This post will be a bit of a jumble since I’m trying to accomplish several different things in it. I’m starting out by, as they say on Jeopardy, putting it in the form of a question: did the Biden Administration cause inflation deliberately? That’s what Daniel Turner says at RealClearEnergy:
Toomey outlines the numerous times Biden promised to “get rid of†the fossil fuel industry. Biden announced executive orders on his first day in office cancelling the Keystone pipeline and ending oil and gas leases on federal land. As the title of Toomey’s report suggests: energy inflation was by design.
For two years, I’ve discussed this issue on television and radio programs and asked the same question: How did the Biden administration not know what the consequences would be of such policies? Toomey answers the question: they did know. They desired these results.
I don’t think it’s quite that simple. I think that events developed much more rapidly than they expected and that the real problem is actually worse.
Josh Billings put it quite well: it ain’t what you don’t know that will hurt you but what you do know that just ain’t so. Everything in Joe Biden’s lengthy career tells him that government spending is economic stimulus. That’s only true when there’s excess capacity as any good Keynesian would tell you. Otherwise it produces inflation: too much demand chasing too little supply.
They also think that climate change is a crisis or, at least, they want their supporters to think they believe that. I think it’s a risk rather than a crisis. That has implications for strategy and timing. Astonishingly, they don’t seem to relate the policies they’ve put in place with what has actually happened. I suspect from that they believe that the private sector responds instantly to new incentives regardless of what has happened before. That, too, just ain’t so. Investors need a reasonable expectation of return over the life of the investment. If that’s the way you define “corporate greed”, then Bernie Sanders is right—corporate greed is producing higher prices. But it’s only true if you define corporate greed as the inexplicable desire to make money on your investments.
You can’t even produce an instant response with government action anymore. There’s a year or so of planning and hearings followed by a lengthy and involved process during which the contracts are let. By the time any action has taken place a new administration is in office.
All of that presents a pretty gloomy outlook. Will a Republican Congress be able to curb inflation? I don’t believe so. Even with their best efforts it can only be accomplished by reducing demand and/or increasing supply while reducing spending. The spending reduction part is a necessity so that the Fed’s interest rate jiggering will work.
I have no idea what Kevin McCarthy’s priorities are but I suspect they are more minarchist than will produce any of those outcomes in the near term. We’ll see.
It’s a lot easier to break things that are maintaining a precarious balance than it is to build them back up again.
And I haven’t even touched on Ukraine yet.
Do Republicans believe that if you approved the Keystone Pipeline it would start pumping next week? The optimistic reports I have seen suggest at least 3 years. So not buying that argument. Leases? They have enough for years. The oil companies dont want to act on the ones they have. I think you said “Investors need a reasonable expectation of return over the life of the investment. “. All it takes is for Ukraine and Russia to make nice and oil prices drop.
BTW, if you look at savings and credit card usage it looks like all of that stu]imulus money is gone. People are putting more stuff on plastic again.
Steve
No doubt. However, that’s producing inflation. Expanding credit. The federal government does it by the trillion; individual families by the thousand. It’s still inflationary as long as too many dollars are chasing too few goods.
“”…did the Biden Administration cause inflation deliberately?”
I seriously doubt that. I do believe they wanted to raise the cost of fossil fuel derived energy in a ham fisted attempt to cause people to get behind EV’s and other green dreams. I think they completely underestimated the pervasive effects of energy’s cost throughout the economy.
I also believe, as you alluded, that Joe Biden’s career has revolved around government spending and believing it is an unalloyed good. Joe has never been very bright, but to have a wrecked production footprint and then pouring money out of helicopters is a recipe for inflation. I don’t think it was planned. I think they are dopes.
I take great exception to his advisors. Just to take one example. Either Janet Yellen is dumb as a box of rocks, or she is a despicable partisan hack willing to parrot the party line while knowingly harming the (fixed income) elderly and low income citizens. What a horrible person, along with Austin Goolsby and Jared Bernstein. Its a clown show.
Can the Republicans quickly fix inflation? No. But if they focus on curtailing and reprioritizing spending, reduce regulatory hurdles and indicate a cooperative attitude towards fossil fuel investment headway can be made. But they can’t kick out an incompetent Mayor Pete. Or overcome Joe and his veto pen.
I think they should investigate Hunter Biden and his equally corrupt father, because these people’s actions are treasonous. I think they need to address a completely broken FBI. But beyond that I hope they focus on real budget, border, crime and growth issues. I know that revenge for despicable behavior like that of the Adam Schiff’s and James Comey of the world will be tempting. But I hope they have restraint.
As I’ve been pointing out for several months, the Admin peddled notion that the consumer is flush is pure crap. I linked the FRED data on consumer credit card debt a while back. Consumers are pretty much reaching the breaking point. 16% on credit card balances will do that.
I don’t think enough people understand that inflation > wage growth will slowly drain purchasing power. Plus tax bracket creep. You will get a recession no matter what the Fed does.
“reduce regulatory hurdles”
Thought that supposedly happened with the last president. What did it accomplish? Better GDP? No. More investment? No. Do I think that cutting the correct regulations would make a big difference? Probably? Do I think anyone actually elected is going to choose to cut regulations that favor their favorite people or their favored special interests? Yes.
Steve
“I think they should investigate Hunter Biden and his equally corrupt father, because these people’s actions are treasonous.”
You will need some actual evidence*. I suggest you use that Durham guy again. I think he is available.
*To be clear, I understand you dont really need evidence to do what you guys always do, which is just investigate over and over to keep people angry and the donations rolling in.
Steve
“No doubt. However, that’s producing inflation. Expanding credit.”
Suggests we are supply constrained. I think I understand the theory behind government debt leading to inflation but there are too many examples of high government debt and no inflation to believe this is necessarily a case this time. Also, there are countries with fairly low debt with lots of inflation. Poland, Finland, Denmark, Norway just to name a few.
Steve
No
“I think I understand the theory behind government debt leading to inflation…”
Apparently not.
“Do Republicans believe that if you approved the Keystone Pipeline it would start pumping next week? The optimistic reports I have seen suggest at least 3 years. So not buying that argument. Leases? They have enough for years. The oil companies dont want to act on the ones they have. I think you said “Investors need a reasonable expectation of return over the life of the investment. “. All it takes is for Ukraine and Russia to make nice and oil prices drop.”
The fact of the matter is that Democrats in general, and the Biden admin in particular, have supported and promoted several policies and these policies come with tradeoffs that one can’t ignore or shift onto third parties when it’s politically convenient:
– Opposition to domestic production, transportation, and refining of fossil fuels – and increased fees and regulations on the same. This makes domestic production more expensive, difficult, and risky. This means that many of those leases you and others keep discussing aren’t profitable or too risky, even at elevated prices.
– Opposition to Saudi Arabia. They don’t deserve to be our allies, but the consequence of that is that won’t increase production to help us out.
– Opposition to Russia. We value punishing Russia more than low energy prices. That is a policy choice.
Whatever the merits of these policies, individually or collectively, they all tend to make fossil fuels more expensive and more subject to the kinds of supply shocks we saw this year. Unused domestic leases are a red herring – if anything, they result from the policies intended to stymie domestic production that Democrats have supported. It’s a bit cynical to work to make domestic production more difficult, risky, and expensive on one hand, and then turn around and complain when those producers don’t or can’t suddenly rescue you from the negative political effects of high gas prices.
And with Russia, we are attempting to have it both ways with a scheme where we try to essentially force Russia to sell its products and below-market fiat prices set by us to deny them money while still ensuring their product gets to market. The scheme seems absurd on its face to me.
Inflation is global, so unlikely due to Biden. It’s largely related to the pandemic and supply chain disruptions. It will take some time for the system to right itself. But investment in making the system more robust will reduce short term efficiency somewhat.
I doubt that the steps that have been taken to date will result in the system becoming more robust in the near term. We’re increasing demand faster than we’re increasing supply.
Drew: I doubt that the steps that have been taken to date will result in the system becoming more robust in the near term.
Right now, businesses are scrambling to reestablish their pipelines. This will result in a more diverse supply chain, so they don’t have to rely upon a single source in the future. Business do tend to be short-sighted, but the sting of the breakdown will linger. A new global system will emerge.
Please give me a concrete example. Note the word “near term”.
Dave Schuler: Please give me a concrete example. Note the word “near termâ€.
The system which broke down was largely based on “just in time” inventory. In a frictionless system, a single supplier with the lowest cost providing inputs just as they are needed is the most efficient. However, with the breakdown, multiple suppliers will become the norm, along with larger reserve inventories of essential inputs, in case supplies are curtailed due to conflict or pandemic. Automakers don’t want to have to stop production because of a shortage of a single chip. They will look for redundancy in sourcing, and ways to just work around shortages. This will have a cost, but will be more robust.
Z: Automakers don’t want to have to stop production because of a shortage of a single chip.
Automakers: “I’ll never be hungry again!“
Your example is of why they would want to do that rather than how they’re accomplishing it. The problem is that accomplishing it takes investment and they don’t want to do that.
JIT resulted in a lower tolerance for capital investment. Managers came to expect high returns.
Dave Schuler: Your example is of why they would want to do that rather than how they’re accomplishing it.
They are looking for suppliers, any suppliers, including {gasp} domestic suppliers, but anyone who can fill the need. Then they order a million of ’em, because they don’t want to be caught short. So, they are building multiple supply relationships, even if more expensive, and building inventory of critical inputs, even if it costs more upfront for the inventory and for storage, obsolescence, and waste. This will be refined over time to create a more rational system, but they are certainly throwing money at it. The production of a $50,000 vehicle was stopped by a shortage of what had been a $95 part. Of course carmakers will pay double and pay for inventory far in advance of need. The problem is that it takes a billion-dollar factory to produce that $95 part.
My views align with Andy’s.
The Biden administration and Democrats aren’t trying to cause inflation deliberately the same way no one delibrately tries to be morbidly obese.
But being morbidly obese requires a series of deliberative choices in lifestyle where something else was prioritized over keeping obesity under control.
And that’s what Biden and Democrats have done, make a series of policy choices (ARP, student debt relief, IRA, energy policy, Ukraine) where other priorities went before inflation.
I recall a statement Biden made a few months ago — “I want every American to know that I’m taking inflation very seriously and it’s my top domestic priority” or his WSJ op-ed “This is why I have made tackling inflation my top economic priority”. Emphasis mine; that qualifier on “domestic” and “economic” told me inflation wasn’t his foremost priority.
Andy- I have looked and i am not seeing a lot of new regs and fees. Mostly what i ma seeing is a return to what we had when Obama was POTUS, when we saw a large increase in energy production.
Linked below is a list of 25 things he supposedly did according to conservatives but most are pretty easy to see through. What you are mostly seeing is an energy sector that to hurt during the pandemic that is now making big profits. That could turn on a dime is Russia and Ukraine suddenly resolved issues. How many people believe Germany would not go back to using Russian gas? How many energy companies would bet a lot fo money on that?
Agree on Russia and Saudi Arabia. Tough choices. ts tough in the short term. In the longer run is there any doubt we would be better off if we and the rest fo the world weren’t so dependent upon oil from those two sources?
Steve
“In the longer run is there any doubt we would be better off if we and the rest fo the world weren’t so dependent upon oil from those two sources?”
This is what I mean about tradeoffs. If we don’t want to use Russian oil or Saudi oil, and we also don’t want to increase production in the US, or make Canadian oil more accessible, then what is the plan to not be dependent on those sources besides hand-wavy talk about “green” energy?
And for natural gas, we have a divided Democratic party that couldn’t stop the fracking revolution. And thank goodness for that. Fracking allowed the US to become the global leader in natural gas production and also allowed us to retire coal earlier, improving our carbon output. Russia is #2 for NG production, and Iran is #3 at 1/3 of our production.
If Europe stops buying Russian NG, where will they get supplies?
Tradeoffs and priorities matter. TANSTAAFL.
And this popped up on my feed this morning:
https://www.forbes.com/sites/davidblackmon/2022/11/07/biden-promises-no-more-drilling-just-days-after-demanding-more-drilling/?sh=76ddaee178e7
Trying to have it both ways isn’t helping.
“, then what is the plan to not be dependent on those sources besides hand-wavy talk about “green†energy?”
Wind power is now the cheapest form of energy in Colorado as you may know so its way beyond the hand wavy stage, but it has a long way to go. I think we keep using a combination of nuclear and natural gas for the most part as build up the renewable sector, which is still pretty young. Think about how far along we were with combustion engines 30-40 years after we had them.
“If Europe stops buying Russian NG, where will they get supplies?”
Russia is still pumping gas, or it can. It didnt disappear. What will happen assuming Germany doesnt go back to Russian gas is that Russian gas will go to China and India or elsewhere. Gas from OPEC, IRAN, the US will go to Europe.
“we have a divided Democratic party that couldn’t stop the fracking revolution.”
Largely just the progressives who wanted to do that, a minority of the party. I think the majority position is something like “we wish we had enough renewables to do away with fossil fuels but we dont and wont for a long time. Natural gas is a lot better than coal so we will support fracking.”
Finally, your own article notes that the Biden admin has sold more leases and permitted more drilling. Their actions are what are important. They really dont have much influence over whether oil companies drill unless they nationalize or declare an emergency.
Do you disagree about Germany? If Russia and Ukraine make nice and Russia wants to sell do you think Germany will buy? If you were an oil company would you sink a lot of money into drilling knowing prices would depend on that decision?
Steve