Deflating inflation to help the Biden administration

Inflation is a problem for Biden's social welfare spending bill - clearly, then, it can't be a big deal - and certainly not a result of anything the administration has done! What a crazy idea.

At the top of the Times’s ‘daily business briefing’ for today (Dec. 10, 2021) is an article on inflation. “Consumer prices rose at the fastest pace since 1982.” (I’d link - but the NYT has already edited the article very heavily.) The article begins with a bullet-point that conservatives immediately recognize as a splendid example of the special kind of ‘fake news’ the Times has perfected. “Rising inflation continues to complicate Biden’s agenda.” It’s comic: Biden’s agenda is adding to our inflation problem with every dollar he manages to get through Congress. Will we be told that the inflation is the inevitable result of the Biden administration pouring enormous amounts of new money into the economy as part of its Covid-management program? It has long been clear that the Fauci-Birx-Redfield inspired lockdown response that Trump made the mistake of acceding to, and which Biden had a chance to break from when the vaccines arrived, had made inflation a real risk). It was also more than clear by the time Biden took office that the lockdowns weren’t working – there is plenty of data showing that states that locked down less did not do worse than those that did – and the Great Barrington Declaration made by three epidemiologists with much more serious qualifications for managing the pandemic left no scientist with a credible case for continuing policies that were failing. Will we be told that the next two trillion Biden wants to get through the Senate will make things worse, not better? Will it be explained that when you shut down fracking wherever you can, deny permits for pipelines, and regulate more rather than less, gas and other important commodities get more expensive, contributing to the inflationary cycle? Read on!

Jeanna Smialek leads off by noting how serious the situation is:  “Inflation jumped to the highest level in nearly 40 years, fresh data released on Friday showed, as supply chain disruptions, rapid consumer demand and rising housing costs combined to fuel the strongest inflationary burst in a generation. The rising costs spell trouble for officials at the Federal Reserve and the White House, who are trying to calibrate policy at a moment when the labor market has yet to completely heal from the pandemic, but the risk that price increases could become more lasting is increasing. The Consumer Price Index climbed by 6.8 percent in the year through November, the data showed, the fastest pace since 1982. After stripping out food and fuel, which can move around a lot from month to month, inflation climbed by 4.9 percent.”

Note that nothing is said about the fact that every single problem listed here could have been mitigated by better economic choices by the administration. Demand is up because people have more money to spend, much of it the result of debt-spending by the federal government. Supply-chain disruptions are a direct function of rebounding demand at a time when manufacturers had scaled back to match lower levels of demand earlier, which were due to lockdowns that did not do any observable good (I exclude brief lockdowns to manage hospital capacity, which are the only lockdowns that are justified). Rising housing costs are simply a knock-on effect of rising prices for the commodities used to make them, and the labor that remains hard to find as people stay out of the job market – again, the result, direct and indirect, of government choices.

Smialek goes on to note that inflation has the Fed alarmed both because of its duration and because price increases are spreading more broadly across the economic. Inflation is, if you will, becoming endemic, if not yet pandemic. I note that Smialek slips in this odd sentence: “Shipping routes and ports also became clogged as demand followed an atypical pattern, with too many U.S.-bound goods trying to leave Asia in particular.”  When was the last time most U.S.-bound goods were not coming from China? The New York Times specializes in misleading without actually lying, so I’m guessing that the demand was very modestly atypical (perhaps fewer goods were being manufactured in locked-down Europe, for instance). But the implication here, that if only demand had followed a typical pattern those ports might not have become clogged, is laughable.

Similarly, when Smialek writes, “Those disruptions were expected to be temporary,” the reality is that there was no shortage of economists and other observers saying that the “it’s temporary” line was either White House spin (or media spin on its behalf), or, as a Wilde character says of second marriages, the triumph of hope over experience. If you throttle demand with lockdowns, manufacturers stop making things. If you print money and hand it out and then begin to unlock, demand will jump faster than manufacturers and the supply chain will respond, a larger amount of money will be chasing fewer goods – and inflation is the obvious result. Why should it be temporary? Once you have pumped new money into an economy, the system has to produce more goods. If it can’t even move the goods it is producing, that’s going to take a long time. In the meantime, prices will continue to rise. Smialek blames COVID: “the virus continues to upend production.”  But if this were true in a substantial way, there wouldn’t be about 100 ships either waiting to unload at Long Beach and Los Angeles, or waiting further out to avoid creating dangerous situations, or “slow steaming” in order to delay their arrival. Once more, anything that minimizes the supply chain crisis is grist for The New York Times’s mill.

Smialek notes that the Fed is at last thinking about raising rates. As she notes, “Raising that rate would make debt of all kinds, from mortgages to car and business loans, more expensive. That would likely slow spending and hiring, cooling off demand and weighing down buoyant housing costs. The combination could help to put a lid on price gains.”

But she then closes with the warning that this “could also leave the country with a less competitive labor market. That could be bad if the millions of people who remain out of the labor market compared to before the pandemic — many of them because of child-care issues and other virus-tied concerns — decide to embark on a job hunt.” Earth to New York Times – this is not why the Fed doesn’t want to raise rates. Companies are desperate for workers: the labor market needs to become less competitive! Here’s the real problem:  The national debt is approaching $27 trillion dollars. Right now, the interest on that debt is about $300 billion. That’s approaching 9% of all federal revenue collection. But it’s still only a 1% interest rate. If the fed raises rates by 3% - which is quite likely over the next two years – the knock-on effect would be to increase its interest payments by over $100 billion each year. This would make it almost impossible for Biden’s $2.2 trillion social welfare bill to make it through the Senate, because that would only make the interest payments higher (spoiler alert: the spending increases will not nearly be matched by increased tax revenue – they never are – and the $2.2 trillion is already a gimmicky number that greatly understates the real cost of the bill).

This is why inflation is a disaster for the Biden administration – as well, of course, as for the American people. Reading Smialek, you will learn nothing of this.

The second article in the brief, “Rising inflation continues to complicate Biden’s agenda,” (remember that bullet point) takes the question on head on. One Jim Tankersley notes frankly that voters and Joe Manchin, the Democratic senator whose vote Biden desperately needs for his social welfare bill, are worried about inflation, now running faster than it has in four decades – now the “top economic concern nationwide”.

Tankersley notes that Biden needs Manchin for his “$2.2 trillion legislation, which the president is trying to pass along party lines, given Republicans have no intention of voting for the bill.” The implication, of course, is that Republicans are being obstructionist. Again, because the Times doesn’t say it aloud, one cannot accuse them of lying – but they are certainly misleading their readers by failing to point out that we cannot afford this legislation, and it isn’t even as if a majority of the country wants to see it passed. Big ticket items in social spending are usually passed on a bipartisan basis, or when one party has an overwhelming majority – both perfectly good bases for passing big legislation. But passing a bill like this when the Senate is split 50-50 is pushing through something for which there is simply not enough support. One often reads that the legislation is popular, but what this usually means is that you can find a majority in favor of any individual item in it – but it isn’t the same majority. So the overall bill is not favored by the country. An NPR piece today – from an outlet very friendly to the Democrats’ aspirations – notes that it is supported by 69% of Democrats, but less than 20% of Republicans and, most importantly, 36% of independents.  If you can’t get much more than a third of independents on board, you are pushing something down the country’s throat. It’s as simple as that. After all, even ignoring the Republicans, you have almost a third of Democrats who don’t want it, and almost two-thirds of independents.

Manchin, Tankersley notes, fears that the bill “could exacerbate price increases further” but this is “a claim that administration officials and Mr. Biden say is unfounded.” It’s absurd that Tankersley should leave this claim without comment. On what basis can you pump over $2 trillion into the economy and not exacerbate price increases further? Certainly, the default presumption is that printing money drives up prices, so any self-respecting journalist would explain – or admit that Manchin is right to be concerned.

Instead, Tankersley allows Biden space in the article to suggest that what’s happening in America is no different than what’s happening elsewhere: “we have struggled — like virtually every other developed economy dealing with the pandemic — with rising prices and supply chain woes.”  But of course, even if Biden is doing just as well as they (and he’s not), they aren’t trying to push through a massive social-welfare spending bill as inflation reaches levels not seen in the lifetimes of most of the people who live in the country.

Mr. Biden’s aides have said throughout the year that the expect the current bout of inflation to fade quickly, as supply chain issues work themselves out and the world continues to emerge from the pandemic. Those predictions have frequently proven overly optimistic. But administration officials made another round of them this week ahead of the Labor Department release, saying they expected the drivers of inflation, like rising prices for used cars, to prove temporary and the rate of inflation to fall sharply in the first half of 2022.

Administration officials also say they already see signs that other main drivers of price increases, like gasoline, are cooling off. Energy prices were up 33 percent from a year ago in the November report, and gasoline prices were up 58 percent. But the cost of a gallon at the pump began to fall in recent weeks, and so has the cost of natural gas. Not only does Tankersley not challenge this claim – he doesn’t even mention the artificial lowering effect on energy costs of Biden’s irresponsible release of 50 million barrels of oil from the strategic oil reserve. And nowhere is it mentioned that Biden’s clampdown on U.S. energy production has led to his begging OPEC to open the spigots. One of the most dishonest things about the Democratic Party these days is its pretense of acting against climate change by shutting down American oil production – and then proceeding to buy it from our geopolitical enemies the moment it looks like the totally predictable increased in the cost at the pump will cost it votes.

Mr. Biden said on Thursday that the expected report on energy price inflation “does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead, such as in the auto market.” Really: what exactly does the report reflect, if not reality? Fantasy?

But administration officials made another round of them this week ahead of the Labor Department release, saying they expected the drivers of inflation, like rising prices for used cars, to prove temporary and the rate of inflation to fall sharply in the first half of 2022. I don’t believe they believe this. If they had a reason to believe it, it would be in the article.