The Biden Administration’s Cure for Inflation: Spend a Little Less (Unless You’re the Government) – AMAC

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AMAC Exclusive – By David Lewis Schaefer

In a speech to the AFL-CIO last week, Biden unapologetically remarked that he didn’t want to hear “lies” about his “reckless spending” because it was “changing people’s lives.” His remarks perfectly captured why inflation has become such a persistent problem in American life today, and why it is unlikely to go anywhere anytime soon – namely that Biden himself will not acknowledge or will not understand the role of its own policies in causing this crisis.

Early in his administration, Joe Biden proclaimed that we no longer live in the time of Milton Friedman. Perhaps the Friedmanian idea that Biden (or his speechwriter) had most in mind was the observation that inflation is “always and everywhere a monetary phenomenon.” In other words, inflation in the strict sense is the result of governments generating an excess supply of money, which results in holders of money increasing the supply of goods.

Friedman’s observation was not new. In his 1748 classic The Spirit of Laws, the great French philosopher Montesquieu explained how the Spanish colonization of South America, which was mainly used to mine gold to ship it home, ultimately impoverished rather than enriched Spain. Since gold has relatively little used itself, its primary function (much like today’s fiat currency) was as a medium of exchange for real goods.

As the supply of gold grew, prices – but not the country’s actual wealth – rose accordingly. Consequently, Spain’s wealth and political influence declined within a century, even as the wealth and power of the free trading regimes of England and Holland increased. Simply giving money to people does not enrich the recipients or their host country in the long run – a centuries-old truism that is still instructive today.

Biden’s rejection of Friedman’s teaching served as justification for enacting sweeping new spending packages, ostensibly for COVID relief, even though the worst of the lockdowns had already been lifted. In reality, the $1.9 trillion “US Bailout”, the $1.2 trillion “Infrastructure” Bill, and the proposed $3 trillion “Build Back Better” Act were preparing states United with the same economic woes that plagued the Spaniards centuries ago. Although Senate Republicans were able to block Build Back Better (for now), more than $3 trillion in spending in months after trillions in spending during COVID lockdowns was enough to send the country into a spiral inflationary we are witnessing today.

Biden claimed that increasing the amount of federal gifts would actually help fight inflation because recipients would be better able to pay higher prices for goods. Apparently, as a further appeal to voters, the administration is considering canceling billions of dollars in student debt — a benefit that would largely accrue to high-income taxpayers and again leave low-income Americans (many of whom are not didn’t go to college) pay the bill.

Now, however, in the face of an increasingly inflation-troubled electorate that has reached its highest level in 40 years, the president and his sympathetic academic supporters have come close, in a sense, to Friedman’s insight. . As the Associated Press reported last week, ‘Biden faces a tricky trade-off as he tries to help his fellow Democrats in the November election’, requiring consumers to ‘pull back just enough for inflation to come down’, but ‘not so much as the economy risk of plunging into a recession”. Hence “the problem with inflation” is that despite rising prices, Americans “have not yet significantly reduced” their spending. (For example, according to the Department of Energy, gasoline consumption has fallen only 1.8% over the past year, despite huge increases in fuel prices.)

Betsey Stevenson, a University of Michigan economist supportive of the Progressive spending agenda who worked as an adviser to the Obama White House, also called on Americans to cut spending to “allow supplies to catch up.” Acknowledging that high gas prices could lead to “wider discontent”, she observed that “cars seem to be important to people’s sense of control”, depriving them of the ability “to just jump in your car and to go where you want”. In other words, the underlying problem is not government policies (ranging from rising deficit spending to restrictions on drilling and transporting oil and gas), but rather a psychological problem: consumers Americans are control freaks. They want to enjoy the freedom to go where they want, including to work!

So maybe inflation is a monetary problem after all: money supply growing faster than the supply of goods. Note, however, that the Biden administration and its Democratic allies have given no sign of considering a Friedmanian solution to the problem: cut government expenses. As Biden made clear in his speech to the AFL-CIO, increased government spending is the only solution to all the problems facing Americans today.

Instead, it must be consumers who rein in spending to fight inflation. To hear Biden say it, it’s up to ‘patriotic’ Americans to help the administration by loosening their ‘sense of control’ over their lives and learning to live on less (just temporarily), even as Democrats push to increase federal spending without any effort to “control”. And while the current administration may not be able to strike the right balance between too much and too little spending, it is counting on citizens to make those precise calculations.

But the administration — and Democrats in Congress — may soon find that voters’ calculus is to quickly remove them from power.

David Lewis Schaefer is Professor of Political Science at the College of the Holy Cross








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