Why Washington Can’t Have a Fair Debate About Inflation?

However, the political conversation about inflation is not very good. In fact, it’s largely a puppet show, with enough artifice to go around between all the actors involved.

Republicans, unsurprisingly, play the role of prosecutor indicting a Democratic suspect. They accuse President Joe Biden of causing a particular plague of price hikes that “crush” American consumers. They mocked him for assuring the country when the problem flared up last spring that inflation would be “transient.”

Those dramatic allegations have put the GOP in a strong position to gain in the midterm elections this fall. But substantively, they omit a lot of contradictory evidence.

Inflation has soared in countries around the world as pandemic-stricken economies bounced back. That process strained manufacturers’ supply muscles, all the more so as the pandemic created new patterns of consumer demand that companies were unwilling to meet.

The resulting inflation has undeniably caused economic pain for millions of families, eroding the purchasing power of higher wages. At the same time, they aren’t “crushed” bad enough to keep them from spending money at a steady pace.

That’s because families up and down the income scale, thanks to Covid relief checks, generally still have more money than they did before the pandemic; in the jargon of economic analysts, ‘household balance sheets’ have still ‘saved too much’. Unemployment has fallen to below 4%.

“The excess savings were enough to cushion the impact of falling real wages on spending, even for lower-income households,” said Moody’s chief economist, Mark Zandi. “U.S. households are financially well off for the most part.”

Biden’s White House was hardly alone last year to believe inflation would be short-lived. So did the Federal Reserve, the government agency responsible for monitoring and controlling inflation through monetary policy stewardship.

The role of the media is always to hold government accountable. But the unelected, relatively obscure Fed does not hold daily press conferences.

The White House, home to the most visible civil servant of all, does. So journalists constantly question the president about solutions to rising prices, even though no White House in a free-market economy has much power to bring them down.

The chair’s role is to answer the questions. For unlucky voters, “not much I can do” is enough.

That is why Biden often resorts to political performance art. He joins fellow Democrats in attacking greedy corporations, even as corporations respond to market forces, whether inflation is high or low — as it has been for over 30 years.

Presidents are feeling particular pressure to respond to rising gas prices. Rising numbers on signs at the pump — driven by oil supply and demand — particularly enrages voters.

Like previous presidents who have faced similar pressures, Biden has demanded an investigation into “price pushing.” Last week, the House Democrats passed an anti-cart bill. The only expected result: a few headlines.

While the inflation debate is largely fake, it’s not entirely fake. Presidential policies can exacerbate inflation.

Economists across the political spectrum now believe that Biden’s $1.9 trillion US bailout, while accelerating growth and job creation, slightly exacerbated inflation by over-stimulating consumer demand. Republicans have a point. What is unclear is how much difference the rescue plan has made.

Presidents can also moderate inflation, if only on the margins. Government efforts to ease price pressures by facilitating supply chains are helping a little. This also applies to the record release of oil from the Strategic Petroleum Reserve.

But modest gains are quickly being overwhelmed by outside shocks, from new Covid shutdowns in China to Russia’s invasion of Ukraine. Steps the government is now considering but has not taken, such as lifting select import tariffs President Donald Trump imposed on China, would be equally vulnerable.
Whether current inflation ultimately plunges the US economy into recession depends largely on the Fed’s ability to raise interest rates to bring them down. Biden’s main contribution to that process comes in his appointments to the Fed’s board.

The Fed chairman he inherited was Jerome Powell, a Republican appointed to that position by Trump. President Barack Obama had first tapped Powell to run the Fed in 2011.

At the end of last year, Biden decided to retain Trump’s chairman. On May 12, 80 of the 100 senators — including an overwhelming majority of both Republicans and Democrats — voted to confirm the president’s election.

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