President Biden has finally laid out his plan to fight inflation. But the strategy demonstrates what many have long suspected: He doesn’t have a clue what to do about rising prices.
That’s it. That’s the plan.
Each part is either disingenuous or will be ineffective. His stance on the Federal Reserve, for example, is basically an acknowledgement that the president does not legally, and ought not morally, dictate monetary policy. Central bank independence is a touchstone of modern monetary policy lest politicians be tempted to turn on the money spigots to juice the economy before an election year. When Biden criticizes his unnamed predecessors for trying to improperly influence Fed decisions, he’s saying that controlling monetary policy is outside of his control. That might be correct, but it’s not a presidential plan to fight inflation.
The second part of Biden’s plan is a tacit recognition that it’s a bad political look for the president to stand aside on the issue dominating voter consciousness five months before the midterms. Thus, he proposes a set of actions — all of which, mind you, would require congressional approval — to reduce prices. Sounds good, until you look at the specifics.
Biden’s proposed solution to higher housing prices, for example, is to pass his Housing Supply Action Plan, which he claims will close the housing shortfall within five years. Of course, that’s a long time from now, so passing the plan would do nothing to reduce inflationary pressures anytime soon. That’s passing the buck, not fighting inflation.
His other specific ideas are similarly laughable. He wants to crack down on energy prices by passing clean energy tax credits, which will do nothing to reduce prices at the pump or even significantly cut into electricity bills. Allowing the federal government to negotiate with pharmaceutical companies for drug prices might help cut drug costs, but they aren’t driving inflation anyway. The most recent inflation report shows that prescription drug prices rose only 1.7 percent in the last year, well below the 8.3 percent overall inflation rate. Increasing subsidies for child and elder care as he proposes would likely increase inflation in the short term, as the new federal money would increase demand without hiking supply. And improving infrastructure, another one of his ideas, would take years and could also aggravate inflation by adding to transportation tie-ups as roads, bridges and other improved structures are closed for upgrades.
This isn’t an inflation-fighting plan. It’s a bait-and-switch to get an exasperated public to buy the same bill of goods he has been peddling all along.
Biden’s third idea, reducing the deficit, has merit, but his plan is incomplete. Inflation today is largely the result of the federal government increasing the money supply to record levels during the pandemic. It did this by approving multitrillion-dollar deficits, mostly purchased by the Federal Reserve. Since the Fed doesn’t have trillions of dollars of deposits sloshing around in its vaults, it effectively printed the money, which was then disbursed to the rest of the country. Reducing the deficit, then, would reduce the amount of money the Fed prints to finance its bond purchases, thereby slowing the growth of the money supply.
The problem with Biden’s plan is that he relies solely on tax increases and other revenue hikes without any spending restraints to cut the annual deficit. Hiking taxes on corporations and business means they will have less money to handle soaring inflation. That would make it more difficult to pay workers higher wages to match rising prices, which means business and ordinary workers would have to sacrifice if Biden got his way. Meanwhile, the new revenue from the higher taxes would likely be used to pay for Biden’s new proposed programs.
Runaway inflation is a serious problem, and it demands a serious plan to combat it. Unfortunately for the country, Biden’s isn’t it.