Runaway inflation discredits Democrats’ fiscal and monetary policy
Inflation continues to spiral out of control, taxing ordinary Americans and small businesses to the tune of nearly 10 percent of their earnings — on top of all the other taxes they pay. The Labor Department recently announced that consumer prices are increasing at 7.5 percent and wholesale prices are increasing at 9.7 percent over the last year.
As a result, Americans are experiencing a Joe Biden pay cut of declining real wages and living standards. Small businesses are disproportionately impacted because they do not enjoy the economies of scale or preferential purchasing contracts of their big business competitors. While people across the country are forced to cut back on purchases just to stay in the same place, small businesses must constantly raise prices just to remain profitable. According to Job Creators Network’s Monthly Monitor poll, inflation is by far the biggest concern of American small business owners.
At the beginning of President Biden’s term, I predicted this high inflation, but Democrats, economists and many in the mainstream media willfully ignored it. Their ignorance is likely because inflation discredits their preferred fiscal and monetary policy, which is characterized by reckless spending, massive stimulus and money printing.
For years, these elites have acted as if fiscal profligacy and easy money are a free lunch. Inflation is now the check coming due. It’s a black eye for Democrats, because it directly results from their Keynesian fiscal religion and Modern Monetary Theory (MMT) madness.
Last year, the Biden administration passed an (unnecessary) $1.9 trillion American Rescue Plan and a $1.2 trillion infrastructure-in-name-only bill. Fierce opposition from conservative groups and grassroots Americans forestalled the $5 trillion “Build Back Broke bill” from passing. Meanwhile, the Federal Reserve injected trillions of dollars into the economy through asset purchases.
This massive influx in additional dollars has made the dollars already in our paychecks, pocketbooks and bank accounts worth less. As Milton Friedman explained, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” In a recent study, the Federal Reserve Bank of San Francisco demonstrated how the American Rescue Plan directly pushed up prices in the economy.
This painful inflation should put a nail in the coffin of Modern Monetary Theory, the belief held (at least in practice) by many Democrats that deficits don’t matter because money grows on trees via Federal Reserve printing. The inflation cost of MMT is proving high and painful. This philosophy also is responsible for the federal debt hitting $30 trillion, the net interest on which threatens to be a massive drag on the economy moving forward.
High inflation also should drive a stake through the heart of the crackpot Democratic idea of universal basic income. Direct government payouts artificially boosted aggregate demand while at the same time contributing to the worst labor shortage in American history, reducing supply. Economists at The Committee to Unleash Prosperity estimate that most recipients of supplemental unemployment benefits made more than at their old jobs.
The consequence: rapidly rising prices. Americans may think they are getting ahead when they receive a stimulus check. Certainly, that’s what the Democrats who support these basic income policies expect. But the higher incomes are ephemeral because they cause prices to rise, eliminating any real pocketbook gains. Support for universal basic income among some of America’s smartest technology innovators is proof that high intelligence doesn’t translate to sound public policy.
In response to this inflation crisis, Congress must commit to no more unnecessary spending or distortionary social programs that further raise prices. The remnants of the Build Back Better legislation should go down in flames because their fiscal impact and economic distortions threaten to turn high inflation hyper. The Federal Reserve must resist the influence of radical Democrats who support MMT, immediately end its asset purchases, and raise interest rates.
Higher borrowing costs also hurt consumers and small businesses, but Democrats’ inflationary spending spree in the name of COVID-19 has left the Fed with no other choice. Higher prices are today’s bill that Americans are paying for Democrats’ bad policies. Higher borrowing costs and less economic vibrancy will be tomorrow’s.