Biden’s Inflation Plan Filled With Inaccuracies, Warped Analysis, and Flawed Solutions

COMMENTARY Markets and Finance

Biden’s Inflation Plan Filled With Inaccuracies, Warped Analysis, and Flawed Solutions

Jun 1st, 2022 6 min read
COMMENTARY BY
Joel Griffith

Research Fellow, Thomas A. Roe Institute

Joel is a research fellow in the Thomas A. Roe Institute for economic policy studies at The Heritage Foundation.
U.S. President Joe Biden speaks during a meeting with Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen, on May 31, 2022 in Washington, D.C. Kevin Dietsch / Getty Images

Key Takeaways

Prices are rising at the fastest rate in more than 40 years, gasoline just reached an all-time high, and housing costs have hit all-time inflation-adjusted records.

Rather than put a pause on his administration’s war on affordable fossil fuels, Biden called on Congress to pass “clean energy tax credits and investments.”

This “plan” to fight inflation is actually a blueprint for more misery.

President Joe Biden’s “plan” to fight inflation inaccurately described current economic conditions, misassigned blame for the current turmoil, and misdiagnosed the solution.

Here is the first problem with his plan: The president obscured economic conditions at the start of his term—claiming that “the recovery had stalled and COVID was out of control.” In actuality, the recovery was well underway in those states shunning demands for continued societal shutdowns.

The historic economic rebound in the summer of 2020 proved that those properly informed of the actual risks of the virus and the appropriate mitigation measures are enthusiastically participating in this reopening.

The Federal Reserve State Coincident Indexes—an approximation of state gross domestic product—vividly illustrates how the economic recovery varies among states. This index suggests economic output at the end of 2020 was actually greater than pre-pandemic in Utah, Missouri, Idaho, Nebraska, Alaska, South Dakota, Mississippi, and Georgia—notably states without crushing, long-lasting shutdowns. 

The economies in Hawaii, Michigan, Rhode Island, and Massachusetts were all more than 10% smaller and states like New York, Hawaii, and Illinois remain mired in severe recessions.

By the end of 2020, El Centro, California, saw 18% unemployed, and Los Angeles suffered 10.2% unemployment. Across New York City, draconian restrictions and an army of compliance officers pushed tens of thousands of businesses out of business, resulting in 8.8% unemployment by the end of 2020.

Meanwhile, unemployment in numerous communities in Alabama, Idaho, Iowa, Nebraska, South Dakota, and Utah saw unemployment at the end of 2020 at 3% or less. The statewide unemployment rate of under 4% in Nebraska, South Dakota, Utah, and Vermont contrasted sharply with rates at least twice as high in California, Hawaii, Nevada, and New York.  

Overall, in December 2020, the 10 states with the fewest restrictions in place averaged 4.7% unemployment—while the 10 states with the most restrictions averaged 7.1% unemployment.

After obscuring the progress of the recovery underway at the start of his presidency, the president grossly mischaracterized present economic conditions—claiming a “position of strength.”

Biden boasts that “millions of Americans are getting jobs with better pay” and that “families have increased their savings and have less debt” since January 2021. But in the real world, prices are rising at the fastest rate in more than 40 years, gasoline just reached an all-time high, and housing costs have hit all-time inflation-adjusted records.

For most Americans, the cost of living is rising faster than wages—resulting in a very real decline in the standard of living for tens of millions of families. Consumers are expending their savings and increasingly relying on credit card debt in order to purchase raw essentials. Real average weekly earnings are down $47 per week or $2,444 year since Biden took office. For the average family with two working adults, that’s $4,888 per year per family in lost real income.

According to Biden, this jobs market is the “strongest since the post-World War II era.” Millions refuse to even look for a job—resulting in a labor force participation lagging substantially below the already low pre-COVID-19 levels and forcing under-staffed businesses to hobble along while facing soaring costs. The drop in participation relative to pre-pandemic represents more than 3 million people absent from the workforce.

Biden said that a shift to 150,000 new jobs per month rather than “current levels of 500,000 … will be a sign that we are successfully moving into the next phase of recovery.” With population growth often exceeding 2 million people per year, Biden’s “slower but better” theme could mean a full recovery is forever elusive.

Next, the president predicted a “transition” in which “growth will look different.” By different, he apparently means slower. Perhaps someone should remind the president that the economy actually shrank during the first three months of this year. Economic growth didn’t just slow—it disappeared—a fact he refused to even acknowledge.

Just as flawed as Biden’s assessment of his own economy is his evaluation of the economic legacy of his predecessors—claiming that for decades prior to his presidency the economy was one of “low growth, low wage gains, and an economy that worked best for the wealthiest Americans.”

In actuality, real (inflation-adjusted) income over the past 40 years has risen for those at the bottom, middle, and top of the income spectrum. Because of this overall rise in income, a middle-class income in 1980 could qualify as lower-middle today. An upper-middle-class income in 1980 might only qualify as middle-class today.

The Urban Institute crunched the income data while holding the class-defining real income and family size parameters constant since 1980. The proportion of those in the upper middle class and higher doubled from under 14% of the population in 1980 to more than 31% today.

Biden promised to “take every practical step to make things more affordable for families”—specifically tackling energy costs. He continues to blame the surge in fuel prices largely on the war in Ukraine and the sanctions on Russia. But oil prices were surging long before Russian President Vladimir Putin’s invasion.

Killing the Keystone XL oil pipeline, opposing other natural gas pipeline projects, blocking much exploration and drilling on federal lands, and targeting fossil fuel companies for extinction threatens to suppress supply and energy security for decades to come.

Unleashing our energy sector by ending the war on fossil fuels is the solution to the energy crisis. But rather than put a pause on his administration’s war on affordable fossil fuels, Biden called on Congress to pass “clean energy tax credits and investments.” This would divert limited resources to cronyist endeavors, further raise energy costs, and require yet more deficit spending.

Astonishingly, Biden boasted of the release of oil from the Strategic National Reserves—while ignoring that this release over six months represents barely eight days’ worth of domestic oil consumption.

Although Biden acknowledged the “broken supply chains,” he ignored what caused them while proposing price controls on sea freighters—a policy that could actually decrease the supply of ships and further exacerbate the problem. His Democrat allies in Congress, meanwhile, are seeking to change the definition of employee so that businesses cannot hire independent truckers to transport their goods via the PRO Act.

To be clear: The primary factor behind the supply chain issues are the ill-advised COVID-19 restrictions globally. Erratic, unpredictable, arbitrary decisions by government bureaucrats made planning even for the short term nearly impossible.

Domestic government policies are compounding global shipping problems—including California’s phase-out of older diesel trucks. Organized labor in California—with some of the least efficient ports on earth—resists modernization and for months refused to fully expand its hours to alleviate the shipping backlog.

Long-standing government policies that limit how goods can be transported have exacerbated port delays. In particular, the Jones Act mandates that any goods shipped by water between two points in the United States must be transported on a U.S.-built, U.S.-flagged vessel with a crew that is at least 75% American—potentially driving up shipping costs on average by 270%.

The president only briefly touched on the Fed—saying the “Federal Reserve has a primary responsibility to control inflation.” Yet he failed to acknowledge how the central bank stoked it. While governments hampered the supply of goods and services in 2020 and 2021, a tsunami of government spending financed by the Federal Reserve spurred future demand as households stockpiled income from both wages and government COVID-19 relief checks.

The federal government continues to use the Fed’s printing presses, “selling” trillions in debt for newly “printed” money that then floods into the economy, driving inflation while bribing resources and workers away from businesses that desperately need them. The Fed more than doubled its balance sheet from just $4.2 trillion in March 2020 to nearly $9 trillion today as M1 money supply jumped nearly fivefold from $4.3 trillion to almost $21 trillion. Politicians approved the trillions of spending and bailouts while the Fed financed it.

And Biden demands even more.

Misguided COVID-19 restrictions combined with Fed-financed government borrowing and spending set in motion the economic turmoil, skyrocketing inflation, and supply chain havoc Americans are experiencing. The same politicians who acquiesced to the misguided COVID-19 shutdowns and irresponsible spending point to the Fed as the culprit, refusing to take responsibility for their role in the economic disaster.

This “plan” to fight inflation is actually a blueprint for more misery: more government spending, more labor regulations, more attacks on energy production, and massive tax hikes on businesses. A full recovery—including functioning supply chains—requires a full reopening across the world, unleashing of our fossil fuel energy resources here at home, and a cessation of using the central bank to finance deficit spending.

This piece originally appeared in The Daily Signal