out hand sanitizer.
“I did not make it,” she sobbed into the phone as she spoke with her husband, a butcher in Chicago.
“Biden promised us!” wailed another woman.
Many of the migrants said they had spent their life savings and gone into debt to pay coyotes — human smugglers — who had falsely promised them that the border was open after President Biden’s election. [Emphasis added]
There is only one way that people in the poorest and most isolated communities in Central America will disbelieve the false promises of human smugglers and coyotes and understand that the border is not open. It requires the U.S. president to send a clear signal, loudly, frequently, and publicly, that U.S. immigration laws are still enforced, and that those caught crossing the border illegally will be criminally charged and quickly deported. I suspect that deep down, Biden and many other Democrats think those actions are inherently mean and unjust. This is why half the Democratic presidential field supported a repeal of the criminal statute for entering the country without permission. Additionally, almost all Democrats believe illegal immigrants should be covered by a government-run health-care plan, and they’re iffy at best on the use of E-Verify.
Many Biden supporters will insist that a continuing wave of migrants wasn’t the intended consequence of his early actions on immigration, and many Biden foes will insist this was precisely the intended consequence of his early actions on immigration. But that argument is almost moot; the waves of migrants are coming — and still coming.
Usually, a Record Number of Job Openings Would Be Good News
Yesterday, the U.S. Bureau of Labor Statistics reported that the number of job openings across the country had reached 8.1 million, the highest that the agency had ever recorded.
On Monday, President Biden said, “Families — families who are just trying to put food on the table, keep a roof over their head — they aren’t the problem. We need to stay focused on the real problems in front of us: beating this pandemic and creating jobs.”
But the BLS numbers show we’re already doing pretty darn well at creating jobs, or at least creating job openings. An economy in which there are a record number of job openings is not one that is sluggish, or struggling, or that desperately needs another round of stimulus spending. What it needs are the currently nonworking job applicants to walk through the door. Right now, in Massachusetts, the maximum weekly unemployment-benefit amount is $855 per week. In a 40-hour work week, that comes out to $21.37 per hour.
Meanwhile, Prices Keep Going Up . . .
The updated unfilled-jobs numbers released Tuesday morning were bad. The updated immigration numbers released Tuesday evening were bad. Guess how the updated inflation numbers released Wednesday morning look?
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.
The index for used cars and trucks rose 10.0 percent in April. This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase. The food index increased in April, rising 0.4 percent as the indexes for food at home and food away from home both increased. The energy index decreased slightly, as a decline in the index for gasoline in April more than offset increases in the indexes for electricity and natural gas.
The index for all items less food and energy rose 0.9 percent in April, its largest monthly increase since April 1982. Nearly all major component indexes increased in April. Along with the index for used cars and trucks, the indexes for shelter, airline fares, recreation, motor vehicle insurance, and household furnishings and operations were among the indexes with a large impact on the overall increase.
The all-items index rose 4.2 percent for the 12 months ending April, a larger increase than the 2.6- percent increase for the period ending March.
In other news: Jennifer Granholm, during a press conference yesterday about the hack of the Colonial Pipeline, said, “We have doubled down on ensuring that there’s an ability to truck oil in — gas in. But it’s — the pipe is the best way to go. And so that’s why, hopefully, this company, Colonial, will, in fact, be able to restore operations by the end of the week as they have said.”
Oh, pipe is the best way to go, huh? Safer, more secure, more efficient, less risk of accidents? Then maybe this administration shouldn’t be canceling pipeline projects!
“Pretty soon if a man bought a sick horse or a leaky boat, he’d say it ‘wasn’t worth a continental.’ It was a way of describing something as worthless.”
by Thomas Fleming
“Welcome to the Continental Congress.”
“I’m not sure what you mean by that, Mr. President.”
“I mean we’re on our way to a visit to the people who almost lost the American Revolution — if we continue to try to maintain the illusion that our money has any value when the interest rate for borrowing it is zero and we try to solve our mounting debt problems by printing it by the billions.” Continue reading
“I am not frightened by what lies ahead and I don’t believe the American people are frightened by what lies ahead. Together, we’re going to do what has to be done.”
by Scott L. Vanatter
On election night November 4, 1980 Ronald Reagan revealed that he had expected “a cliffhanger.” Perhaps the fact that he had previously worked as an actor colored the language he used that night.
He said he was humbled not just because of the large margin of victory, but also the mere fact of being elected. “Even if it had been the cliffhanger that all of us, I think, were expecting, it would have been the same way.”
Reagan said he would keep “the trust you have placed in me sacred and I give you my sacred oath that I will do my utmost to justify your faith.” Continue reading