By Phil Gramm and Rick Scott | The Wall Street Journal
LLUSTRATION: DAVID KLEIN
Biden’s Plans Are Already Hurting the Recovery
The April Consumer Price Index rose by 0.8%, or 9.6%
on an annualized basis. On an annual basis the inflation rate for the past
three months has been 7.2% and 6.2% for the first four months of 2021. The core
inflation rate, excluding food and energy, on an annual basis rose in April by
11%, a rate not exceeded since June of 1982. While the price increases are
significant, broad and accelerating, are they the temporary effects of demand
recovering from the pandemic shutdown more quickly than production, or is there
evidence that this is the return of the inflation that plagued us for a
generation and we paid such a high price to escape 40 years ago?
As traditionally understood, inflation is too much money
chasing too few goods. While it may seem old-fashioned to ask in this brave new
world of modern monetary theory, where Joe Biden declared last year that “
Milton Friedman isn’t running the show anymore,” is there reason to be
concerned that the broad money supply, M2, grew by 24.6% over the last year,
a postwar high? That’s more than twice the rate it grew in 1978 before
inflation reached 13.4% in 1979 and almost three times the rate it grew amid
the “guns and butter” spending surge during the Vietnam War.
What about the extraordinary stimulus spending of the
past year? Larry Summers, the highly respected former Treasury secretary and
economic adviser to Presidents Obama and Clinton, warned that the Biden
stimulus would create purchasing power “at least three times the size of the
output shortfall” and would be “the least responsible macroeconomic policies
we’ve had in the last 40 years.”
We need only look at the Bureau of Economic Analysis
comparison of the first quarter of 2021 to a year earlier to confirm Mr.
Summers’s concerns. Wages and salaries are already significantly larger in the
first quarter of 2021 than they were before the pandemic. Transfer payments
have almost doubled and personal savings have surged to an extraordinary $4.1
trillion from $1.6 trillion a year ago. The end of the pandemic isn’t only
unleashing the pent-up demand of the pre-shutdown economy. It is opening the
floodgate to a torrent of spending fueled by fiscal and monetary stimulus not
seen since the Civil War.
The U.S. economy clearly has the power to iron out the
natural problems of restarting production, but the very nature of the subsidies
in the $6 trillion Biden administration stimulus, relief and infrastructure
bills constrain production. In its modern incarnation, socialism denies that
government incentives and constraints have anything to do with people’s
decisions to work, save and invest. Experience teaches otherwise.
The clearest example is the federal supplement to
unemployment payments. The federal payments have made not working a viable or
even preferred option to working. And it isn’t only excessive jobless
compensation. The Congressional Budget Office found that the Affordable Care
Act would cut the number of hours worked by as much as 2%, so how can expanding
ObamaCare in the recent stimulus not affect employment? The same applies to
expansions of Cobra, the monthly child credit and other income supports.
Historically in America, the best healthcare, housing,
transportation, nutrition and child-care program was a job. If you give
people things they typically get from a job, don’t be surprised when they don’t
take a job. The Biden administration claims that it hasn’t seen evidence
that its unemployment bonus is keeping people from work.
With the Labor Department reporting record job openings
and the National Federation of Independent Business detailing a record number
of small businesses offering jobs but finding no takers, that claim isn’t
credible. Since the War on Poverty began, government transfer payments have
risen to provide more than 90% of the income of the bottom 20% of
income-earning households, and the labor force participation rate among
work-age households has collapsed to 36% from 68%.
The Biden administration also asks Americans to believe
that it can raise income, corporate and death taxes, smother the private sector
with regulations, kill the fossil-fuel industry and fill the regulatory
agencies with activists fundamentally hostile to the nation’s economic system
and it will have no effect on economic performance. But back in the real world,
much of what the president is doing will impede the recovery, reduce economic
capacity and fuel inflation.
If Congress sees inflation as a real threat, it should
first stop spending. Any unobligated balances in the Biden stimulus or previous
stimulus bills can no longer be justified under current economic circumstances
and should be rescinded. Rescinding the spending authority in the Biden
stimulus at the end of the fiscal year on Sept. 30 would save $710 billion,
according to CBO. Rescinding the authority sooner and including all previous
stimulus bills might save $1 trillion.
Congress should repeal the enhanced unemployment
benefits and reinstate the Clinton-era work requirements for welfare. Work
requirements should be applied to all unearned benefits to anyone except the
elderly, the disabled and students. Congress should adopt a
real, enforceable budget that funds infrastructure and the other functions of
government without further expanding the deficit and debt. The debt ceiling,
which expires on Aug. 1, should be used to set into place a long-term binding
program to stop the federal debt from growing beyond 100% of gross domestic
product.
If the inflation of the 1970s and ’80s has returned, it
is the “Gods of the Copybook Headings” that have returned once again to teach
us that water will wet us, fire will burn, and government can’t give us
something for nothing.
Mr. Gramm is a former chairman of the Senate Banking Committee and a visiting scholar at American Enterprise Institute. Mr. Scott is a U.S. Senator from Florida and chairman of the National Republican Senatorial Committee. Mike Solon contributed to this article.
