To the surprise of no one outside the White House, a recent ABC News/Washington Post poll showed that 74 percent of Americans believe the economy is in bad shape, up from 58 percent in the spring of 2021. With 84 percent or respondents identifying the economy as a top issue in the upcoming midterm elections and 74 percent saying the same about inflation, why does the Biden administration seem more intent on exacerbating the problems than addressing them? Let’s take a look at how Biden got us into the current economic crisis and what he could do to get us out of it.
While there are many moving pieces in any economy, the root causes of inflation are relatively straightforward. In normal economic times, the markets balance supply and demand minimizing inflation. For example, if the demand for a particular retail good is high, but the supply of that good is low, retailers will increase prices resulting in reduced demand. When the supply of a particular good is greater than the demand, retailers will lower their prices increasing demand.
The goal is to keep supply and demand in balance and our free market economy naturally trends towards that balance (which was the case during the Trump administration). Problems arise when the government intervenes.
During the pandemic, the government intervened big time by approving $4.1 trillion in relief measures under President Donald Trump. This made sense under the circumstances as people were unable to work and needed to pay their bills. But pandemic restrictions made it impossible for them to spend at traditional levels. So, it was obvious to virtually everyone that coming out of the pandemic we were going to experience accelerated demand.
It was also obvious that the supply of goods would be low. Businesses were unable to determine either what to produce or what to order during the pandemic as there was no clear timeline for when it would end.
As Biden took office, vaccines became available, and things started returning to normal. Economists who had served in both Democrat and Republican administrations saw the problem – demand was unnaturally high, and supply was unnaturally low. They warned Biden and his Democrat allies that increased government spending would juice demand driving inflation. The Biden administration ignored the advice, denied the existence and severity of any problem, and spent with the abandon of drunken sailors.
In March of 2021 Biden and the Democrats unilaterally and unnecessarily passed their $1.9 trillion spending bill (ironically called the American Rescue Plan) at a time when most Americas were already flush with cash. That released the inflation Kraken. To make matters worse, it was followed by a $1.1 trillion infrastructure bill, a climate change bill with $437 billion in spending (absurdly called the Inflation Reduction Act) and a $400 billion student loan write off. Not surprisingly, inflation surged and continues at levels not seen in 40 years.
So, what could Biden do reverse the results of his thus far disastrous economic policies? Simply, we need to reduce demand, increase supply, and inflation will subside. It's not like this is a mystery.
While incomprehensibly late to the game, the Fed is finally doing its part by raising interest rates to slow the economy and reduce demand. The problem is that the Biden administration continues to spend with abandon, further increasing demand, while the Fed is raising interest rates to lower demand. The more Biden and Democrats drive demand with massive government spending, the higher the Fed needs to raise rates to reduce it. It's like a dog chasing its tail.
So, the first thing Biden should do is to stop juicing demand and support the Fed. Just stop the wasteful and unnecessary spending!
On the other side of the economic scale, Biden should immediately pursue policies that increase supply to bring supply and demand back into balance. There is no mystery about what policies work in this respect.
First, cut taxes. Make the Trump tax cuts permanent and stop talking about increasing taxes or setting global minimums. Second stop the regulatory surge that is sapping the productivity of American businesses, particularly the oil and gas sector. Rather, focus on increasing domestic energy production reducing the costs of, well, everything!
This is not some unproven formula. It’s the very formula President Reagan employed to end the horrific recession we experienced in the 1980s coming out of the Carter era.
In fact, it’s the very plan House Minority Leader Kevin McCarthy is proposing. The House Republicans recently released their "Commitment to America" which proposed cutting "wasteful government spending" while bringing "stability to the economy through pro-growth tax and deregulatory policies." The plan includes cutting "the permitting process time in half" to "maximize production of reliable, cleaner American-made energy" lowering "the costs of gas and utilities."
This simple plan makes economic sense, has been successfully employed in the past and has Republican support. Biden could make it a bipartisan effort. The Biden administration’s failure to adopt it makes you wonder if they have some agenda other than bringing back the economic prosperity we enjoyed under both Presidents Reagan and Trump.
The Director of Biden’s National Economic Council, Brian Deese recently confirmed that alternate agenda. When asked about American families unable to afford soaring energy prices, he responded that the Biden administration was protecting "the future of the Liberal World Order and we have to stand firm." Talk about saying the quiet parts out loud!
There is a disparity in goals at work here. American’s want a prosperous economy for themselves and their families where they can afford gas, food, and maybe even a home of their own one day. Biden and Democrats want to preserve the liberal world order even if the costs for doing so come out of your pocket.
It's a good thing to keep in mind when you visit a ballot box in November.
Andy Puzder served as chief executive officer of CKE Restaurants for more than 16 years, following a career as an attorney. He is currently the executive chairman for 2ndVote Value Investments, Inc. and a Senior Fellow at both the Pepperdine University School of Public Policy and the America First Policy Institute. He was nominated by President Trump to serve as U.S. Labor Secretary.