As you are no doubt aware in the United States the annual inflation rate is presently running at 8.5%, the highest in 40 years. In my opinion these are the American political figures most responsible for the present situation:
- Donald Trump
- Joe Biden
- Chuck Schumer
- Nancy Pelosi
- Jerome Powell
As they say it takes two to tango and in this case the two are monetary and fiscal policy. Today there’s a lot of reaction to the news.
In his latest New York Times column Paul Krugman assures us that inflation will clearly “whip back”. I sincerely hope he’s right. The editors of the Wall Street Journal see things somewhat differently. After showing the evidence that contradicts the claim that what we’re experiencing is “Putin’s inflation”, they summarize:
President Trump signed onto an unnecessary $900 billion Covid relief bill in December 2020, and Democrats threw kerosene on the kindling with another $1.9 trillion in March 2021. The Federal Reserve continues to support negative real interest rates nearly two years after the pandemic recession ended. This inflation was made in Washington, D.C.
In addition to their points I think we’re experiencing the long-delayed consequences of extremely bad policies adopted on a bipartisan basis over the period of more than 30 years. We’re not going to counteract that overnight and trying would be painful in the extreme. It will take time and concerted effort. So far I’m just not seeing the stars align.
Additionally, I’m a bit concerned that the FOMC is making some weak assumption—for example, that the U. S. economy is as or even more responsive to interest rate changes as it was 40 years ago. A lot has changed since then.
If you’re wondering how I came up with the list at the top of this post, Mr. Powell was wrong in his assumptions about the nature of inflation, has been quite slow to act, and did very little when he did act. His responsibility for the fiscal end of the equation should be unquestionable. Speaker Pelosi is next on my list because of Article I Section 7 of the Constitution:
All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.
with Sen. Schumer following close behind. President Biden forms the third leg of that fiscal policy tripod.
And President Trump did sign on to the $900 billion COVID-19 benefit bill in December 2020.
The deity of the Free Market, who by the way we haven’t heard from in how many months, years!
Krugman is a smart man, but he lies a lot, pushing any story that might support his political agenda.
I think your list is a pretty fair roster. But I think you need to at least add Ben Bernanke with Powell, and Barack Obama in the presidents list.
The politicians will take pumping first, and leave the excuses for later. See: Putin’s Price Hike. The Fed knows better, but these are weak people, all afraid of losing their independence.
If Krugman is a smart man, then his dismal track record can only be ascribed to being a charlatan.
Our present problems go back at least to Clinton if not to GHW Bush or even Reagan. I would defend the proposition that their present acute form can reasonably be dated to December 2020 and the $900 billion in COVID-19 relief the appropriations bill signed by President Trump put in place.
Then the Democratic Congress and President Biden added insult to injury with almost $2 trillion more.
I would put Janet Yellen right beside Powell in terms of responsibility. Treasury and the Fed were incredibly tied at the hips when inflation started going in 2021. Yellen also headed the Fed and was a central actor in many of the policies (QE, raising the inflation target) that made the situation possible.
If you are going to go further back than the last few years then Reagan is the spiritual father. He is the one who changed things so that we no longer even attempted to worry about government spending and the resultant debt. You goose the economy by big govt spending, tax cuts and debt. Debt is just a future problem for someone else.
Who appointed Powell anyway?
Steve
That was my point in my comment above.
A key point is that the first round of COVID-19 relief was justified; after that not so much. Considerably more targeted relief could have been justified but the Congress has not been good at narrow tailoring for years, maybe ever.
It’s the bane of aging great powers, debasement of the currency. Americans want their benefits, but they don’t want to pay for them. They even support tax cuts for the wealthy and powerful, while refusing to hold them accountable for misdeeds. This is called “populism.”
Re Reagan;
It’s too long and complicated to explain in a comment. But one should look further back, to Nixon, Johnson, and Roosevelt for the primary blame on the issues of deficits….
CuriousOnlooker: It’s too long and complicated to explain in a comment. But one should look further back, to Nixon, Johnson, and Roosevelt for the primary blame on the issues of deficits….
Roosevelt ran deficits during the Great Depression of about 5%, but real GDP growth was about 7%. Kennedy-Johnson never ran deficits over 3%. Nixon-Ford left a deficit of about 4%, Carter 3%. Reagan-Bush1 administrations left a deficit of about 4%. Clinton left a *surplus* of about 2%. Bush2 left the economy in shambles with the deficit reaching 9%. Obama left a deficit of about 3%. When Trump left office, the deficit was 15%. The deficit situation is expected to improve considerably over the next year or so.
https://fred.stlouisfed.org/series/FYFSGDA188S
No one gets political credit for fiscal responsibility.