When it comes to inflation, President Joe Biden gets two big things right — and a lot of little things wrong. Unfortunately, for both his administration and Americans adversely affected by higher prices, the little things add up.
The administration’s message on inflation is broadly correct on two fronts: If Congress adopted its ideas on tax policy, it would help reduce inflation. And the only idea Republicans have put on the table is a proposal by Senator Rick Scott to punish the poor.
But when the administration lets it be known that “the president is committed to doing everything he can to lower prices” and the president himself says fighting inflation is his “top domestic priority,” it’s hard to take them seriously. It’s clear from news reports and my own conversations with officials that inflation-fighting is not, in fact, considered a top priority.
The most clear-cut example of this is the ongoing indecision over what to do about student loan debt. During the initial phase of the Covid-19 pandemic, the federal government suspended student loan payments. At the time, this was a useful economic stimulus measure, but it’s been repeatedly extended and the US is currently suffering from too much fiscal stimulus. The politics of how to restart payments and how much debt to forgive are complicated. But the economic analysis is simple — resuming payments fights inflation, and outright forgiveness fuels it.
That’s on the demand side of the economy. The bigger issue is on the supply side.
In his State of the Union address last March, Biden observed that “one way to fight inflation is to drive down wages and make Americans poorer.” He promised that he had “a better plan to fight inflation: Lower your costs, not your wages. Make more cars and semiconductors in America, more infrastructure and innovation in America.”
It was a great applause line, but it reveals a profound ambiguity in Bidenist thought.
The more accurate version of what he’s saying is that the US needs ideas to increase its productive capacity. For most of the past 20 years, America’s actual gross domestic product has been less than its potential GDP because it suffered from a shortfall of demand. Now that demand shortfall is gone — which is a great policy achievement — and so further growth will have to come from increased potential. Investments in infrastructure should help accomplish that.
But Biden’s words can also be read as a call for more protectionism.
This ambiguity is evident in the Commerce Department’s investigation into whether Chinese-made solar panels are being sold too cheaply in the US. Enforcing anti-dumping rules could help spur domestic manufacturing of solar panels. But it would also raise costs to the domestic solar industry, stalling dozens of large-scale projects. More solar panels would be made in the US, but they would make less solar electricity and face higher prices.
At the Department of Transportation, meanwhile, the Federal Railroad Administration is trying to re-impose a rule that would require two-person crews to operate freight trains. This is an idea that was promulgated in the waning days of President Barack Obama’s administration as a safety measure, then rescinded by Donald Trump’s administration.
Even under Obama, the safety benefits of this idea were dubious, because raising freight rail costs pushes products onto trucks, which are inherently less safe. But back then, this kind of giveaway to a unionized industry was seen as a useful job-creation measure in an economy plagued by weak demand and labor market slack. Now the US needs a new approach that emphasizes tedious technocratic concerns and efficiency.
The 800-pound gorilla in this regard is revisiting Trump-era tariff policy.
One reliable estimate is that rescinding these tariffs could knock 1.3 percentage points off inflation. Even if that’s optimistic, there’s no doubt about the direction of change: Tariffs mechanically increase prices by taxing products.
The upside is supposed to be that this protects jobs. But in an inflationary climate, protecting jobs is bad. If the US imports goods from abroad instead of making them domestically, that frees up Americans to make even more things at home. But the Biden administration has generally taken the opposite view — expanding longstanding Buy America rules in procurement and contracting as if the country is currently desperate for employment opportunities.
All of these issues and policies, to be clear, are being debated within the Biden administration. But not everyone seems to have gotten the memo that combatting inflation is the top priority.
On some issues, perhaps, it shouldn’t be. Biden’s efforts to help Ukraine secure its independence have been inflationary in a number of respects, but he’s decided that’s a price worth paying to secure important foreign policy goals. Cutting Social Security or SNAP benefits would reduce inflation, but would accomplish those goals by immiserating the poor and elderly. Not even a very inflation-averse public wants inflation reduction by any means necessary.
Still, rising inflation is the top problem facing the country right now — so it should serve as a trump card in most policy disputes. The president ought to outline a small number of goals that he holds as more important than combatting inflation and then clearly communicate to his cabinet that, on everything else, fighting inflation is Job No. 1.
In many cases the scale of the impact may be relatively modest. But in the aggregate, it will matter if the government resolves scores of tradeoffs between efficiency and other goals in favor of efficiency. On a wide range of issues — the Jones Act, ethanol blending rules, the interpretation of prevailing wage doctrines, even immigration policy — the right decision is the one that minimizes inflation.
The White House says it agrees with this proposition. It just needs to start acting on it.