Inflation was one of the main factors that led to the failure of Jimmy Carter’s presidency, from 1977 to
. In the postwar period, it was also a thorn in the side of the Democrats in 1920 and 2010 . And, today, inflation isn’t Joe Biden’s only problem: it was the border crisis that began to crack his honeymoon with voters, it was Afghanistan’s abandonment to the Taliban that naturally sent Biden into a political downfall in August of the year. last year.
In addition, there are public mistrust of Biden’s age and incompetence, which will make the Democratic president’s recovery very difficult. However, there is no doubt that inflation is Biden’s No. 1 political problem at the moment, as his approval rating has dropped further, which will make the Democratic Party likely pay dearly at the polls next fall.
Inflation is bad news for any president, but particularly indomitable for a Democratic president. The reason is simple: any of the possible solutions offered require Democrats to do the exact opposite of what they want to do. Inflation is, like any question of monetary policy, an extremely complex problem, but in practice it is very simple: when there is a lot of money behind few goods and services, the price of goods and services goes up.
Furthermore, like most economic phenomena, inflation is driven by two main factors: supply and demand. In this context, there is a vicious circle where workers demand more wages to keep up with the cost of living, and these higher wages drive up prices even further. They also change business planning, which further restricts the supply of goods and services.
There are only two alternatives to controlling inflation: reduce the money supply or increase the supply of goods and services. How do you reduce the money supply? There are four ways to do this:
- Cut public spending, so the government injects less money into the economy.
- Increase interest rates, which puts recessive pressure on the economy.
- Raise taxes without increasing spending, so the government extracts more money from the economy.
- Encouraging a shift from spending to saving, which reduces the amount of money invested in goods and services.
Increasing the supply of goods and services is a measure that can only be done by the government, reducing the cost of supply – either by reducing the regulatory burden , eliminating environmental obstacles, cutting trade taxes, or reducing trade barriers.
There is no option on this list that Democrats would prefer to do, with the arguable exception of tax increases – and when Democrats promote tax increases taxes, almost always do so in conjunction with even larger increases in spending. They cannot make life easier for companies. They cannot cut costs. They cannot tamper with the tax burden to levy more excise taxes and less savings taxes.
In fact, everything Biden has done so far runs counter to the options we’ve listed above. The government spent $1.9 trillion on “stimulus” the American Rescue Plan, a step so disastrous that even the progressive media had to admit it was terrible for inflation. Biden also spent months trying to add another $3.5 trillion in spending to the failed Build Back Better. In addition, the Democratic president talks about offering student debt forgiveness up to US$ 82.
Most of these measures were presented as economic stimuli. This couldn’t be more controversial in terms of what it takes to fight inflation, but Democrats are incapable of thinking differently.
In addition, progressive intellectuals have spent the last decade learning the lessons of 1946 and 1981 and forgetting the lessons of 1979 The 1982. Both the Great Depression and the credit crisis of 2008 reflected and were exacerbated by sudden reductions in liquidity. In each case, there were economic arguments over whether the biggest culprit was monetary policy too loose creating a bubble, or too rapid contraction when it burst. In any case, many progressives came out with the view that the government in 2009-2010 should have spent more to encourage economy.
They developed the Modern Monetary Theory, which is more or less a formula for cutting public spending without worrying about increasing revenue and the risk of repeat inflation and debt catching up to us. Just print more money and the party will never end. We live in a world where this theory shouldn’t even become a possibility, although many of us remember the consequences of it all too well. How do you solve a problem when your doctrine says the problem doesn’t exist and the solution is unthinkable?
What are we left with? Lean on the US Federal Reserve System to raise rates and do the dirty work of squeezing the economy. But Democratic politicians and progressive commentators don’t like the idea and are scrambling to put a solution into practice. Besides, it’s too late. Ronald Reagan lived through a politically costly recession in 1981-82 that ended inflation at the cost of worsening the other side of the stagflation coin (unemployment). But if there is a recession that starts in 2022 or 2023, Biden and his party will be in even worse shape than they already are.
So the remaining options for fighting inflation, according to Democrats, are: blaming Vladimir Putin, blaming Donald Trump, blaming big companies for “extortion” and “greed” and looking for ways to enforce price controls . Inflation may improve a little on its own as global supply chains continue to recover, but as long as Democrats and Progressives are in charge, no solution is possible.
DAN MCLAUGHLIN is senior writer for National Review Online and member of the National Review Institute.
©2022 National Review. Published with permission. Original in English.