Biden’s Plan to Ease Inflation

In an op-ed in the Wall Street Journal today President Joe Biden outlines his plan for easing inflation:

First, the Federal Reserve has a primary responsibility to control inflation. My predecessor demeaned the Fed, and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this. I have appointed highly qualified people from both parties to lead that institution. I agree with their assessment that fighting inflation is our top economic challenge right now.

Second, we need to take every practical step to make things more affordable for families during this moment of economic uncertainty—and to boost the productive capacity of our economy over time. The price at the pump is elevated in large part because Russian oil, gas and refining capacity are off the market. We can’t let up on our global effort to punish Mr. Putin for what he’s done, and we must mitigate these effects for American consumers. That is why I led the largest release from global oil reserves in history. Congress could help right away by passing clean energy tax credits and investments that I have proposed. A dozen CEOs of America’s largest utility companies told me earlier this year that my plan would reduce the average family’s annual utility bills by $500 and accelerate our transition from energy produced by autocrats.

We can also reduce the cost of everyday goods by fixing broken supply chains, improving infrastructure, and cracking down on the exorbitant fees that foreign ocean freight companies charge to move products. My Housing Supply Action Plan will make housing more affordable by building more than a million more units, closing the housing shortfall in the next five years. We can reduce the price of prescription drugs by giving Medicare the power to negotiate with pharmaceutical companies and capping the cost of insulin. And we can lower the cost of child and elder care to help parents get back to work. I’ve done what I can on my own to help working families during this challenging time—and will keep acting to lower costs where I can—but now Congress needs to act too.

Third, we need to keep reducing the federal deficit, which will help ease price pressures. Last week the nonpartisan Congressional Budget Office projected that the deficit will fall by $1.7 trillion this year—the largest reduction in history. That will leave the deficit as a share of the economy lower than prepandemic levels and lower than CBO projected for this year before the American Rescue Plan passed. This deficit progress wasn’t preordained. In addition to winding down emergency programs responsibly, about half the reduction is driven by an increase in revenue—as my economic policies powered a rapid recovery.

We’ll see. I don’t believe the evidence supports the claim that the run-up in oil prices is largely due to taking Russian oil and gas off the market for two reasons. First, a considerable portion of the price increases took place before Russia’s invasion of Ukraine but, second, most of Russia’s customers continue to buy its oil and gas and the reduction in purchases by some customers have largely been offset by increases on the part of others.

I’m glad he made a hat tip to increasing production but I wish it were more than a hat tip. Will his “Housing Supply Action Plan” actually result in the building of more houses or is it more likely just to subsidize the construction of houses that would have been built in any case? Will whatever increased supply is realized outweigh the inflationary effects of the additional spending under the plan? It seems to me that a considerable portion of the increase in housing prices is due to constraints on building imposed by jurisdictions with high demand. I don’t think his plan will do much to increase the supply in those places.