White House touts report that says Americans will see no change in inflation due to the bill until late 2023
The $433 billion Inflation Reduction Act will have no meaningful impact on consumer costs, according to the economist President Joe Biden cites most often.
By the end of 2031, the latest Democratic reconciliation bill would shave just .33 percent from the Consumer Price Index, the traditional inflation metric, according to a report from Moody’s Analytics chief economist Mark Zandi. The current CPI is 9.1 percent, the highest in over 40 years.
Zandi and his coauthors say the Inflation Reduction Act will only “nudge the economy and inflation in the right direction.” And that conclusion strains the definition of “nudge.” Americans will see no change in inflation due to the bill, the report states, until the third quarter of 2023—a .01 percent decrease.
Zandi’s analysis is often shared by the White House or the president himself. During a February 2021 speech, Biden cited Zandi’s work twice while pitching his economic agenda. In July of last year, Senate Majority Leader Chuck Schumer (D., N.Y.) called on lawmakers to read Zandi’s favorable report on the bipartisan infrastructure bill.
But Zandi’s latest findings have not deterred the White House. Both Chief of Staff Ron Klain and Deputy Press Secretary Andrew Bates retweeted a CNN reporter’s tweet that quotes the report as saying the bill will “meaningfully address climate change and [reduce] the government’s budget deficits.”
The White House’s celebration of the report signals how desperate they are to pass a budget reconciliation package before the midterm elections. Initially named “Build Back Better,” the bill has seen a number of rebranding attempts as voters increasingly sour on Biden’s presidency over the economic concerns.
Zandi and his coauthors conclude that the inflation reduction bill lowers consumer costs for some medications, something the White House highlighted, although they decline to specify the total savings. Moreover, the deflationary benefits from lower health costs, the authors write, do not kick in until “mid-decade.”
“Moreover, large corporations will attempt to pass through some of their higher tax bill to consumers in higher prices for their wares,” the authors write, although they add that this may be difficult “in competitive markets.”
The immediate impact of the bill may also slow growth as well, the authors find. Starting in late 2023 for over a year, according to data in the report, the bill will slightly shave off expected GDP growth. Despite those data, the authors say the Inflation Reduction Act will add “an estimated 0.2 percent” to GDP by the end of 2031.
The Inflation Reduction Act contains $433 billion in spending and purports to raise $750 billion in revenue from higher taxes and lower Medicare prescription drug costs. A report from the nonpartisan Congressional Joint Committee on Taxation found that, despite White House claims, Americans making below $400,000 a year would see higher taxes.
Sen. Joe Manchin (D., W.Va.), who led negotiations on the bill, grew defensive when asked by Fox News about tax provisions in the bill and whether the bill will meaningfully address inflation.
“I know people who don’t like the president and don’t like Democrats might be upset,” Manchin said. “It is not whether you like the president or you like Democrats. Do you like America? Do you want to fight inflation? This bill does it.”
It’s a remarkable feat—something not just anyone could accomplish. Yet in just a few short months, President Joe Biden managed to turn the recovery around. It’s not clear how he did it, but the boom for which he liked to take credit is officially over.
Of course, the White House doesn’t want to say that. It would be politically bad to acknowledge the situation that now exists. To avoid that, senior presidential aides and Cabinet secretaries like the Treasury Department’s Janet Yellen have been forced to turn rhetorical cartwheels while trying to explain that it isn’t really what the data tell us it is.
Team Biden has masterfully avoided the invocation of the word usually employed after two consecutive quarters of what the economists call “negative growth.” Call it what you want—some good alternative phrases like “economic Joe-down” and “Joe-cession” have already seeped into the conversation—the economic numbers don’t help Biden’s cause right now.
His unpopularity isn’t new news. A recent CNN poll found that 75% of Democrats who plan to vote in 2024 hope to have someone other than Biden for whom to cast their ballots. State by state, Biden’s favorable/unfavorable ratings are underwater in more than 45—including such liberal bastions as Massachusetts and even his home state of Delaware, where he’s down by seven.
Why is he so unpopular? Real wages are falling, income is down, and prices are up. That’s fact, not opinion or carefully structured analysis. Biden may think there’s plenty of good news out there, that it “doesn’t sound like a recession to me,” but it sure feels like a recession to the American people.
It would seem all that is good for the GOP’s prospects to pick up control of the U.S. House and Senate come election time—and by wide margins. The anti-Biden tide is going to swamp some boats that expect to ride the storm out—as happened in 1978, 1980, 1994, and 2010, when unpopular policies pushed by the occupant of the White House cost the president’s party seats it should not have lost.
How, then, with the Democrats seemingly in their worst political shape in nearly 50 years, does one explain a spate of recent polls like the one released last Tuesday in USA Today, showing them with a four-point lead—44% to 40%—over the GOP on the congressional generic ballot? Especially, that is, after the Republicans have been nearly double-digit dominant on the question of “Which party do you want to control Congress after the next election?” for many months now.
It doesn’t make sense—especially, as Rasmussen Reports said last Monday, with just 23% of likely U.S. voters thinking the country is headed in the right direction. The reason for the bump producing this apparent reversal of the Democrats’ political fortunes may have something to do with statistical manipulation. Pollster John McLaughlin told this publication that the USA Today poll had the two major parties “in equilibrium at 31%,” but because it sampled registered voters and not those considered likely to vote, “it waters down the GOP generic vote” considerably. “A lot of [the Democratic] respondents will not vote,” he added.
He may be right. A Rasmussen Reports poll of likely voters released on Friday found Republicans with a five-point lead on the generic ballot. That’s the upside. The downside is the voters may be souring on the GOP—and these new polls may be right, because the GOP is failing to offer voters an appealing alternative to the Biden agenda.
American elections are usually binary: this candidate or that one. Third-party candidates rarely win, and rarely have an impact. Most people pick either the Democrat or the Republican when they pull the lever. And right now, the GOP seems headed to a majority by default. They’ll win because they’re not “them”—Democrats. Biden and the progressives have overreached, something even the USA Today poll showed. They aren’t winning converts to their cause; they’re losing them.
If the GOP wants to lock down its hoped-for majority down, it needs to explain to its whole coalition of voters—the independents open to voting Republican, the moderates, the free marketeers, the social conservatives, and others—what the party’s plan is to get the economy moving, secure America’s borders and position in the world, and bring back the nation’s spirit. And the GOP must do so without driving its likely voter blocs into separate corners.
It’s a tall order that party leaders seem reluctant to embrace. They have about 100 days to come up with a plan to bring all these parts together and help voters make up their minds. In doing so, if that’s what they intend, they need to remember former House Majority Leader Dick Armey’s axiom: “When we act like us, we win. When we act like them, we lose.”
By The Atlantic•
As somebody who’s paid to tell stories about the economy, I always find it satisfying to assemble data points to produce a compelling pointillist picture about the state of the world. But these are rough times for economic pointillism. The data are all over the place, and the big picture is a big mess.
I look at the stock market, where valuations have collapsed. Okay, so markets are trying to tell us that future growth will be slower. Then, I see that consumers expect persistent inflation over the next five years. A growth slowdown with sticky inflation? Unusual, but not unprecedented. Consumers are glum about economic conditions but optimistic about their own finances, and they’re spending money on services and leisure and travel as if they’re eager participants in a booming economy. So everything is terrible, but I’m doing fine? Okay, that’s psychologically rich. Nominal gas prices are at record highs, but unemployment is near multi-decade lows; mortgage interest rates are rising quickly, but they’re at historically normal levels. So, things are bad, but also good, but also crummy, and maybe fine?
Regrettably, there’s another, significantly more important economic storyteller that also seems deeply confused about the economy. That would be the Federal Reserve.
Just six months ago, the Fed said it expected that prices would normalize in 2022, and it forecast that a key inflation index would average 2.6 percent growth this year. But now it projects that 2022 inflation will be twice as high, at 5.2 percent. Three months ago, the Fed signaled that it would raise a key interest rate by 0.5 percentage points in June. But this week, the Fed changed its mind after getting spooked by a few inflation reports and suddenly decided to jack up the federal-funds rate by 0.75 points, its most significant increase in 28 years.
Fed Chair Jerome Powell’s explanation for the rate change was baffling. He claimed that the number of job openings in the economy pointed to “a real imbalance in wage negotiating” but also said that the labor market had practically nothing to do with inflation. He explained that headline inflation has soared largely because of supply-side issues, such as the war in Ukraine’s impact on the gas market, that the Fed can’t really do anything about. But he also insisted that the Fed had to up the ante on interest-rate hikes to bring down inflation by reducing demand. He insisted that he didn’t want to send the economy into a recession, but the Fed’s own economic forecasts project several consecutive years of rising unemployment—something that generally happens only in a recession.
The full story only barely holds together. In the Fed’s view, inflation is partially caused by the labor market, but also not caused by the labor market; it’s largely a supply-side issue that the Fed can’t fix, but the Fed is going to try desperately to fix it anyway; and we’re hopefully not getting a recession, but we’re probably getting a recession. Like I said: baffling.
What the Fed is actually trying to do here—as opposed to the story it’s telling about what’s happening in the economy—is clear, yet extremely difficult: It is trying to destroy demand just enough to reduce excess inflation but not so much that the economy crashes. This a little bit like trying to tranquilize a raging grizzly bear with experimental drugs: Maybe you bring down its core temperature but also maybe you leave the big guy in a coma. The Fed could succeed. It could get Americans to spend a little less, borrow a little less, and loan a little less, and this synchronized decrescendo in economic activity would almost certainly reduce inflation. But here’s the problem: If global energy prices don’t come down and global supply chains remain tangled by Omicron variants and other natural disasters, we might end up with the worst of both worlds: destroyed domestic demand and constricted global supply. Slow growth and high energy prices could mean the return of the dreaded stagflation.
In the next few months, you should be prepared for the economic situation to get even stranger. Markets might be on the lookout for signs that the Fed is successfully crushing domestic demand. In other words, some investors will be hoping that the housing market stalls and retail spending slows, because these are signs that the Fed’s policy is working. We will be in an upside-down world where bad news (the economy is slowing down) is interpreted as good news (the Fed’s policy is working), and good news (consumer spending is still red hot) is interpreted as bad news (the Fed’s policy isn’t working).
For much of this century, the Fed has been an island of relative competency in a sea of institutional failure. But the Fed is neither an all-knowing artificial intelligence nor a band of wizard oracles sent from the future to stabilize price levels. The people who work there are fundamentally pundits with an interest-rate lever. They’re folks like you and me, telling stories about an economy that they’ve recently gotten wrong, wrong, wrong, and then kinda right, and then wrong again. I don’t know if this is comforting or terrifying to you, but it’s the full truth: Right now, we are truly all confused together.
We have to ignore the alarmists and get back to work
One of the ongoing controversies in recent days is the dispute over which should be the nation’s top priority: economic recovery or pandemic precautions? Both positions are framed in the same terms: no recovery will be successful if everybody is afraid of catching the virus; likewise, drastic prevention measures, if continued, will bring on the worst economic disaster since the Great Depression of the 1930’s. The answer is that both positions are essentially correct.
We cannot afford either of these alternatives. Common sense tells us that we must resume full economic recovery as soon as possible, but we ignore the frightful prospect of an unchecked pandemic at our own peril. Each consideration has its own imperative: we must resume economic activity at its fullest capacity as soon as possible and we take all reasonable precautions at the same time.
So, the key question is: what are reasonable measures for protecting ourselves as a society?
The first answer to this question is what we should not do. We should not trust the public health officials’ solution to this problem. They speak from a very limited perspective, namely, the optimal methods for avoiding the disease altogether. Obviously, the surest way to avoid the disease is to cease all human contact entirely — “shelter in place”. There are several economic activities which can be executed alone, thanks to the internet and the telephone, such as, writing, meeting, accounting, record-keeping, reporting, selling (some items), etc. The surge of some sectors of the economy, such as mail-orders and delivery services, show the enhanced value of such activities.
Starting from avoiding all human contact as the best protection for individuals — which even public health experts realize is not doable for most people — the next step is simulating “personal quarantine”. Thus “social distancing” and masks. This practice is marginally practical, meaning it can be done successfully by people engaged in some economic activities, such as counseling and lecturing.
Most economic activities, however, require closer contact. Therein lies the problem. Since most manufacturing and service industries are not compatible with “social distancing”, and since the nation cannot survive economically without these major sources of income, and, further, since the pandemic is not going away any time soon – in view of all these factors, another solution has to be forthcoming.
What is that solution? It seems clear that the solution is to carry on our economic life, using as many precautions as are feasible but not to the extent of continuing to suspend any significant activities which do not lend themselves to such precautions. For example, the practice of taking the temperature of all entrants to a building and requiring masks to be worn while inside – as being practiced in more and more venues already – can be adopted by far more businesses. Perhaps even on a mass scale such as ball games. Yes, it increases the cost of doing business, but that is better than no business at all. Imagination and creativity will be needed to cope with these issues. But those are characteristic attributes of Americans. The new question needs to be “How?” not “If”.
And how do we regain the confidence of the American public? How do we answer the inevitable charge that we are putting money ahead of saving lives?
The first thing we do is to stop measuring the success or failure of our efforts to contain the virus by the number of cases identified. This number is bound to increase as more and more people are tested every day. The proper metric is the death rate due to the virus. Even with the sloppy counting being used, the rate of COVID-19 deaths is actually going down. For example, the percent of deaths to cases reported for July 11 was 1.3%. (Source: Johns Hopkins CSSE) Longer term reports are equally encouraging.
What accounts for this statistic? In general, there are several reasons for this progress:
1) therapeutics are increasingly effective – both human competence, which has improved with experience, and new medicines which have been developed specifically to treat this COVID-19 illness. Treatment can be expected only to improve with more of both human and pharmaceutical development. Also, vaccines are due to start becoming available by the end of 2020.
2) Hospitals are getting more efficient in their protocols and procedures. The metric for the early preparatory efforts by the Administration was the fear of overcrowding the hospital capacity of the United States. While this is still a possibility on a local level, the occupancy is currently under control.
3) As younger people start to constitute a larger percentage of the total test population, mortality rates are expected to continue to decline because the virus appears to be less lethal for youths. In fact, many youngsters who have been infected never suffer any symptoms at all. In fact, their primary danger as a group seems to be their unwitting role as carriers of the disease to older contacts.
In general, America is learning to live with COVID-19 and to survive. It is now time to begin to flourish as we were before we were so rudely interrupted.
America dodged the Asian financial crisis of 1997-98, but much has changed. Today’s world economic slide is starting to hurt us.
by Ruchir Sharma • Wall Street Journal
Plunging stock prices and slowing economic growth in China have raised anew the question of how much events abroad really matter to the U.S. Many of the answers are quite placid, drawing on the precedents of the 1997-98 Asian financial crisis, when there was similar concern about impacts at home, which never came. The U.S. grew at a 4.5% annual pace during those two years. For much of 2015, when U.S. growth remained steady despite volatile and weak growth in the rest of the world, the optimists said it was like 1997-98 all over again.
That may be, but the world has changed a lot in two decades. After 1998, the U.S. share of global GDP topped out at 32% but has since fallen to 24%, based on my analysis of raw data from the International Monetary Fund, while the emerging-world share bottomed out at 20% but has since doubled to nearly 40%. In that time, China has supplanted the U.S. as the largest contributor to global growth. Continue reading
by Michael Pento • CNBC
The S&P 500 has begun 2016 with its worst performance ever. This has prompted Wall Street apologists to come out in full force and try to explain why the chaos in global currencies and equities will not be a repeat of 2008. Nor do they want investors to believe this environment is commensurate with the dot-com bubble bursting. They claim the current turmoil in China is not even comparable to the 1997 Asian debt crisis.
Indeed, the unscrupulous individuals that dominate financial institutions and governments seldom predict a down-tick on Wall Street, so don’t expect them to warn of the impending global recession and market mayhem.
But a recession has occurred in the U.S. about every five years, on average, since the end of WWII; and it has been seven years since the last one — we are overdue.
Most importantly, the average market drop during the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety. Continue reading