It sounded impressive at the time. On the last day of May, a whole ten days ago, president Biden laid out a three-part plan for bringing inflation back under control. It consisted of making sure the Federal Reserve was allowed to do whatever it took to control prices, releasing oil and gas reserves to try to bring down the soaring costs of energy, and fixing supply chains to try to make industry and retailing more competitive. ‘I have made tackling inflation my top economic priority,’ he announced grandly. To listen to the rhetoric from the White House, you might think that this was an issue that could be fixed with a few tweaks to public policy, after which the President could happily go back to taxing and spending on an unprecedented scale. The problem would be solved.
Except, er, whoops, not quite. Today we learned that inflation in the United States is not falling as it was meant to be, but still climbing. It went up to 8.6 per cent, compared to 8.3 per cent a month ago. The stock market started falling heavily on the news, on expectations that the Fed will have to keep raising interest rates to choke that off, and will have to do so faster and more aggressively than anyone yet realises. Anyone who imagined that inflation would simply be transitory and would soon be back under control again will have been bitterly disappointed.
In reality, Biden, along with other political leaders around the world, not least our own Boris Johnson, has made two critical mistakes. The first is that he has failed to acknowledge the government’s own role in creating inflation in the first place. By closing down the economy for over a year, restricting production, and then printing money like crazy to pay for it all, it created the conditions for rapidly escalating prices. In particular, Biden embarked on a huge spreading spree immediately after taking office, convinced by a small coterie of ultra-Keynesian economists that deficits didn’t matter and that a bigger state was automatically better for the economy. Next, Biden, again like Johnson, refuses to acknowledge that this process will be painful. To bring supply and demand back into balance, people will have to work harder and consume a bit less. The government most of all will have to step back and stop spending money it doesn’t have. Until Biden is willing to own up to that and level with the voters, it doesn’t matter how many plans he comes up with. They will all keep failing – and prices will keep rising.