Inflation is the new battle line as Republicans and Biden battle spending

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WASHINGTON – Republicans have made Americans’ fears about rising prices their mainstay on President Biden’s economic agenda, seeking to derail trillions of dollars in spending programs and tax cuts by warning that they will produce stark 1970s-style inflation.

They have seized on the rising costs of gasoline, used cars and other goods and services to accuse the president of fueling “Biden inflation,” first with a $1.9 trillion stimulus bill he signed in March and now with a proposed $3.5 trillion economic bill for Democrats beginning to be drafted in the Senate.

There is an unusually high amount of uncertainty about the course of inflation in the coming months, given the volatility around restarting the pandemic-stricken economy. However, many economists who fear high prices will last longer than analysts initially expected, say there is little reason to believe the problem will get worse if Mr. Biden succeeds in his attempts to boost child care, education, paid leave, low-emissions energy and more.

Joseph E. said: Stiglitz, a liberal economist at Columbia University, during a conference call in support of Biden’s economic plans: “There has been a lot of fear-mongering about inflation.” But he said the president’s spending proposals are “almost fully paid off”.

“If it is passed as proposed, there is no conceivable way that it would have any significant impact on inflation,” he added.

Mark Zandi, the economist at Moody’s Analytics who formulated Biden’s plans, said the debate over the proposals’ effects “has nothing to do with current concerns about inflation.”

However, rising inflation fears forced the president and his aides to turn their economic sales deals to voters. Officials stressed the potential of his efforts to cut the cost of health care, housing, colleges and childrearing, even as they insist the current bout of inflation is a temporary artifact of the pandemic stagnation.

The administration’s defense has sometimes mixed rapid price increases with efforts to curb inflation that can take years to pay off. Officials acknowledge that the president has recently overstated his case on the national stage by incorrectly claiming that Mr Zandi has found his policies to “reduce inflation”.

The economics of inflation is muddled: The United States has little precedent for faltering supply chains and the cushioned consumer savings that emerged from the recession and its consequences, when large parts of the economy shut down or temporarily pulled out and the federal government sent $5 trillion to people, businesses and local governments to help weather the storm. The economy still lacks seven million jobs out of its total, but employers are struggling to attract workers at the wages they used to pay.

But the political risk to Mr Biden, and the opportunity for Republicans who sought to derail his plans, is clear.

The price index that the Federal Reserve uses to track inflation rose nearly 4 percent in May from the previous year, its fastest rise since 2008. And Republicans say it’s clear that increased spending will further fuel those increases — a new reason for the conservatives’ offensive since Long overdue the broad expansion of government programs proposed by Mr. Biden.

updated

July 28, 2021, 5:00 PM ET

Nine out of 10 respondents to a new national New York Times survey by online research firm Momentive, formerly SurveyMonkey, said they’ve noticed price hikes recently. Seven in 10 worry that these increases will last “for a long time”. Half of the respondents say that if the increases continue, they will roll back household spending to compensate.

Administration officials acknowledge that inflation fears are eroding consumer confidence, including the University of Michigan survey of consumer sentiment, even as the economy recovers from recession at its strongest annual growth rate in decades.

The case has given Biden’s opponents their clearest and most consistent message to attack an agenda still popular in public opinion polls.

“There’s no question that we have dangerous inflation right now,” Senator Patrick J. Tommy, R-Penn., told CNN’s “State of the Union” on Sunday. “There is a question about how long it takes. And I’m just worried that the risk is great because that’s going to be with us for a while. And the Fed has put itself in a position to be behind the curve. You can combine that with massively excessive spending, and that’s a recipe for serious problems.” .

Some Republicans say part of Mr. Biden’s spending plans will not drive up prices — notably the bipartisan agreement he and senators are negotiating to invest nearly $600 billion in roads, water pipes, broadband and other physical infrastructure. But the party is united in criticizing the rest of the president’s proposals in a way that many economists say ignores how they will actually affect the economy.

Some of the proposals would distribute the money directly and quickly to American consumers and workers — by increasing wages for home health care workers, for example, and continuing an expanded tax credit that effectively serves as a monthly salary for all but the highest-earning parents. But they will also raise taxes on higher earners, and much of the spending will create programs that take time to find their way into the economy, such as paid vacation, universal kindergarten, and free community college.

Some conservative economists worry that the relatively small slice of spot payments could risk further heating up an already hot economy, sending prices higher. The direct payments in the proposals, Michael R. Strain said, “would exacerbate pre-existing inflationary pressures, put additional pressure on the Fed to withdraw monetary policy support earlier than planned, and jeopardize the longevity of the recovery.” Economist at the Conservative American Enterprise Institute.

Other economists inside and outside the administration say these effects will be overshadowed by the potential of spending programs like paid vacation to reduce inflationary pressure.

“The economics of these investments is in stark contrast to Republican criticism because these are investments that will bring faster productivity growth, increase the supply of labor, expand the supply side of the economy — clearly mitigating, not exacerbating, inflationary pressures,” Jared Bernstein, a member of Mr. Biden, in an interview.

Administration officials put their sales presentation on the president’s agenda last week to underscore the possibility of his price-cutting plans.

Mike Donilon, a senior White House adviser, told reporters that Biden’s agenda revolves around “cutting costs for families across the board.” He said officials believe they are in a “strong position” against Republican attacks on inflation, in part by citing Mr Zandi’s recent analysis. The president also referred to that analysis last week during a forum in Ohio on CNN, saying he found his proposals would reduce inflation.

But Moody’s analysis did not say so; Instead, I found that some of Biden’s spending plans could help ease price pressures several years from now. It specifically cited proposals to build additional affordable housing units across the country, which could help lower rents and home prices and reduce the cost of prescription drugs.

White House officials acknowledge Biden has over-analyzed, but noted thoughtful remarks in a speech this month, when he said his plans would “boost our productivity — raise wages without raising prices.”

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