The economic community is fracturing over inflation concerns caused by the Biden administration's massive spending initiatives.
Conservative monetary theorists interviewed by the Washington Examiner predict Congress passing President Joe Biden's $4.5 trillion in combined infrastructure proposals will lead to double-digit inflation, yet Keynesian adherents maintain that the 10-year window across which Biden's infrastructure investments are spread counteract any temporary price increases.
Phil Kerpen, president of the Committee to Unleash Prosperity, said he believes “inflation's already running higher than the Biden administration suggests.”
“The year-over-year figures obscure that the last few months have been substantially higher inflation than the last half of last year, and if you look at the five months since Biden took office, the change since January, we've got consumer prices increasing at a 9.5% annualized rate, producer prices are already in double digits, and a lot of the runoff in housing costs has not really worked its way into the indexes yet,” he explained. “So, as that happens, I think you're going to see a further increase, and there's been this line that it was transitory, and the fact that you're seeing a retreat from that now, from the excuse-makers of our current fiscal and monetary policy, I think is sort of a recognition of the reality that none of the factors that are driving this are temporary.”
Kerpen said “it's more likely than not that we are going to see double-digit inflation on a full year basis,” as “all of the brushes are pointing in the direction of increasing, not decreasing, especially if they pass these massive spending bills.”
“The challenge that this administration has is, obviously rising prices is a huge political problem for them, but their core policy agenda involves a whole list of policies, and every single one of them points in the direction of higher prices,” he continued. “I don't see how they can address the inflation problem without abandoning kind of the core of their agenda.”
Jonathan Williams, the chief economist for the American Legislative Exchange Council, thinks “multiple trillion-dollar spending packages from Washington, D.C.,” fits the “classic definition of inflation,” namely “too many dollars taking too few goods.”
“Absolutely we'll have an upward uptick in inflation,” he said. “It is somewhat strange from a classical economist's point of view of seeing these statements from the White House and others here in Washington, arguing that trillions more in spending, however virtuous that might be, that's not going to have some sort of impact on the overall market when it comes to inflation and pressures on prices.”
Williams stated that though Biden's spending priorities are “virtuous,” the “real question is how do you then pick up real economic growth when it comes to productivity and overall U.S. competitiveness?”
He specifically expressed concerns that the global minimum tax and domestic corporate tax hikes the Biden administration is pursuing will make it impossible to foster competitive growth, an “essential element” for offsetting inflation.
Still, Hutchins Center on Fiscal and Monetary Policy Director David Wessel shot down these arguments.
“It’s true that we can get unwelcome inflation if there’s too much spending that isn’t paid for by taxes and if the Federal Reserve sits on its hands, particularly if American households spend the money they’ve saved during the pandemic,” he told the Washington Examiner. “But the president’s infrastructure proposals are irrelevant to the inflation debate. If they’re approved, the money will hit the economy over the next several years.”
Wessel claimed that “infrastructure spending increases productivity, the ability of the economy to produce more without more labor and capital,” and suggested that “conservative anti-spending folks are skeptical that what Congress calls ‘investment' is actually investment that will increase productivity growth. People who argue that fiscal policy drives inflation are hypocritical when they look only at spending but not at tax cuts.”
Wessel's statement aligns with comments former President Barack Obama's Council of Economic Advisers chairman Jason Furman made to the Dispatch, despite expressing serious concerns about the 5.4% year-over-year inflation increases published by the Bureau of Labor Statistics earlier in the week.
Furman, now a professor of economic policy at Harvard University, explained that unlike the $1.9 trillion dumped into the economy all at once by the CARES Act, which was “impossible for the [Federal Reserve] to deal with,” the infrastructure plans are “much more about the economy over the next five, 10, 15 years than it is about combating the recession.”
It's worth noting that the administration has slowly shifted its messaging on inflation in recent weeks after spending Biden's first half-year in office insisting that post-pandemic price spikes would alleviate themselves within weeks.
“We will have several more months of rapid inflation,” Treasury Secretary Janet Yellen told CNBC on Thursday. “So, I’m not saying that this is a one-month phenomenon.”
“We understand the threat that inflation poses. We will be vigilant as responses are needed,” White House press secretary Jen Psaki said during Thursday's press briefing, the White House's first on-camera response to the May consumer price index jump. “We are quite mindful of it. We do monitor it. I would also note the Federal Reserve, who’s independent, has also projected that the inflation numbers will come down to about 2.2 next year from where they're projecting for this year, which is something we also watch closely.”
During that same briefing, Psaki continued to advocate for Biden's spending packages.
“The way to keep prices in our economy down is to increase the supply of goods that consumers want to buy and keep the costs of producing and getting them to market lower. That's exactly what the president's bipartisan infrastructure framework and the ‘Build Back Better' plans will do,” she said. “I would also remind you all, it's an eight-year investment in better roads, bridges, and transit systems. So, this is not an immediate influx in the next few months of funding; it's over the course of several years because this is a long-term issue.”
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