In the first few weeks after taking office, President Joe Biden made a series of decisions that continue to have considerable influence on the American economy—which, naturally, has considerable influence on how the average voter views his administration.
"Joe Biden's administration has dedicated its first few weeks in office to spending more money on pandemic relief—and shrugged off warnings that the economy may overheat as a result," Bloomberg summarized in a piece published on February 9, 2021. That big bet on "run-it-hot economics," as Bloomberg termed the move, was partially based on Biden's campaign trail promises—including a promise to deliver yet a third round of stimulus checks to American households, even those that had not seen their income reduced by the COVID-19 pandemic.
And it was a bet backed up by a general consensus of liberal commentators, who warned that there was a greater risk from going too small than from going too big. The most important economic lesson for Biden to learn from the pandemic was that "a 'hot' economy with high deficits didn't cause runaway inflation," The New York Times' Upshot blogger Neil Irwin wrote in January 2021.
Fast-forward to the 16th month of the Biden administration and it's now painfully apparent that a hot economy with high deficits did in fact help to stoke price increases of the sort that Americans haven't seen in 40 years. Yes, unexpected events like the Russian invasion of Ukraine and lingering pandemic issues in supply chains have contributed to inflation, but the underlying cause is the same as it always is when prices increase: too much money chasing the same amount of goods.
The economy, in short, is running hot—and the consequences are obvious.
Biden has spent months disingenuously trying to deflect blame for high inflation onto Russian President Vladimir Putin and other causes. On Tuesday, however, the White House pivoted to a new approach. In an op-ed for The Wall Street Journal, Biden outlined what he calls a three-part "plan for fighting inflation."
The op-ed serves as a useful illustration of the Biden administration's muddled thinking about the current state of the economy, as well as its powerlessness to actually combat the inflation it unleashed on the country.
Before even getting to his three-point plan, Biden reassures readers that he understands their concerns: "I grew up in a family where it mattered when the price of gas or groceries rose. We felt it around the kitchen table." Then the op-ed veers into several paragraphs that seem like stump speech about the underlying strength of the economy. "The job market is the strongest since the post-World War II era," Biden argues, in part, due to "the fastest decline in unemployment on record, and millions of Americans getting jobs with better pay."
That's as confused as it is misleading. If everything is great, why are Americans anxious? Maybe because those "jobs with better pay" aren't enough to keep up with inflation, leaving many workers with bigger paychecks but larger bills for everything from groceries and gas to rent and electricity.
Biden's argument also ignores how the White House's assurances about the economy have been wildly wrong in the past. "On July 19, 2021, President Biden played down the risk of persistent inflation, telling reporters that price hikes 'are expected to be temporary.' This month, Biden called reining in prices his 'top domestic priority,'" The Washington Post pointed out on Tuesday.
So what about Biden's three-step plan to fix the things that are, in his telling, already going great? First, Biden says he'll stand aside and let the Federal Reserve handle things. "Past presidents have sought to influence its decisions inappropriately," Biden writes in the Wall Street Journal. "I won't do that."
Translation: Get ready for higher interest rates throughout the economy. That's the Fed's main tool for controlling inflation, one that the central bank is already deploying. Higher interest rates encourage saving rather than spending, which is an effective way to cool an economy running too hot by giving those excess dollars something else to do rather than chase the limited number of goods available.
By signaling that he won't try to pressure the Federal Reserve into not raising interest rates further, Biden is admitting that the economy is running too hot. This is the closest we're likely to get to an admission that his presidency pulled the wrong economic levers during those crucial first weeks and months.
The second and third parts of Biden's inflation-fighting plan are not much of a plan at all. He promises "to take every practical step to make things more affordable for families during this moment of economic uncertainty" without offering much in the way of specifics about how to do that. That's probably for the best. The White House can't control prices—as the past year demonstrates—and history suggests that any attempt to set price controls will backfire spectacularly.
Biden also waves at other scapegoats like "the exorbitant fees that foreign ocean freight companies charge to move products," but it's hard to take him seriously about that as long as The Jones Act—a 1920s law that jacks up the cost of shipping goods into American ports—remains in effect.
Finally, Biden promises to "keep reducing the federal deficit, which will help ease price pressures." Reducing the deficit would indeed be a good idea, but Biden's claim of being a deficit-cutter is as disingenuous as his administration's attempts to deflect blame for inflation. As the Congressional Budget Office made clear in a report published last week, policies enacted under Biden's signature have hiked the country's long-term deficit by about $2.4 trillion.
Biden's three-point plan for fighting inflation is really just a one-point plan—let the Fed fix this mess—because points two and three are things he either can't actually do (lower prices and fix supply chains) or things he is actively working against (reducing the deficit).
The president is largely powerless here, because the ideal time to prevent inflation is before it begins. Unfortunately, Biden willingly discarded that option.