Americans are feeling the pain at the pump and at the grocery store. Inflation is at a 40-year record high. Yet, President Joe Biden and his administration say that the economy is better than ever. This week, Distinguished Visiting Fellow Stephen Moore explains the truth about Joe Biden’s economy.
Michelle Cordero: From The Heritage Foundation, I'm Michelle Cordero and this is Heritage Explains.
Cordero: Inflation rates hit a 40 year high last week, coming in at 9.1%. The cost of everyday staples also increased. The price of eggs went up 33.1%, meat 8.2%, gasoline 59.9%, used cars 7.1% and air travel 34.1%. This is all in addition to supply shortages. Yet as the economy is flashing huge red warning signs, President Joe Biden and his administration are telling us something different.
Joe Biden: Look, here's where we are. We have the fastest growing economy in the world, the world, the world. We have 8.6 million new jobs just since I got in an office. Unemployment rates down to 3.6%. We've reduced the deficit last year by $320 billion, this year going to reduce it by $1.7 trillion dollars, trillion dollars.
Clip: When you look at inflation, when we look at where we are economically, and we are in a strong, we are stronger economically than we have been in history. When you look at the unemployment numbers at 3.6%, when you look at the jobs numbers, more than 8.7 million of new jobs created, that is important. But we understand that gas prices are high and we understand that food costs are high. And that is because of a once in a generation pandemic and also Putin's war. And that's just the facts.
Cordero: So what's the truth? Are we growing faster and stronger than ever, or is our economy in a downward spiral? Today Stephen Moore, a distinguished fellow in economics at Heritage, will explain. Our conversation after this short break.
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Cordero: Steve Moore, thank you so much for joining us.
Stephen Moore: Hi, Michelle. Great to be with you.
Cordero: Okay. So we know what we're seeing at the pump and at the grocery store, we're feeling the pain. So why is the Biden administration saying the economy has never been better? What are they looking at?
Moore: Well, I think first of all, this really suggests that the people in the White House are just out of touch with what's going on in real America. We've always talked about Washington being a bubble, where politicians of both side of the aisle are just not in touch with what's happening in main street America. And this is a really a picture perfect example of that, where it's laughable and it's actually insulting for the Biden administration to tell people who are seeing their incomes being ravaged by the highest inflation rate in 40 years.
Moore: You see there was a study that came out recently that a lot of families are really having to cut back and even the essentials that they buy because their incomes are falling relative to the price of everything from gasoline to buying milk and all the other things that people have to buy, rent.
Moore: And so it's not a good economy. 82% of Americans, according to New York Times poll, and they're hardly on the right, Americans say the country's headed in the wrong direction. And it is. It is headed in the wrong direction. We've got the high gas prices. We have a situation now where I believe we're in a, what I call a soft recession, where the last two quarters have been negative, now only a little bit negative, but still that's officially in a recession.
Moore: And the real question now, I think going forward, Michelle, is whether we're going to have a crash landing here. Whether we're going to be able to glide out of this and we can talk about that, but I'm worried.
Cordero: So another thing we've heard from Joe Biden is that Americans have record savings. Where's he getting that? Is that true?
Moore: Yeah. I'm working on a paper right now, that's why I was laughing. About the things, the multiple things that Biden has said about the economy that are not true. And that's one of the ones I don't even understand.
Moore: Sometimes you can cherry pick data and say, oh, look, this shows, but we've just lived through a stock market crash where the economy's lost $8 trillion in savings. So it's really delusional to say Americans have record high savings when every day that goes by, people are losing their lifetime savings. I mean, my God, my wife and I just looked at our 401k plan and I'm not rich, we lost a couple hundred thousand dollars just in the last six months of our lifetime savings because of the crash in the market.
Moore: And then the fact is that I was looking at credit card data, Americans aren't saving, they're dis-saving, they're running up their credit card so they can pay their bills. So that is another one that it just doesn't comport with reality.
Cordero: So let's talk about the job market. I'm just going to kind of run through some of these indicators. The left claims that the job market is growing. Is that true?
Moore: Look, the job market is good right now. It is good. And there are jobs out there. So my advice to people, if you're been sitting on the sideline for two years, like a lot of people have throughout COVID, now would be a good time to get a job while they're still available. Job growth is definitely slowing. And so over the last three months, we've seen there's fewer Americans working today than there were three months ago.
Moore: And I think we're all a little puzzled. Even the economics team here at Heritage, we have a lot of discussions about why is this happening? Why aren't Americans filling the jobs that are out there? And I do think the government benefits is a big part of this, that we're paying people not to work.
Moore: And one of the things, I mean, the people regulars here at Heritage know that Heritage played such a big role in the 1990s on the historic welfare reforms, where we required people to work to get benefits. We all believe in a safety net, but you have to either be working or looking for a job or getting training.
Moore: And people should realize that under Obama, then especially so under Biden, we've eviscerated all of those. Almost all of the work requirements are gone. And so you've got people who can get rental assistance, food stamps, free healthcare, $300 a week per child benefits, unemployment benefits, all of these things. And they add up to, and by the way, this is all tax free, without working an hour, you can make 70, $75,000 a year. So we have to get back to the idea of work fair.
Cordero: So you're saying, going back to the question that the job market is growing, but that's due to the circumstances left over from the pandemic.
Moore: Yeah, exactly. We're still a little bit below where we were in 2019. We haven't still fully recovered.
Moore: And the other part of this, Michelle, that's really interesting that we've been doing a lot of work on here at Heritage, is looking at the difference between what's happening in the red states and the blue states. So Republican governors handled COVID much, much better than the blue states did. They kept their schools open. They allowed their businesses where possible to stay open, whereas the blue states just shut down.
Moore: And so even to this day, the red states have lower unemployment rates. They have healthier businesses. And so it is also a kind of a tale of two countries. The job market is pretty good in the red states and in the blue states, you still have a lot higher unemployment.
Cordero: Okay. Another indicator is the housing market. Fox Business recently reported that home sale cancellations hit its highest rate since the start of the pandemic. What does that tell us?
Moore: I'm worried about housing because I think we all remember what happened in 2007 and 2008 when we had the financial collapse that was led by the bursting of the housing bubble. And Lord, I don't want to see that again. I mean, that was just a total collapse of the US economy.
Moore: I am worried about a bubble in the housing market. You've got record low affordability, so people can't afford the prices of the houses, and then you have rising mortgage rates. So just to give you an example, now, mortgage rates actually have come down a little bit in the last few weeks, thank goodness. They hit 6%. Now they're at about 5.7, but they were at 3%. So let's just use the single example from three to 6% on a mortgage rate, you have a 30 year mortgage and a $500,000 home, which is about the median house value today. You're going to pay an extra 150 to $200,000 in interest payments over the life of that mortgage. So it's making housing even more expensive and I do think you're going to see a slow down.
Moore: Now, look, we've had a, the housing market's been through the roof over the last five years, so it's got to come down. I just hope it doesn't crash.
Cordero: All right. And then one more thing that I'm seeing the left is actually admitting that inflation is going up, but I see them following it up with, but so are wages. Does that matter?
Moore: Sure. I mean, what's killing the economy and killing families right now is that for roughly the last year or 14 months or so, inflation is up about 8% and wages are up about 5%. So that means families in real terms are 3% poor than they were when Biden came into office. And I lived through this in 1970s. So, people would get eight or 9% pay raises and yet inflation was running at 12%, so they were actually losing money. And that's the phenomenon you're seeing right now.
Cordero: So the left is spinning that then by acting like wages are up is a good thing. Forget about the fact that inflation is up.
Moore: Yeah. Because we want to look at the purchasing power of your wages. And so that's way down. And so we've got to get the inflation rate down. I mean, I want to make this point crystal clear, until we get this inflation rate down, inflation like a cancer, it just kills an economy. You see that throughout American history, you see it in other countries. So we got to, job number one is get that inflation rate down to at least, right now we're at eight and a half percent, we got to get down to no more than four and then get it back down to about the 2% range you want it at.
Moore: And so the Fed has been way behind the curve on this. But another point we've been making at Heritage to all the members of Congress and the people in the policy making positions is the match that lit the forest fire of this high inflation was the runaway spending that happened. And it was the last year of Trump and the first year and a half of Biden where we spent three and a half trillion dollars we didn't have.
Moore: And my only surprise that any economists are even surprised that, of course that's going to lead to inflation when you just flood the zone with all of this cheap money, then all of a sudden it's, as Milton Friedman taught us, it's too many dollars in the economy chasing too few goods. So you've got to, Fed has to start pulling back that money.
Moore: And then the other thing we're talking a lot at Heritage about to, especially the Republicans because they will take Congress, is now you need also a pro growth agenda of how do we get an increase in the supply of goods and services? Well, you're not going to give that by raising taxes and raising regulations. And so we need a pro America energy policy to, as Trump had, we need to be cutting taxes and we need to get government spending under control.
Cordero: All right, Steve, this is your wheelhouse. You're a rockstar when it comes to these issues.
Cordero: In conclusion, we're feeling pain at the pump, feeling pain at the grocery store. The left is telling us that's not true, the economy's great. In a nutshell, what is the state of the economy right now? And are we heading into a recession or not?
Moore: I would use the word precarious. We're in a really dangerous spot right now. We have to turn things around. And Michelle, something that really worries me, that's keeping me up at night now, is as you and I speak, unfortunately, you've got Chuck Schumer now negotiating with Joe Manchin, who was my man of the year. But if he makes a deal with Manchin, I mean with Schumer, for another version of this Build Back Better, you're talking about potentially another trillion dollars of spending and taxes, that would be catastrophic. I mean, I can't imagine they would do something that damaging the economy. We need to be cutting spending and taxes and the Democrats want to do the exact opposite. So that will be our big focus as we've got to stop this bill from happening.
Moore: The Democrats have 50 votes in the Senate, so we have to, hopefully Kristin Sinema or maybe Joe Manchin will come to their senses because if they pass that bill, we'll have a severe recession. That's how dangerous that bill is.
Cordero: Steve, thank you so much for your time and your clarification on these issues.
Moore: Okay. Thank you, Michelle. Have a great week.
Cordero: And that's it for this week's episode. If you liked it, we would be so happy if you left us a five star rating and comment, wherever you get your podcasts. And please share it with a friend or on social media. That's the best way to help Heritage Explains grow. Thank you for listening and we'll see you next week.