cawacko
Well-known member
This article bears posting based on the number of people (here) claiming fiscal policy plays no role in inflation and only low information voters think so.
President Biden hadn’t even been inaugurated when he and his senior advisers made a monumental gamble in January 2021 that would reverberate through his presidency. Fresh on the heels of a $900 billion Covid-relief bill that Congress had approved weeks earlier, Biden proposed a $1.9 trillion stimulus bill.
Biden and many of those advisers had been part of the Obama administration. Barack Obama took office under similarly gloomy circumstances in January 2009, during the low point of the global financial crisis. Years of high unemployment followed, with much of the world mired in a trap of low growth and very low—even negative—interest rates.
One lesson Democrats took from that episode: Spend aggressively when interest rates are low. It is better to overfill the cup than underfill it.
The result was the American Rescue Plan, a package that boosted a child tax credit, sent $1,400-per-person direct payments to households, and directed $350 billion to state and local governments.
Politically, those choices backfired. Billions of dollars in Covid-19 aid were already coursing through the economy, the aftereffect of bipartisan spending measures under Donald Trump. Strong demand from Biden’s additional fiscal stimulus, ultralow interest rates and a successful vaccine rollout ran headlong into crippled supply chains and discombobulated labor markets.
Bad luck piled on. New Covid variants, Russia’s invasion of Ukraine and China’s Covid-related lockdowns continued to upend global supply chains and commodity markets. Inflation soared in most of the world’s richest economies—across Europe, Canada, and Australia.
Democrats had bet voters would reward them for a strong labor market recovery with tangible gains for workers. Instead, those voters recoiled at the sudden cost-of-living increases. Consumer prices during Biden’s term have risen 20%, compared with 8% in Trump’s term.
“If inflation had been less severe in that first year, if it had peaked at a lower level, could Vice President Harris have survived that? My intuition is yes,” said Michael Strain, head of economic-policy studies at the right-leaning American Enterprise Institute.
On Election Day, roughly 40% of voters said the economy was their top issue, far outstripping any other. Those voters backed Trump by a 22-percentage-point margin. Inflation has declined without a recession, but many were thinking instead about how prices are still high.
White House officials interviewed for this story defended their record by pointing to how the ARP was designed at a time when it wasn’t at all clear the country was about to escape the pandemic. Virus counts and deaths were rising as Biden took office. And after a swift rebound in hiring through the second half of 2020, the number of people working fell in December 2020.
“Any scenario that envisions less inflation from a reduced ARP also has to wrestle with slower growth, higher unemployment and more child poverty,” said Jared Bernstein, the chair of the White House Council of Economic Advisers.
White House and Democratic officials have argued that overall U.S. economic outcomes were better than those achieved in nearly every other advanced economy. But politically, those arguments fell flat and gave Trump his opening.
“It comes off as cold comfort to say that people have it worse in Germany, the U.K., France,” said Rep. Brendan Boyle (D., Pa.). “People naturally compare their experiences today to what things were like prepandemic.”
Sen. Joe Manchin, the most conservative Democrat in the chamber, was stunned when colleagues told him the $1.9 trillion price tag and warned them it was a massive overreach, he said in a recent interview.
Lawmakers were seeking to extend temporary unemployment benefits of an extra $400 a week. “A lot of hardworking people aren’t making that kind of money in my state,” Manchin told his colleagues.
Within hours of speaking up, he found himself face-to-face in the Oval Office with Biden. Manchin begged the president to pump the brakes. The country hadn’t even digested the stimulus approved weeks earlier. It didn’t make sense to throw another $2 trillion on top.
Biden was unmoved. “I’ve got to do it, Joe,” he said.
Manchin ultimately swallowed his reservations and gave his support. The package passed in March 2021.
The loudest criticism came from Larry Summers, who had been a top Obama adviser but wasn’t part of Biden’s team. Many Democrats faulted Summers for insufficient stimulus in 2009 and were in no mood to listen to him by 2021.
He pointed to how Democrats had lost badly at the ballot box during other bouts of inflation in 1968 and 1980. “The sense of serenity and complacency being projected by the economic policymakers, that this is all something that can easily be managed, is misplaced,” he said that spring.
Inflation jumped that April, driven by used cars, airfares and other items that could be traced to reopening the economy. Officials at the White House and Federal Reserve highlighted the temporary nature of price readings by describing high prices as likely to be “transitory.” And for the first few months, the story held. Price growth initially eased through the summer.
White House advisers kept telling Manchin not to worry. One pointed to how 17 Nobel laureates said inflation would be transitory. Manchin shot back: “You’ve got 17 educated idiots telling you what you want to hear.”
When price growth broadened and reaccelerated that fall, the Fed threw “transitory” into the ash heap and sped up plans to withdraw stimulus. By December 2021, inflation hit 7%.
Fiscal stimulus, approved by both Trump and Biden, accounted for about 3 percentage points of the rise in inflation through 2021, according to the San Francisco Fed. A separate analysis by the bank’s economists estimated the ARP boosted inflation, excluding food and energy items, by 0.3 percentage point a year in 2021 and 2022.
Raw politics, and not just economics or health concerns, were at work. The administration had faced heavy pressure from progressives, including in the House of Representatives, to make $1.9 trillion the floor, not the ceiling, for any spending on the ARP.
Focus shifted to passing Build Back Better, a separate $3.5 trillion spending bill that Democrats envisioned as Biden’s signature economic initiative. A meaningful acknowledgment that inflation was a problem would raise alarm bells over further spending. That, in turn, could kill the sprawling healthcare, education and climate package.
Many economists, inside and outside the White House, genuinely believed inflation would be transitory. Still, Democratic-affiliated analysts and economists outside the administration faced pressure to play down inflation risks to avoid imperiling the administration’s broader agenda, said Strain, the economist at the American Enterprise Institute.
“They kept insisting it was transitory because they were trying to shove BBB down my throat,” said Manchin, who ended negotiations over the package at the end of 2021.
First, officials treated inflation as a communications problem that could be improved with better messaging.
In the summer of 2022, after a mild inflation reading followed a string of hot prints, one of the president’s top political advisers argued that officials should make a big show of declaring that the battle on inflation had turned, according to people familiar with the matter.
Biden’s economic advisers flinched. What would they say if inflation was bad next month?
“That’s a problem for 30 days from now,” the political adviser responded.
Second, economic advisers were overruled at times when it came to proposing measures that might have lowered consumer prices.
Fiscal stimulus accounted for about 3 percentage points of the rise in inflation through 2021, according to the San Francisco Fed. Photo: Brandon Bell/Getty Images
In April 2022, for example, some of the president’s economic team pushed for rolling back tariffs on certain Chinese imports that had been imposed by the Trump administration. Even if it might not make a noticeable dent in consumer price gauges, they argued it was better for the White House to be viewed as throwing its back into bringing down prices. Tariffs are often passed on to customers in the form of higher prices.
For nonstrategic goods, “there’s not much of a case for those tariffs being in place,” economic adviser Daleep Singh said during remarks in Washington at the time. “Why do we have tariffs on bicycles or apparel or underwear?”
Political advisers sympathetic to concerns from labor groups and foreign-policy advisers who wanted to maintain leverage against Beijing argued against the move. Biden sided with them when his economic advisers said removing tariffs wouldn’t move the needle on inflation.
“President Biden said inflation was his No. 1 priority, and I don’t think he acted like it was his No. 1 priority,” said Strain.
Bernstein, the senior White House economist, said that the White House was “always balancing trade-offs.” Other officials said the political hit from removing tariffs would have overwhelmed any marginal benefit in the form of lower prices.
Gene Sperling, a former senior economic adviser to Biden and Harris, said cross-country comparisons show that the U.S. outperformed its peers economically and that Democrats fared better than other incumbent governments politically. He faulted analyses that presume there were “silver bullets on inflation we just chose not to fire.”
How Democrats Blew It on Inflation
In avoiding the missteps that followed the 2008-09 financial crisis, officials made new mistakes that led to political defeat
President Biden hadn’t even been inaugurated when he and his senior advisers made a monumental gamble in January 2021 that would reverberate through his presidency. Fresh on the heels of a $900 billion Covid-relief bill that Congress had approved weeks earlier, Biden proposed a $1.9 trillion stimulus bill.
Biden and many of those advisers had been part of the Obama administration. Barack Obama took office under similarly gloomy circumstances in January 2009, during the low point of the global financial crisis. Years of high unemployment followed, with much of the world mired in a trap of low growth and very low—even negative—interest rates.
One lesson Democrats took from that episode: Spend aggressively when interest rates are low. It is better to overfill the cup than underfill it.
The result was the American Rescue Plan, a package that boosted a child tax credit, sent $1,400-per-person direct payments to households, and directed $350 billion to state and local governments.
Politically, those choices backfired. Billions of dollars in Covid-19 aid were already coursing through the economy, the aftereffect of bipartisan spending measures under Donald Trump. Strong demand from Biden’s additional fiscal stimulus, ultralow interest rates and a successful vaccine rollout ran headlong into crippled supply chains and discombobulated labor markets.
Bad luck piled on. New Covid variants, Russia’s invasion of Ukraine and China’s Covid-related lockdowns continued to upend global supply chains and commodity markets. Inflation soared in most of the world’s richest economies—across Europe, Canada, and Australia.
Democrats had bet voters would reward them for a strong labor market recovery with tangible gains for workers. Instead, those voters recoiled at the sudden cost-of-living increases. Consumer prices during Biden’s term have risen 20%, compared with 8% in Trump’s term.
“If inflation had been less severe in that first year, if it had peaked at a lower level, could Vice President Harris have survived that? My intuition is yes,” said Michael Strain, head of economic-policy studies at the right-leaning American Enterprise Institute.
On Election Day, roughly 40% of voters said the economy was their top issue, far outstripping any other. Those voters backed Trump by a 22-percentage-point margin. Inflation has declined without a recession, but many were thinking instead about how prices are still high.
White House officials interviewed for this story defended their record by pointing to how the ARP was designed at a time when it wasn’t at all clear the country was about to escape the pandemic. Virus counts and deaths were rising as Biden took office. And after a swift rebound in hiring through the second half of 2020, the number of people working fell in December 2020.
“Any scenario that envisions less inflation from a reduced ARP also has to wrestle with slower growth, higher unemployment and more child poverty,” said Jared Bernstein, the chair of the White House Council of Economic Advisers.
White House and Democratic officials have argued that overall U.S. economic outcomes were better than those achieved in nearly every other advanced economy. But politically, those arguments fell flat and gave Trump his opening.
“It comes off as cold comfort to say that people have it worse in Germany, the U.K., France,” said Rep. Brendan Boyle (D., Pa.). “People naturally compare their experiences today to what things were like prepandemic.”
‘17 educated idiots’
Republicans were opposed to another stimulus package in early 2021. So Democrats had to maneuver with a razor-thin one-vote majority in the Senate, with Vice President Kamala Harris able to break a 50-50 tie.Sen. Joe Manchin, the most conservative Democrat in the chamber, was stunned when colleagues told him the $1.9 trillion price tag and warned them it was a massive overreach, he said in a recent interview.
Lawmakers were seeking to extend temporary unemployment benefits of an extra $400 a week. “A lot of hardworking people aren’t making that kind of money in my state,” Manchin told his colleagues.
Within hours of speaking up, he found himself face-to-face in the Oval Office with Biden. Manchin begged the president to pump the brakes. The country hadn’t even digested the stimulus approved weeks earlier. It didn’t make sense to throw another $2 trillion on top.
Biden was unmoved. “I’ve got to do it, Joe,” he said.
Manchin ultimately swallowed his reservations and gave his support. The package passed in March 2021.
The loudest criticism came from Larry Summers, who had been a top Obama adviser but wasn’t part of Biden’s team. Many Democrats faulted Summers for insufficient stimulus in 2009 and were in no mood to listen to him by 2021.
He pointed to how Democrats had lost badly at the ballot box during other bouts of inflation in 1968 and 1980. “The sense of serenity and complacency being projected by the economic policymakers, that this is all something that can easily be managed, is misplaced,” he said that spring.
Inflation jumped that April, driven by used cars, airfares and other items that could be traced to reopening the economy. Officials at the White House and Federal Reserve highlighted the temporary nature of price readings by describing high prices as likely to be “transitory.” And for the first few months, the story held. Price growth initially eased through the summer.
White House advisers kept telling Manchin not to worry. One pointed to how 17 Nobel laureates said inflation would be transitory. Manchin shot back: “You’ve got 17 educated idiots telling you what you want to hear.”
When price growth broadened and reaccelerated that fall, the Fed threw “transitory” into the ash heap and sped up plans to withdraw stimulus. By December 2021, inflation hit 7%.
Fiscal stimulus, approved by both Trump and Biden, accounted for about 3 percentage points of the rise in inflation through 2021, according to the San Francisco Fed. A separate analysis by the bank’s economists estimated the ARP boosted inflation, excluding food and energy items, by 0.3 percentage point a year in 2021 and 2022.
Raw politics, and not just economics or health concerns, were at work. The administration had faced heavy pressure from progressives, including in the House of Representatives, to make $1.9 trillion the floor, not the ceiling, for any spending on the ARP.
Focus shifted to passing Build Back Better, a separate $3.5 trillion spending bill that Democrats envisioned as Biden’s signature economic initiative. A meaningful acknowledgment that inflation was a problem would raise alarm bells over further spending. That, in turn, could kill the sprawling healthcare, education and climate package.
Many economists, inside and outside the White House, genuinely believed inflation would be transitory. Still, Democratic-affiliated analysts and economists outside the administration faced pressure to play down inflation risks to avoid imperiling the administration’s broader agenda, said Strain, the economist at the American Enterprise Institute.
“They kept insisting it was transitory because they were trying to shove BBB down my throat,” said Manchin, who ended negotiations over the package at the end of 2021.
What went wrong
The postpandemic economic response will be heavily debated for decades. Outside analysts fault the White House for a tepid response that compounded misfortunes on Election Day.First, officials treated inflation as a communications problem that could be improved with better messaging.
In the summer of 2022, after a mild inflation reading followed a string of hot prints, one of the president’s top political advisers argued that officials should make a big show of declaring that the battle on inflation had turned, according to people familiar with the matter.
Biden’s economic advisers flinched. What would they say if inflation was bad next month?
“That’s a problem for 30 days from now,” the political adviser responded.
Second, economic advisers were overruled at times when it came to proposing measures that might have lowered consumer prices.
In April 2022, for example, some of the president’s economic team pushed for rolling back tariffs on certain Chinese imports that had been imposed by the Trump administration. Even if it might not make a noticeable dent in consumer price gauges, they argued it was better for the White House to be viewed as throwing its back into bringing down prices. Tariffs are often passed on to customers in the form of higher prices.
For nonstrategic goods, “there’s not much of a case for those tariffs being in place,” economic adviser Daleep Singh said during remarks in Washington at the time. “Why do we have tariffs on bicycles or apparel or underwear?”
Political advisers sympathetic to concerns from labor groups and foreign-policy advisers who wanted to maintain leverage against Beijing argued against the move. Biden sided with them when his economic advisers said removing tariffs wouldn’t move the needle on inflation.
“President Biden said inflation was his No. 1 priority, and I don’t think he acted like it was his No. 1 priority,” said Strain.
Bernstein, the senior White House economist, said that the White House was “always balancing trade-offs.” Other officials said the political hit from removing tariffs would have overwhelmed any marginal benefit in the form of lower prices.
Gene Sperling, a former senior economic adviser to Biden and Harris, said cross-country comparisons show that the U.S. outperformed its peers economically and that Democrats fared better than other incumbent governments politically. He faulted analyses that presume there were “silver bullets on inflation we just chose not to fire.”
