How Biden created historic inflation

 R. Jordon Prescott:

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One month after taking office, Biden outlined his foreign-policy agenda. Notably, Biden asserted that the dividing line between foreign and domestic policy had faded. Accordingly, Biden vowed to undertake a “foreign policy for the middle class” in which a domestic economic revival would provide the foundation for success abroad. In this two-part formulation were the seeds of the current crisis.

To achieve this revival, Biden embraced the 80-year-old tenets of New Deal liberal Keynesianism and proposed an economic-stimulus package for nearly $6 trillion in new government spending. The package comprised three major components: pandemic relief, infrastructure spending, and family-oriented programs.

This was ambitious but unnecessary, because the Trump administration had already passed relief legislation the year before. The 2020 CARES Act totaled $2.2 trillion, nearly 10 percent of the nation’s gross domestic product and the largest such stimulus package in American history. And it succeeded—the economy grew by an estimated 33 percent the next quarter.

Trump opposed additional spending later in the year and only yielded after faced with the prospect of his veto being overridden. In December 2020, Congress injected an additional $900 billion into the recovering economy.

By the time Biden announced his plan, several economists, including prominent ex-officials in preceding Democratic administrations, were strongly warning that implementing his program would have inflationary consequences. The administration ignored them, and, in March 2021, Biden secured passage of the package’s first component, the $1.9 trillion American Rescue Plan.

The administration characterized the plan as relief but, in the middle of back-to-back quarters marked by historic growth rates, the additional spending only triggered the inflation latent in the economy.

In April, Biden introduced the second and third components of his package for an additional total of $4.0 trillion. The very next month, the inflation rate rose above 5 percent.

Amid subsequent negotiations with Congress, the administration received widespread condemnation when it characterized the preceding six months of above 5 percent inflation as “transitory”. Biden eventually compromised on his infrastructure plan and abandoned his Families Act.

By the end of 2021, Biden’s Keynesian gambit only ignited demand and ultimately generated 7 percent inflation. The climb to 8.5 percent began in Kiev.
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With the return of Ukraine’s membership to the fore, Putin remained adamant that NATO membership for Ukraine was unacceptable. Through the winter of 2021, Russia positioned thousands of troops on its border with Ukraine and transmitted multiple proposals to settle the matter. Biden responded by rejecting Russian proposals and augmenting American forces on NATO’s eastern flank.

On February 24, Russia launched its invasion of Ukraine. Biden’s pledge to “confront Russian aggression” one year earlier had not deterred Putin. Western leaders subsequently made good on their threat to impose sanctions, but they failed to prepare for the economic consequences, even after being presented with their possibility of military action for six months.

The war between two of the world’s “breadbaskets” has decimated the global supply of food and fertilizer, and has pushed world prices 34 percent higher than the same time last year. Speaking to the Global Crisis Response Group on June 8th, UN Secretary-General António Guterres stated, “This year’s food crisis is about lack of access. Next year’s could be about lack of food.”

On the energy front, termination of Russian oil and natural gas imports has also propelled world prices substantially higher. In the United States, gas prices have soared, rising over 100 percent since Biden took office.

The United States was the world’s largest energy exporter as recently as 2021, but upon taking office, Biden cancelled the long-delayed Keystone XL pipeline and paused new oil and gas leases on public lands. Biden’s responses to war-induced shortages have been feckless, ranging from releasing minuscule amounts from the Strategic Petroleum Reserve, accusing energy producers of price gouging, calling for a gas-tax holiday, cravenly reversing American diplomacy with Saudi Arabia and Venezuela, and, predictably, blaming Russia.

In the past month, the inflation rate hit another historic high, the Federal Reserve raised interest rates by the largest increase in nearly 30 years, consumer sentiment and small-business expectations registered at their lowest level in fifty years, and stock-market declines have convinced many the economy will fall or has fallen into recession. Biden’s Department of Energy just predicted electricity prices would increase significantly this summer.
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That Biden could be so wrong about the consequences of his policies should have been expected.  He has been serially wrong about most things his entire career in Washington.  His election was also suspect because Democrats took advantage of the pandemic to change the voting rules and do away with many voter integrity measures.  One of their worse abuse was the use of drop boxes for ballots.

Biden is not an intelligent person and he has not surrounded himself with many of them either.