Hi there.
Before Afghanistan, the biggest arrow in the anti-Biden quiver was concern about inflation, and frankly, that concern is not totally without merit.
As The Upshot shows, while President Biden and the Federal Reserve have sought to keep the economy “red hot,” consumer prices have, at times, soared out of control, outpacing pay raises and leaving Americans with less buying power.
Republicans and moderate Democrats place blame squarely on the amount of money the federal government has poured into the economy since the start of the pandemic, and insist that this is proof that the $3.5 trillion spending bill Senate Democrats are working on would further damage the American economy. But I remain unconvinced for a couple of reasons.
First of all, it’s hard to accept on faith that federal spending is the cause of inflation. Since the start of the pandemic, we’ve seen spikes in demand in certain industries, combined with decreased productivity due to public health constraints. And these sorts of supply chain bottlenecks have a tendency to snowball— increased demand on a strained supply of a given retail product ultimately leads to increased demand on a strained supply of the raw materials needed to produce that retail product. And those bottlenecks ultimately lead to price jumps, irrespective of government spending. And that’s where we have some good news: The Associated Press reports that factory production is on the rise, which should lead to a leveling out of prices. In some cases, it already has.
A New York Times essay shows some of the ways that 2021 inflation has already proven to be transitory. Gas prices are back down to pre-pandemic levels after a brief spike. Ditto for twenty-seven other industries. Airfare, used cars, and more than 100 other industries appear to be on the same track.
But even if you do believe that government spending has played a major role in our current inflation, it’s worth remembering that the $3.5 trillion being considered is actually miniscule compared to what we’ve spent in pandemic aid. That spending bill is going to be spread out over a decade, while we’ve spent nearly $3 trillion on the pandemic in just the last year or so. $3.5 trillion sounds like a big number (and it is), but it’s going to be dispersed at an average of a significantly smaller $350 billion per year.
But let’s look at this another way. Let’s just, for the sake of argument, accept that more spending will lead to more inflation. As The Upshot shows, that doesn’t really change the Biden Administration’s calculus, because the relatively low inflation we’ve seen for most of my lifetime has disproportionately benefited the wealthy. Without government intervention, inflation has been steady and damaging for the household necessities that dominate the budgets of working-class families. From the article:
Their argument goes like this: A handful of necessities— housing, transportation, food, health, child and elder care, clothing and education— account for more than 80 percent of the household budget for families in the bottom 20 percent of income, compared with 65 percent for higher-income families.
“While prices of some services and many goods have fallen substantially, especially when bearing in mind increases in their quality, others— particularly prescription drugs, child care, and education— have risen substantially, and in many cases, faster than incomes over the last several decades,” the administration economists write.
Moreover, the price of many of those necessities has risen faster than either overall inflation or household incomes over the last three decades. A family may be able to enjoy cheaper flights and better consumer electronics than a generation ago, but many of the basics have become a lot more expensive.
For example, from 1990 to 2019, overall inflation was 74 percent, and the median family income rose 143 percent. But child care prices rose 210 percent. For those in need of child care, that gain ate up a huge chunk of ostensible income gains.
Looking at those numbers, it’s hard to argue that the laisses-faire approach to the economy that we’ve seen in recent decades has worked. And any pearl-clutching argument that government intervention to address these disparities will only do more damage simply amounts to an admission that our economic system fundamentally does not and cannot work fairly.
The spending plan— which I’ll dive into the politics of Thursday— is derided by conservatives as a “liberal wish list.” Incidentally, they said the same thing about the American Rescue Plan. But ultimately, this new bill has two major functions: fight climate change and improve economic conditions for poor and middle-class Americans. We have to do something about worsening economic disparities, and I’ve yet to hear a better solution than this plan (other than, you know, raising the minimum wage). And if our economy is so fragile that this bill can break it, then the problem was never really the bill in the first place.
Lastly, no President was unfairly criticized for inflation more than Jimmy Carter. The AP explores recent literature that reconsiders Carter’s place in history. For further reading, I recommend Jonathan Alter’s excellent biography, His Very Best. Cheers o that.
Thank you for caring enough to read.
Be safe. Drink water. You are loved.
Talk to you Thursday.