With unemployment nationally nearing all-time record lows – Nebraska, at 1.9 percent, is concerned there are too many jobs and not enough workers – and take-home pay on the upswing from sea to shining sea under a Democratic administration, it seems Senate Republican Leader Mitch McConnell and his GOP congressional colleagues only have eyes for inflation.
McConnell, of Louisville, has been hammering away on what he termed the “Democrats’ inflation crisis,” and that “all the indicators are that it’s only going to get worse.”
“This could not be a more challenging problem confronting America,” McConnell said at a Tuesday press conference. “And as we all now know, this was created by this administration by dumping almost $2 trillion into the economy through the American Rescue Plan, and even liberal economists who actually like what they’re trying to pass now, the reckless tax and spending spree, admit that on this issue, it will only make it worse.”
It’s eminently fair to say inflation is a problem, albeit a temporary one if economists and the Federal Reserve are to be believed. The U.S. inflation rate as of October was 6.2 percent, the highest since November 1990 and greater than the forecast of 5.8 percent. Energy was the primary culprit, with gasoline prices spiking by 49.6 percent.
Inflation can be a real bugaboo, as anyone who lived through the late 1970s can testify when it became almost impossible to purchase a home because of mortgage rates. But it’s silly for McConnell to say in this instance that the American Rescue Plan created the present hardship.
Fed Chairman Jerome Powell, just renominated by President Biden to continue as head of the agency, believes current price increases are temporary and will subside when well-documented supply chain issues are finally resolved.
Paul Krugman, a Nobel Prize-winning economist and columnist for The New York Times, maintained that “calls for the Federal Reserve to raise interest rates to cool off the economy look premature at best.” He cites a report from The Bank for International Settlements agreeing that the supply chain bottleneck remains the most pronounced contributing factor – an issue that has nothing to do with the American Rescue Plan.
A surge in demand for durable goods, which came to a head as the result of the COVID-19 pandemic, “has overstressed the ports, trucking and warehouses that deliver durables to consumers, leading to rapidly rising prices for stuff whose prices normally fall over time as technology advances.”
McConnell, as is his wont, desires to ignore all that to blame the entire kit and kaboodle on Biden and his American Rescue Plan, the $1.9 trillion stimulus package passed and signed by the president in March to pull the nation out of its deep pandemic recession.
It worked like a charm, frankly. People obviously are back to work and earnings are up. The gross domestic product increased at an annual rate of 2.1 percent in the third quarter of 2021, following an increase of 6.7 percent in the second quarter. So it’s not like the economy is crashing. People have money to spend.
Some observers, including Larry Summers, a Democrat who served as Treasury secretary under President Bill Clinton and director of the National Economic Council under President Barack Obama, warned while the American Rescue Plan was being debated that it would cause inflation because the package was too large. That is the strand that McConnell is grasping on to.
While the plan may have given inflation a modest bump, its impact pales in comparison to other factors. And the fact that it shortened the pandemic recession certainly speaks in its favor.
And there are plenty of other factors that play into inflation, many of which are outside of Biden’s control, which is one reason you have the Federal Reserve. Product demand proved greater coming out of the pandemic than anticipated. That coupled with the supply chain problems meant that desire outpaced availability, always sure to result in higher prices and, thus inflation.
Commodity prices have also spiked over the past year, although that may be subsiding. A barrel of West Texas Intermediate Crude Oil was $78.50 on Nov. 23, down from a recent peak of $84.15 on Nov. 9. That price is way up from $10.11 on April 21, 2020, just about a month after the pandemic hit.
The price has been rising steadily for 19 months, hitting $53.24 on Jan. 20, the day President Donald J. Trump finally and thankfully left office. So the increase has actually been much greater under Biden’s predecessor. To be fair, neither man has had a whole heckuva lot to do with it. Yet it’s Biden feeling the heat.
High oil prices, of course, lead directly to higher gasoline prices, which add to the cost of a whole mess of things, most particularly deliveries, both to producers and consumers, contributing to higher overall prices.
And it should come as no surprise that higher wages may also lead to inflation. According to the U.S. Bureau of Economic Analysis, wages in the United States increased 9.77 percent in October 2021 over the same month in the previous year, a measure which, by the way, outpaces inflation.
Regardless, the economy is clearly stronger than it was at this time last year and the American Rescue Plan played a part in the turnaround. McConnell’s prediction that “it’s only going to get worse” doesn’t seem plausible with the supply chain issues easing and gas prices at least leveling off.
Nope. It’s just McConnell being McConnell.
And that’s not a compliment.
