Despite House Democrats still thinking that the war in Ukraine and auto part supply shortages caused 40-year high inflation, dozens of them joined the Republicans in holding President Joe Biden accountable for any efforts to exacerbate Bidenflation. At a time when inflation appears to be reaccelerating, will requesting greater scrutiny over fresh spending efforts by the White House be enough to put a lid on skyrocketing price pressures?
Bipartisan Battle Against Bidenflation
House Republicans presented legislation on Mar. 1 requiring the administration to study any executive order that maintains an annual budgetary effect of $1 billion to determine if it may produce any inflationary consequences for the US economy. An executive order would only go into effect once the president understands its impact on inflation. Proponents of the REIN IN Act argue that this would force the president to reconsider any fresh spending and rules on the American people. Dozens of Democrats partnered with their co-workers on the other side of the aisle. Overall, the bill passed in the House 272-148.
Still, many Democrats disagreed with Republican suppositions that pandemic-era policies, like the $1.9 trillion American Rescue Plan (ARP), contributed to four-decade-high inflation. “Because of the American Rescue and the actual Inflation Reduction Act that Democrats passed last year, our country’s inflation rate is now lower than in the U.K., Canada, and 20 other European Union member states,” said Rep. Alexandria Ocasio-Cortez (D-NY).
Rep. Cori Bush (D-MO), a member of the Squad, listed Russia’s invasion of Ukraine and the COVID-19 public health crisis as the causes of global inflation. “There is no evidence that government spending or executive orders by President Biden have increased inflation,” she stated.
However, House Oversight and Accountability Committee Chairman James Comer (R-KY) contended that repeatedly passing “big-spending” legislation “has continued to throw fuel on the inflationary fire.” Rep. Elise Stefanik (R-NY), who also serves as the House GOP Conference Chair, urged Congress to pass the bill because it would force President Biden to recognize that policies emanating from the nation’s capital are crushing American families.
Are Democrats Right?
Alexandria Ocasio-Cortez (Photo by Nathan Howard/Getty Images)
Will the bill achieve anything substantive? Probably not. It might be political posturing, much like the GOP’s proposal to abolish the Internal Revenue Service and the income tax. But the legislation achieved one thing: exposing the fact that Democrats still do not understand what led to this inflationary climate.
Rep. Ocasio-Cortez asserted that the ARP and the Inflation Reduction Act tackled inflation and resulted in the US maintaining a lower rate than the UK, Canada, and other places. There are three things wrong with this argument. The first is that Canada, for example, possesses a lower annual inflation rate than the US: 5.9% versus 6.4%. France (6.2%) and Spain (6.1%) also enjoy a slightly smaller consumer price index (CPI) than the US.
In addition, some parts of the Inflation Reduction Act only came into effect in January. Other provisions will take another year or two to be instituted, such as the $2,000 annual cap on drug costs or the $7,500 tax credit for new clean automobiles. Therefore, to suggest that this legislative package has eased inflationary pressures in any meaningful way is mendacious and disingenuous.
Finally, both Rep. Ocasio-Cortez and Rep. Bush contend that there is no proof that President Biden’s pandemic-era stimulus and relief packages lifted inflation rates. However, there is plenty of research on the topic, although economists are still debating about how much these policies contributed to inflation. In Mar. 2022, the Federal Reserve Bank of San Francisco published a report that estimated direct supports accounted for roughly 3% of the inflation rate at the time, which was 8.5% when the study was published. This is merely one assessment, so Bush and Ocasio-Cortez may need to log off Tik Tok and dive deeper into the plethora of studies on this issue.
A Misleading CPI?
(Photo by Michael Nagle/Xinhua via Getty Images)
Let’s say that the girl from the Bronx is correct and that the US enjoys a lower inflation rate than other places. The problem with making this claim is that governments utilize different methodologies in coming up with their CPI prints or personal consumption expenditure (PCE) price index readings. So, for instance, in the UK, the Office for National Statistics (ONS) uses the CPIH – the H stands for housing. On the other hand, the US does not include real estate in its figures because the Bureau of Labor Statistics (BLS) views owned housing units as investment goods rather than shelter services.
This was not always the case in Washington, as the federal government did factor property values into America’s CPI between 1953 and 1983. According to economist John Williams, if the US measured the cost of living the same way it did in the 1980s, the CPI would be around 15%.
Acceptance
At this stage of the inflation cycle, it is almost a universal opinion that the American Rescue Plan had at least some influence on today’s out-of-control living costs. Even Treasury Secretary Janet Yellen conceded last year that stimulus spending contributed modestly to inflation. Indeed, people do not need to possess degrees in economics to understand that printing trillions of dollars and flooding the economy and financial system with this freshly printed money would have devastating ramifications. But blinders are needed when the corridors of power depend on this system to advance a cause du jour.
