Joe Biden’s odd but revealing claim about inflation
President Biden brandished a brand-new claim in his recent talk about the wonders of the Inflation Reduction Act:
“Now, one reason we’ve seen inflation fall by two thirds without losing jobs is corporate profits are coming back down to earth. The excesses are being eliminated by the corporations.”
In other words, “excess” company profits are dropping, and that has brought price increases under control. By Biden’s logic, if Corporate America went bankrupt, the economy would really be humming.
Hasn’t anyone ever explained to Biden that it is profits that lead to investment, to productivity gains and to higher wages? Apparently not. Biden thinks inflation stems from corporate greed, not too much spending — no wonder the White House got it so wrong.
Biden’s anti-business mindset reminds us of the Obama years, during which the country experienced the slowest-ever recovery from a recession. Liberals like Paul Krugman continue to argue that former President Obama’s failure to boost U.S. growth stemmed from an undersized stimulus program. No, the problem was that Obama stomped on the green shoots of economic revival with a tsunami of regulatory changes that confounded employers and decision-makers, stymied investment and prolonged the downturn.
We are seeing much the same today. Biden keeps talking about building the economy from the middle out; I doubt even he knows what he is talking about. In reality, he is building the economy from the top down, with the government at the tip of the pyramid, issuing ever-more rules and making significant decisions about the allocation of capital and direction of industry.
Today’s regulatory onslaught of the Biden White House is giving the Obama legacy stiff competition. Casey Mulligan, an economics professor at the University of Chicago, has analyzed the burden imposed by the cascade of new rules dictated by Biden in the first two years of his presidency and found the cost over time to approximate $9,600 per household.
Some of that increased cost stemmed from new auto efficiency and emissions standards, while rules governing employment, finance and telecommunications have also added to the burden.
By comparison, according to Mulligan’s study, former President Trump’s effort to simplify regulations reduced the average household burden by $11,000. One of the first executive orders he signed demanded that for every new rule adopted by the government, two had to be revoked. Given that the Code of Federal Regulations now includes 200,000 pages of rules complicating (and sometimes stifling) every aspect of life and business in the U.S., Trump’s attack on the modern administrative state was brilliant.
Otherwise, Biden spewed some familiar falsehoods as he celebrated the anniversary of the Inflation Reduction Act, which even he now acknowledges was never about combatting inflation. He claimed:
- The U.S. has the lowest inflation of any developed economy. Oops; both Japan and Canada’s prices rose less than those in the U.S. in June.
- Also: “At the same time, wages are growing faster than inflation, and this matters.” Yes, it matters, but real average hourly earnings were negative for the first two years of his presidency; real average weekly earnings dropped 3.6 percent through June.
- And: “the Inflation Reduction Act is giving people more breathing room” Odd that 57 percent of workers say they are living paycheck-to-paycheck.
- Hilariously: “Unlike the last president, in my first two years in office, we actually cut the federal debt — deficit by $1.7 trillion. You hear me? The first two years — we cut the debt [deficit] by $1.7 trillion.” Not sure what Biden is claiming here, but he has cut neither the debt nor the deficit. According to the Bipartisan Policy Center, “The government ran a cumulative deficit of $1.6 trillion through July … $954 billion more than during the same period last year.”
- Biden also claims to have “created” 800,000 manufacturing jobs. Not true. In June, the U.S. had just under 13 million people employed in manufacturing, seasonally adjusted; in December 2019, just before COVID shut down the country, there were slightly fewer than 12.9 million people employed in manufacturing. Sorry Joe, we can add.
Here are some economic realities that Biden failed to mention:
- Housing affordability is the worst since 1997, according to an index that combines mortgage rates (now at a 22-year high), home prices and household incomes. Home ownership is a pillar for wealth accumulation in our country and is increasingly out of reach for most families
- Americans are carrying more than $1 trillion in credit card debt — a record. With interest rates on that debt topping 20 percent, the burden on consumers is rising quickly.
- Leading indicators have pointed down for 16 straight months, leading the Conference Board to forecast a recession beginning in the fourth quarter of this year. An investor survey by Evercore ISI found 60 percent still predicting a recession.
- Moody’s Analytics reports that the average family is shelling out $709 per month more for everyday purchases than they were two years ago. Yes, inflation is cooling, but the damage is real and ongoing: According to the Moody’s team, “the typical household spent $202 more in a July than they did a year ago to buy the same goods and services.”
- Fitch’s downgrade of U.S. debt should be a wake-up call that we must cut spending, but appears to have been dismissed by the Biden White House.
It is understandable that Biden continues to hawk his economic policies, even though most Americans give so-called Bidenomics low marks. After all, what else does the Biden campaign have to sell? Biden’s White House is failing on every front — including crime and immigration — but one: spending trillions of dollars.
In the Evercore ISI survey mentioned earlier, investors were also asked whether the next president would be a Republican or a Democrat; 80 percent said Republican, while 20 percent went with Democrat. That is the real assessment of Bidenomics.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company.