President Joe Biden continues touting many of the programs left over from the ill-fated Build Back Better Act, but he may find what remains of his domestic agenda scuttled by persistently high inflation.
During last week’s State of the Union address, Biden touted proposals for making the Affordable Care Act’s premium tax credits permanent, investing in clear energy production, incentivizing the purchase of electric cars, and creating universal pre-K.
WHITE HOUSE EXPECTS INFLATION WILL ‘SUBSTANTIALLY’ INCREASE IN COMING MONTHS
All of those ideas involve some form of new government spending, which many blame for the current high and rising rate of inflation.
Consumer prices increased 7.9% in the 12 months ending in February, further fueling the anxiety surrounding the country’s currency. The White House is expecting “substantially” higher inflation figures in the coming months, even after the February Consumer Price Index posted the highest year-over-year rate since 1982.
Both of those factors could generate resistance to any new government spending from Republicans and centrist Democrats. High spending levels helped solidify West Virginia Sen. Joe Manchin’s opposition to Build Back Better, and they could doom the smaller proposals the White House wants now.
“I don’t know how you control inflation when the first year of spending is going to be quite large,” Manchin said in December.
There is some debate about whether government largesse could actually ease inflation by boosting productivity, whether it will directly fuel inflation, or whether it will help make goods and services more affordable for people, even if inflation remains high.
David Madland, a labor scholar with the Center for American Progress, argues Biden’s policies can lower costs for consumers and reduce inflation — eventually.
“The policies President Biden wants to implement would lower the costs that customers face for healthcare, child care, energy, and transportation,” Madland said. “These policies will directly reduce costs for customers. Further, over the long run, this type of spending that increases the productive capacity of the economy, especially if it is paid for, should reduce inflation.”
Effectively, costs for consumers can go down, even while inflation goes up, if government programs subsidize costs through spending or tax write-offs.
“The direct impact of the policy would more than make up for any indirect and modest inflationary impact,” Madland argued.
If that’s the line of thinking within the White House and the Democratic base, it bucks against the prevailing course of thought among conservatives. As most Republicans see it, new government spending and higher inflation are very much related.
“Biden’s fig leaf proposals to reduce inflation by forcing other people to pay for things are inadequate and harmful,” said Heritage Foundation Senior Fellow Rachel Greszler. “Not only would his proposals fail to reduce prices, they would drive them higher.”
Greszler cites not only the spending itself but the regulations attached as drivers of inflation, suggesting a reduction in the federal budget, the federal workforce, and federal regulations to increase competition.
“The federal government’s $6 trillion of so-called COVID relief spending is a huge source of the current inflation,” she said. “More federal spending and more printing of money by the Federal Reserve is the opposite of what Americans need right now.”
The Federal Reserve is gearing up to hike interest rates for the first time in years next week to stave off the higher prices. The central bank is then expected to keep raising rates several times this year.
February’s inflation increase comes after a year of higher prices. Year-over-year inflation was at a meager 1.7% in February 2021 before increasing to 2.6% in March, 4.2% in April, and then 5% in May. For most of the summer, it hovered at just over 5% before once again ballooning in the fall.
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A basic mismatch of too many dollars chasing too few goods is what generates inflation, and to an extent, many of the biggest factors driving inflation right now are out of Biden’s hands. In any case, Rachel Snyderman, an associate director of economic policy at the Bipartisan Policy Center, thinks the topic is likely to stay on the top of people’s minds for months to come.
“As long as consumer demand outpaces supply, we’re likely to continue feeling the inflationary effects of the fiscal stimulus injected into our economy over the past two years,” she said. “All eyes are currently on the Federal Reserve and the potential effect a change in interest rates or its bond tapering could have on prices in the short-term, while many of President Biden’s proposals are likely to be longer-term in their economic impacts. It will also be some time before we understand the full impacts of the war in Ukraine.”
