President Costanza tackles inflation
President Biden on Tuesday tried to preempt Wednesday’s April inflation report with a speech rehashing his tired proposals to cut prices: raise subsidies, raise taxes and tighten regulation. He should take Jerry Seinfeld’s advice to George Costanza and do the opposite of his political instincts.
The president again called on Congress to pass his Build Back Better, uh, sorry, ‘Build a Better America’ plan, including more subsidies for green energy, electric cars, child care, housing and Moreover. He also doubled down on his proposed billionaire tax — that is, an unconstitutional wealth tax — and Medicare drug price controls.
Mr Biden again blamed inflation on the pandemic and Vladimir Putin, failing that Democrats poured jet fuel on accelerating economic recovery last March with their $1.9 trillion spending bill. Inflation was already at 7.9% when Mr. Putin invaded Ukraine (see graph opposite). At the same time, their policies impede the supply side of the economy in myriad interconnected ways.
Consider energy and food. The administration’s war on oil and gas has created enormous regulatory uncertainty that is dampening investment in new generation despite high energy prices. Producers cannot find workers. Many left the industry when prices fell at the start of the pandemic and are reluctant to return because Democrats promised to bankrupt drillers.
Then there’s the left’s pipeline blockade, which limits natural gas production in the rich shale fields of the Northeast. Progressives blame rising gas prices on natural gas exports, but the biggest culprit is rising demand in the United States.
Mr Biden says more green power will reduce electricity prices. But then why did electricity prices increase by 11.1% last year? More green power will make the grid less reliable and increase the demand for gas as well as diesel engine backup generators, as is the case in California and Texas.
Speaking of which, diesel prices have risen $2.40 a gallon over the past year, a dollar more than gasoline prices, amid rising freight demand and reduction in refining capacity. Higher diesel prices affect food prices, as ships, trains, trucks, tractors and other agricultural equipment rely on fuel.
Biofuel mandates and subsidies have prompted refineries to shut down or switch to producing smaller amounts of “renewable” diesel from cooking oils. It’s also a key reason why soybean oil prices have more than doubled from pre-pandemic levels and why the American Bakers Association has urged the administration to loosen related mandates. to renewable fuels.
Poultry producers say the ethanol mandate is driving up the cost of their feedstock. At the same time, soaring corn and soybean prices are discouraging farmers from planting wheat to compensate for the loss of Ukrainian exports. Yet the administration wants to increase mandates and subsidies for renewable fuels.
What the country needs is more investment to boost the supply side of the economy, which will increase worker productivity, real wages and living standards. Mr. Biden’s plan to hammer businesses and investors with increased taxes and regulations will do the opposite.
In his speech, he again pushed for Medicare to negotiate drug prices — that is, price caps — but that will create more distortions in the pharmaceutical market and suppress investment in innovation. Incidentally, prescription drug prices have only increased by 2.2% over the past year. Thanks to the competition for this, not to the government.
As White House aides whispered to friendly media on Monday, Mr. Biden’s Tuesday speech was really less about inflation and more about setting up the fall campaign against Republicans. He claimed the GOP had no plan for inflation, as if Democrats weren’t running Congress and the White House. He tied all Republicans to Florida Sen. Rick Scott’s unspecific proposal that all Americans should pay federal income tax and that all laws of Congress should expire after five years.
“The Republican congressional agenda,” Mr. Biden warned, “would put Social Security, Medicare and Medicaid on the chopping block every five years.” Who believes that? Mr. Scott’s plan was not approved by the rest of his party.
Mr Biden said Republicans wanted to ‘depress’ US wages, but real personal disposable income increased by $4,205 (in 2012 dollars) from January 2017 to December 2020, but has since fallen by $374, almost all under his supervision. Inflation lowers real wages despite rising nominal wages.
Americans have learned the hard way over the past two years that no amount of federal transfer payments can offset the decline in real wages caused by inflation. President Costanza has still not done so.
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Appeared in the print edition of May 11, 2022.