Inflation Is Hard; Fighting It Might Be Harder
The tools needed to put the economy back on the right course will create some pain along the way.
Unless you’re a “Don’t Say Inflation” Democrat, Joe Biden’s rampant inflation is at the forefront of your mind. No, inflation is not, as Democrats insist, Vladimir Putin’s fault. No, inflation is not, as Democrats insisted for most of last year, “transitory.” Inflation is here to stay for the foreseeable future, and the task of reducing it is going to be economically painful.
According to The Heritage Foundation, “Higher prices have cost the average American family $2,445 in real annual income since President Joe Biden took office in January 2021.” It could be even higher in 2022.
Inflation in March reached 8.5% on an annual basis. But if the 1.2% hike in March alone were itself annualized, we’d be facing inflation of more than 14%. Lowering that substantially, argues Samuel Gregg of the Acton Institute, means we’re in for it:
The hard truth that we’re all going to have to relearn is that there are no easy paths to reducing inflation to the annual 2 percent level at which we have become accustomed. Bringing down inflation from its current high level will take much more than fixing supply chains; it ultimately will necessitate reducing demand, too, which will in turn shrink economic growth. We may have a tight labor market now, but slower growth will likely result in fewer jobs and stagnating wages.
The Democrat-dominated Federal Reserve bears much of the blame for skyrocketing inflation, and, unfortunately, it’s going to take sustained action from the Fed to fix the mess. It’s already begun raising interest rates and promises to continue doing so, which will tighten access to credit and reduce demand.
That’s especially going to affect the housing market. Interest rates on a 30-year fixed-rate mortgage are now more than 5% after hitting a record low of 2.65% right before Biden took the helm. Higher-cost debt means people’s buying power is reduced, and prices are going to fall. Given the insanity of real estate prices, that’s a good thing — unless you’re one of the unfortunate souls who bought a house in the last year. All of the above could be said for the auto market as well.
Ultimately, as the great economist Milton Friedman noted, “Inflation is always and everywhere a monetary phenomenon.” That requires a monetary solution.
Over the last couple of years, Congress spent gobs of money, running our national debt to $30 trillion. It was a comparably paltry $10.8 trillion when Biden took office as vice president in 2009. The Federal Reserve enabled this COVID spending binge by effectively printing money, and that too must stop, along with profligate government spending.
Just imagine how much worse inflation would be if Biden had rammed through his $3.5 trillion Build Back Better boondoggle. 10%? 15%? “Weimar Germany,” as FedEx founder Fred Smith surmised?
Speaking of Biden, how are he and his administration planning to tackle inflation? Well, they’re really not. His new annual Economic Report does use the word “inflation” 87 times, though his letter introducing the plan doesn’t use it at all, only touching on “rising prices.” What does his Economic Report talk about? “Gender,” a word that is used 127 times, and “inequality,” which is deployed 147 times. “Emissions” is another buzzword, with 100 uses.
Clearly, Democrats view inflation as primarily a political problem to be
overcome with overshadowed by leftist platitudes and divisive policies. Democrats losing both houses of Congress this November will be a start, but it’s going to take more than that to right the ship. In the meantime, either inflation will continue hurting or its cure will. Or both.
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