As Democratic leaders fiddle, inflation keeps burning more and more destructively. By now, they almost seem to be relishing the conflagration.
Four days after the Labor Department reported the highest retail price hikes in 39 years, at 6.8% annually, the Bureau of Labor Statistics on Dec. 14 said wholesale prices for the last year rose even faster, by 9.6%. In a sane political world, statistics this devastating to average-income people would make political leaders and central bankers act aggressively to douse the flames. Instead, President Joe Biden, House Speaker Nancy Pelosi, Senate Majority Leader Chuck Schumer, and Federal Reserve Chairman Jerome Powell are all pouring turpentine into the fire.
Simple common sense, backed by long experience, teaches that in the aggregate, two main policy choices strongly tend to exacerbate inflation. The first, big federal spending combined with high deficits and debt, is a surefire way to place upward pressure on prices. The second, extremely loose monetary policy by central bankers, devalues the currency and thus causes each dollar to buy less than it formerly did.
Granted, if unemployment is high, the economy sometimes can absorb the added stimulus through job growth. But when the unemployment is low, as it is now, prices rise when lawmakers overspend and bankers keep priming the pump.
Biden, Pelosi, Schumer, and their Democratic congressional majorities don’t seem to care. They keep binge spending as if drunk, while threatening to spend even more. On top of a regular federal budget of what was roughly $4 trillion just three years ago, lawmakers have approved $6.8 trillion in additional spending in just 21 months. And now, Democratic leaders are threatening to spend $4.75 trillion more in the form of Biden’s Build Back Boondoggle bill.
Powell, meanwhile, has kept the federal funds interest rate near zero for almost two years while the Fed has aggressively transacted financial-asset purchases in ways barely ever imagined and never before even remotely attempted. These policies amount to an all-out assault on the value of the dollar.
Those are all big-picture, or macroeconomic, considerations. At the more microeconomic level, specific policies can drive price hikes in individual areas of the economy. Such has been the case with Biden’s multiple policies hostile to domestic fossil-fuel production. Again, this isn’t difficult: When a president cancels energy leases, kills a major pipeline, and heavily regulates the oil and coal industries, energy supplies dwindle, and prices inevitably rise.
Sure enough, the biggest driver of today’s inflation is the price of fuels, which, of course, reverberates throughout the whole economy. As the cost of transporting goods grows, retailers must charge more for the goods themselves. Almost entirely because of Biden’s policies, energy prices as a whole were up by 33% in 12 months, with gasoline prices up a frightening 58%.
Meanwhile, when wholesale prices are rising even faster than already inflating retail prices, this means retailers are cutting their nominal markup margins for each item sold. That can’t last. Eventually, retail prices will catch up. Therefore, when Biden says inflation at the retail level has just reached a peak, that’s nonsense. The worst of inflation is yet to come.
It’s time to stop the federal overspending. It’s time to stop the Fed’s bizarrely loose monetary policies. It’s time to stop the madness.
If policymakers just return to what once was normal — ordinary levels of spending, interest rates that are still historically low but at least in the ordinary range — then inflation will abate.
Until then, when your family keeps paying 14% more for its daily bacon than it did a year ago, blame Powell and the Democratic lawmakers. They are the ones burning holes in your family’s budget.
