The talk of the town today is President Joe Biden’s op-ed in the Wall Street Journal“My plan for fighting inflation.”
There are a lot of ways to read this, but one thought I have is this little essay is basically signaling that he is trying to prepare folks for some very bad economic news ahead.
He won’t meddle with the Fed as they jack up interest rates and pull cash out of the economy, but he knows full well that the economy is moving toward recession.
That recession part is what all the gobbledygook words concerning transition are about. He’s trying to make the case that miraculously inflation is going to come down from 10% without job losses or a higher unemployment rate. That thought is a major triumph of hope over experience and he knows that.
Other than this futile attempt to get ahead of the recession curve, there was nothing new in Biden’s so-called “inflation fighting plan.” There is no domestic spending freeze. He still wants to spend on housing, childcare, elder care and undoubtedly the usual “Build Back Better” agenda.
He is still banking on a fossil-free economy with more subsidies for various Green New Deal projects. Remember last week in Japan, he was talking about
“transitioning” to a fossil-free economy? The Bidens are not unhappy with record gas prices at the pump, or even today’s $120 world oil price. How is that Strategic Petroleum Reserve oil sale working for us?
Let me repeat my view that a fossil-free economy would generate a permanent recession with millions of job losses that would combine high unemployment with high inflation at the same time. In other words, a disaster.
Mr Biden wants to spend more on infrastructure, although his own EPA with its hugely restrictive environmental impact reviews is not only stopping fossil fuels and pipelines, but also highways, bridges, roads and tunnels as well. The president still wants national prescription drug price controls and he is still attacking profitable businesses.
If he really wanted an inflation antidote, he would open the spigots for oil and gas production, but that’s not what he wants.
He talks about reducing the federal deficit, but that is a one-time event from the end of emergency spending, assisted by a huge revenue windfall, partly from inflation and partly from the successful Trump tax cuts.
According to the CBO, deficits are going up $16 trillion over the next ten years. Publicly held debt will come to 110% of GDP and federal spending will exceed 23% of GDP—way above the 50-year average.
There is no mention of supply-side incentives that would come from deregulation—not just of energy, but business in general. Meanwhile, there are the usual Biden-mean (the opposite of Iowa-nice) falsehoods.
He says the economy had stalled when he took office, but in fact, in the fourth quarter of 2020 it increased 4.5% and in the first quarter of 2021 it increased 6.3%.
That’s why the March 2021 “stimmy” was unnecessary and highly inflationary; the economy was already growing very rapidly.
Biden wrote about families increasing their savings, but, in fact, the savings rate for April came in at 4.4%— significantly lower than the 12.6% saving rate of a year ago.
He talked about improving consumer confidence, but unfortunately the latest Conference Board and University of Michigan confidence measures show substantial decline.
Meanwhile, after taxes and after inflation, real disposable income has fallen over 6% during the past 12 months.
Biden, of course, took yet another poke at Trump, saying “my predecessor demeaned the Fed,” but, in fact, nobody could figure out why Jay Powell increased the Fed’s target rate four times in 2018 with an inflation rate below the Fed’s target at 1.9%.
Right after the Trump tax cuts were enacted, the economy was actually growing at a 4% rate, again with virtually no inflation, and President Trump had every reason to be cross at the Fed chair he appointed.
Biden couldn’t resist his attack on successful people, once again calling for a confiscatory wealth tax and punitive international taxes on American companies. So, here we go again, higher taxes will reduce inflation.
Really? Actually, higher tax rates will reduce economic growth incentives and lead to supply-side inflation increases. So, there was no inflation reset from Biden today. It’s Vladimir Putin’s fault.
We’re going fossil-free instead of increasing oil and gas production. We’re going to keep on with federal spending, borrowing and debt creation and none of this is going to hurt the economy or working folks one bit, but we are going to let Jay Powell tighten as much as he wants, because there will be no economic consequences. I’m not buying it. Glad the cavalry is coming.
This article is adapted from Larry Kudlow’s opening commentary on the May 31, 2022, edition of “Kudlow.”