Perhaps the most remarkable aspect of the surging inflation tearing through the economy is how little the White House and Congressional leaders seem to care. The latest inflation report is brutal. Prices are up 9.1% over the past year — the highest rate since 1981.
While many experts keep predicting inflation to slow down, the June rate soared at an annualized rate of nearly 17%. Nearly all parts of the economy are buckling under rising prices. Price increases in the past year have leaped for groceries (12%), gas (60%), electricity (14%), new cars (11%), and flights (34%).
Over the past 18 months, the combination of growing home prices and mortgage rates has pushed up the monthly mortgage on a new median-priced home from $1,195 to $1,904.
Inflation is slowing down in one key area: wage growth. Which means that real wages have collapsed by 3.6% in the past year, as workers fall further behind.
And what are President Biden and Congressional leaders doing to combat this deepening crisis? Pointing fingers, deflecting blame, and little else. President Biden spent 2021 dismissing inflation as transitory — even as he pushed through a $1.9 trillion American Rescue Plan that poured gasoline on the fire.
The White House became a punchline for releasing a video bragging that “The cost of a 4th of July cookout in 2021 is down $0.16 from last year.” When inflation became too persistent to dismiss, the White House shifted to scapegoating. It has blamed COVID and “big meat,” termed it “Putin’s price hike,” and endorsed the view that it is a “high-class problem.”
This empty rhetoric is meant to cover up the White House’s refusal to offer any concrete plan to bring down inflation. Even as President Biden published an op-ed asserting that “I have made tackling inflation my top economic priority,” he offered no specific proposal to do so.
Instead, his article punted the problem to the Federal Reserve, asserted the mundane reality that more productivity would help combat inflation, and then suggested deficit reduction would help (even as he pushed legislation to hike deficits). Nothing specific, substantive, or legislative.
Congressional Democrats have fared no better. They have brought no serious, broad-based anti-inflation legislation up for a vote. The House passed legislation giving Washington the authority to bully gas station operators for the cost of gas, but no serious economist believes this gimmick would seriously rein in inflation.
Instead, congressional Democrats have continued negotiating the trillion-dollar Build Back Better extravaganza that would worsen inflation. The White House has extended the student loan payment moratorium and is weighing a (likely illegal) executive order forgiving more student loans.
Governors (of both parties) from California to Massachusetts are responding to rampant inflation by pushing for more “stimulus” checks. With 9.1% inflation, this is economic malpractice.
As President Biden’s approval rating collapses to 33%, and only 13% of Americans believe the country is on the right track, it seems baffling to see political leaders steadfastly refusing to address the top voter concern only four months before an election. However, the impending election may paradoxically explain why the president and Congress will not address inflation.
At this point, most regulatory, trade, and fiscal solutions to inflation would likely not be implemented and move the inflation needle for several months — which will be after the election. Even if those policies worked faster, there is no guarantee that voters would quickly notice a modestly lower inflation rate.
And even if voters did notice falling inflation, not many would trace the success back to the actions of their elected officials. Thus, the White House and Congress have seemingly given up on trying to solve inflation — not enough political reward — and deemed it merely a communications problem to solve by making sure the other party gets the blame. In short, rising prices and falling real wages are treated merely as chess pieces in the Washington partisan wars.
For instance, while President Biden is hiking tariffs, the Peterson Institute for International Economics calculates that even a 2-percentage point reduction in tariffs could lower inflation 1.3% and save $800 per household. Additionally, the president could trim inflation by reversing his expansion of Buy America laws as well as Davis-Bacon policies that raise the cost of government contracts. He could push to repeal the Jones Act that hikes shipping costs.
However, every one of those reforms would anger organized labor, and the self-described “most pro-union president in our history” has seemingly prioritized union endorsements over reducing inflation.
Other disinflationary policies rejected by the White House include: reversing the higher ethanol blend in gasoline that raises food prices (yet would anger many farmers and Iowa caucus voters), further encouraging domestic oil and gas production (environmentalists), reversing new environmental regulations raising infrastructure costs (environmentalists), resuming student loan payments (younger liberals), and paring back runaway spending (progressives).
The White House need not endorse every disinflationary policy. Yet rejecting each of the above proposals while still pushing new federal spending reveals that — despite rhetoric to the contrary — fighting inflation is not a serious priority at all.
Instead, our elected leaders are totally deferring to the Federal Reserve to stop inflation with interest rate hikes. While the Federal Reserve has traditionally taken the lead on fighting inflation, the refusal of the president and Congress to enact pro-growth policies to trim inflation will force the Fed to slam the brakes on the economy that much harder – and thus more likely bring a recession.
So the politicians punting on inflation in 2022 may find themselves spending 2023 dealing with a recessionary crisis of their own making. And families and businesses will continue to pay the price.
Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter @Brian_Riedl.