Good Friday Morning, with special shout-outs to NFL Coach of the Year Mike Vrabel. It was a well-deserved honor for a guy who managed to use 91 different players and get them to first place in the AFC. I’m still not over the Bengals loss, but I have believed that Vrabel was the easy lock for that award.
It’s yet another month with an eye-popping inflation number. Every month we’re measuring inflation popping up with comparisons to the 1970s and 1980s. The word transitory was quietly tossed out the window for any other explanation that might help. Polling shows there’s no winning strategy. The RealClearPolitics average of polls shows Biden at -13 popularity, with the latest CNN number pushing -15. We’re approaching 60-40 digits for Biden’s disapproval range.
I dig into that and where things head next—links to follow.
Where you can find me this week
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Biden repeating same mistakes from Afghanistan over Ukraine and Russia – Conservative Institute
Inflation rockets up while Biden does zilch – Conservative Institute
Inflation and the never-ending crisis of White House inaction.
One of pet crazy theories (conspiracy? butterfly effect?) is that everything on planet earth went sideways when we let the Chicago Cubs win the 2016 World Series, ending the Curse of the Billy Goat. In 2016, The Cubs won their first NL Pennant since 1945 (the year the curse allegedly went into effect) and won their first World Series since 1908. After that, Donald Trump won the presidency. We’ve had a multi-year global pandemic, inflation is out of control, and now Joe Biden is an empty suit in the White House. All I’m saying is if time travel does exist, we should consider revoking the Cubs NL Pennant and World Series victories in 2016 and reinstitute the curse.
It can’t hurt, right?
I feel like a broken record on the topic of inflation. The first time I wrote about inflation here was March 11, 2021. My first CI column was a month later, in April 2021. The story hasn’t changed all that much: Americans increasingly can’t afford the basics in everyday life. Here’s the Wall Street Journal’s report on the January inflation numbers:
American consumers are kicking off 2022 with some big price increases in everyday purchases. The price of food and utilities surged in January from the previous month, according to the Labor Department. Prices for healthcare and housing have also started to creep up.
Vehicle prices, which have been rising rapidly because of a shortage of computer chips, saw inflation moderate in January but remain well above where they were a year ago.
Inflation is broadening out and affecting goods and services that had until now been relatively spared by rising prices, said Gus Faucher, chief economist at PNC Financial Services Group.
“Businesses are dealing with higher labor costs, they’re dealing with higher input costs and they’re passing some of those along to their consumers,” he said.
The list of things getting more expensive includes groceries, gas, utilities, housing rent, healthcare, and cars. In terms of everyday expenses, that’s about as comprehensive a list as you’ll get. And with wages going up and supply-chain issues continuing, the pressure on prices hasn’t been lessened. The BLS report on food prices at home (grocery shopping) drives this point home:
The food at home index rose 7.4 percent over the last 12 months. All of the six major grocery store food group indexes increased over the period. By far the largest increase was that of the index for meats, poultry, fish, and eggs, which rose 12.2 percent over the year. The index for dairy and related products increased 3.1 percent, the smallest 12-month increase among the groups.
The index for food away from home rose 6.4 percent over the last year, the largest 12-month increase since January 1982. The index for limited service meals rose 8.0 percent over the last 12 months, and the index for full service meals rose 7.1 percent.
Even with all those factors, the picture of where the Federal Reserve will go has cleared up tremendously. We were headed for rate increases before, but that path has all but locked up now. The Federal Reserve is going to step in and try to tackle inflation.
The latest inflation report for January 2022 will be the second to last monthly data the Federal Reserve uses on inflation before the March meeting when they announce their decision on raising interest rates. The Wall Street Journal framed the debate shaping up like this:
The question facing Federal Reserve officials ahead of their policy meeting next month is no longer whether they will raise interest rates but rather by how much.
Another strong inflation report released Thursday is intensifying debate within the central bank over how to accelerate a series of interest-rate increases this spring to ease surging prices and cool the economy, according to officials’ most recent public comments and interviews.
The debate still has weeks to play out but could lead officials to begin lifting interest rates from near zero next month, with a larger half-percentage-point increase rather than the standard quarter-percentage-point move. The Fed hasn’t raised rates by a half percentage point since 2000.
The overarching point is how involved will the Federal Reserve be in the coming months? Will we get a hawkish Fed that’s on par with Volker tackling 1970s inflation?
At a minimum, markets are expecting three rate hikes this year. Economists with Bank of America and Goldman Sachs have put out estimates saying the Fed will raise rates as many as seven times. Those estimates assume 25 basis point raises, with no 50 basis point raises.
Whatever the answer is, the reality is this: we’re in a cycle now where the Federal Reserve will be pushing all its eggs into the basket of tightening monetary policy. Behind the scenes, Democrats are likely driving the Federal Reserve to get inflation under control as quickly as possible. Democrats expect that they’ll get wiped out in the midterms if inflation doesn’t cool down.
Monetary policy and politics are tightly intertwined, whether people want to believe it or not. Democrats control Congress and the White House, and they desperately need help.
The policy path for the Federal Reserve is primarily locked in; it’s just a matter of how far they go, how far stocks drop in the process, and what the aftermath is.
The political path is not locked in because the people running politics don’t know what they’re doing. Matthew Continetti got at this in his recent Commentary column:
Except the Biden administration didn’t get the pandemic under control. The pandemic endured. But Biden’s people insisted that inflation was transitory. And they didn’t really understand what all the fuss was about. They treated inflation as a first-world problem. Asked about supply-chain troubles on October 19, a condescending Psaki replied sarcastically, “The tragedy of the treadmill delayed.” On November 14, NBC’s Stephanie Ruhle downplayed the continued increase in prices, saying, “We need to put all of this in perspective.” She wasn’t talking about the perspective of the consumer whose grocery bill had jumped up. On November 17, MSNBC’s Joy Reid suggested that the inflation debate was nothing more than partisan politics: “Republicans,” she said, “jump on the inflation buzzword bandwagon.” On Reid’s bandwagon that day was Sarah “#CancelWhitePeople” Jeong of the New York Times, who tweeted, “All the stuff you see about inflation in the news is driven by rich people flipping their s—t.”
The data that came out in December, however, was enough to make the administration flip its script. On December 10, the Labor Department reported that prices had risen at a faster rate in November 2021 than they had in the previous 39 years. Suddenly, inflation wasn’t transitory anymore. “I am ready to retire the word ‘transitory,’” said Yellen. Powell changed his mind, too, announcing that the Fed would end its pandemic-era bond-buying program and increase interest rates three times in 2022. Psaki threw up her hands, telling a reporter who asked whether she still believed inflation was temporary, “It doesn’t really matter what you call it.”
The White House continues to treat this like a messaging campaign, throwing everything they can at it from a rhetorical vantage point. What’s flabbergasting is that they refuse to take any action. They’re constantly “monitoring the situation” but never stepping in to act.
Biden could offer the National Guard or military to help clear out these ports. Or maybe use them to ease the temporary shortages with truckers. There are regulations they could look to suspend to clear these issues. To reduce prices, they could look to remove regulations or taxes that push prices up. There are several things they could look to do, but they aren’t doing any of them.
There’s one minor piece of legislation in Congress that various shipping trade groups are pushing. National Review argues that it wouldn’t help. But regardless of what you think, that legislation has no push from the White House. Democrats or the White House have no comprehensive legislative plan to attack the problem. They want to rename Build Back Better and pretend that does the trick, but that’s just laughable.
The only other lever the White House can pull is pushing the Federal Reserve to raise rates. That means the only major policy shift we will see on inflation is the Fed raising rates. They will do this on a backdrop of the continuing supply-chain issues, wage increases pushing on prices, shortages in critical industries like semiconductors, and oil going through the roof. I’m trying to get across that the Fed’s power to impact this moment may get muted by the events surrounding their actions.
If that happens, then what? We get an inactive White House vs. all the events reverberating around. That’s why I wrote a few weeks ago about the vast array of things awaiting us in 2022. It’s impossible to map some of this out because the rational actions you’d expect from any other White House are not forthcoming from this one. The post-Biden presidency memoirs will be fascinating in this regard. What kind of story do they paint behind the scenes? An active Presidency won’t be believable.
Continetti ended his column with a troubling observation:
There is a basis, however, to worry about the direction the administration might take if inflation persists into the 2024 campaign cycle. Biden has neither the desire nor the will to cut spending. The window for tax increases is closing fast. Powell might not be able to tighten the money supply without causing a recession. And the Democrats might plunge deeper into economic irrationality.
On December 29, for example, the Guardian published an op-ed by Isabella Weber, an assistant professor of economics at UMass-Amherst and the author of How China Escaped Shock Therapy. The headline: “We have a powerful weapon to fight inflation: price controls. It’s time we consider it.” None other than New York Times columnist Paul Krugman, not exactly known for his libertarianism, called Weber’s advice “truly stupid.” Which it is. Not to mention ineffective (price controls don’t work) and perverse (price controls cause shortages).
Was Krugman’s diss a sign that Democrats have learned something from the stagflation of the 1970s? Afraid not. After economists to Krugman’s left attacked him on Twitter for being mean—this is like attacking the sky for being blue—the Nobel Prize–winning economist deleted the Tweet, “with extreme apologies,” where he had criticized Weber. The progressive rehabilitation of price controls gained momentum. And the stupid inflation tricks went on.
He’s right. Price controls don’t work. I was reading critiques on price controls in high school, the one that sticks out of William E. Simon’s book A Time for Truth from 1978. You could also ask the USSR how their price controls worked.
The Biden administration has tried denying the problem. They’ve attempted to say monopolies are at fault and antitrust could fix things. There’s no evidence that’s the case. And who knows what they go with next. Maybe they pitch price controls and do nothing to try and implement those controls.
The White House is all in on rate hikes to fix inflation. That could work. If we end up in a recession because of that (which would shock zero people on Wall Street), what next? I don’t think the White House has thought that far ahead.
Links of the week
Chip makers in China are increasingly looking to source chips locally because they fear the U.S. and other governments may prioritize domestic users of the product vital to national security – Bloomberg
More truck drivers responsible for transporting food supplies into Hong Kong have tested positive for Covid, sparking concerns that the city may be hit by another round of fresh-food shortages – Bloomberg
Biden hasn’t done anything right in his first year in office: Poll – Washington Examiner
Inflation – The direction of travel is clear – Intelligence Quarterly
There are no easy choices for the Fed, but here’s what we are hearing – Intelligence Quarterly
Twitter Thread(s) of the week
Satire of the week
Woman Without Twitter Account Having Pretty Good Day – Reductress
Thanks for reading!