President Biden on Tuesday tried to stay ahead of April’s inflation report on Wednesday with a speech that re-emphasised his tired proposals to lower prices: Raise subsidies, raise taxes and increase regulation determined. He should heed Jerry Seinfeld’s advice to George Costanza and go against all of his policy instincts.
The President again urged Congress to pass his “Build a Better America” plan, er, unfortunately, the “Build a Better America” plan includes more subsidies for green energy, electric cars, childcare, housing and more. He also doubled his proposed billionaire tax rate – i.e. an unconstitutional wealth tax – and controlled Medicare drug prices.
Mr. Biden again blamed inflation on the pandemic and Vladimir Putin, ignoring the Democrats pouring kerosene into the economic recovery that accelerated last March with a spending bill of 1.9k their billions of dollars. Inflation was already at 7.9% when Putin invaded Ukraine (see chart nearby). At the same time, their policies are constraining the economy’s supply in multiple and interconnected ways.
Consider energy and food. The Government’s war on oil and gas has created enormous regulatory uncertainty that hinders investment in new production despite high energy prices. Producers can’t find workers. Many left the industry when prices fell in the early part of the pandemic and were reluctant to return because Democrats had promised to take the operators out of business.
Then the left blockade of pipelines, which is limiting natural gas production in the rich shale deposits of the Northeast. Radicals blame rising gas prices on natural gas exports, but the bigger culprit is rising demand in the US Hefty subsidies for wind and solar force power plants Nuclear and coal must shut down, but renewables need to be backed by more gas.
Mr. Biden said that more green energy would lower electricity prices. But why did electricity prices go up 11.1% last year? More green energy would make the grid less reliable and increase demand for gas along with diesel-powered emergency generators, as in California and Texas.
Speaking of which, the price of diesel has increased by $2.40 per gallon last year, a dollar higher than gasoline prices, amid increased freight demand and reduced refining capacity. Higher diesel prices affect food prices as ships, trains, trucks, tractors and other farm equipment depend on the fuel.
Biofuel mandates and subsidies have prompted refineries to close or switch to producing small amounts of “renewable” diesel from cooking oil. It’s also a big reason soybean oil prices have more than doubled from their pre-pandemic levels and why the American Bakery Manufacturers Association has urged the Administration to relax regulations on renewable fuels.
Poultry producers say the ethanol mandate is increasing their feedstock costs. At the same time, soaring corn and soybean prices are discouraging wheat farmers from making up for lost exports from Ukraine. However, the Administration wants to strengthen renewable fuel mandates and subsidies.
What the country needs is more investment to boost the economy’s supply, which will increase labor productivity, real wages and living standards. Mr. Biden’s plan to hit businesses and investors with increased taxes and regulations would do the opposite.
In his speech, he again lobbied for Medicare to negotiate drug prices – that is, price caps – but this would create a lot of distortion in the pharmaceutical market and prevent investment in innovation. By the way, the price of prescription drugs has only increased by 2.2% in the last year. Thank the competition for that, not the government.
As White House aides whispered to the friendly media on Monday, Biden’s Tuesday speech was actually less about inflation and more about setting up his fall campaign against Republican Party. He claimed the GOP had no inflation plan, as if Democrats were not running Congress and the White House. He linked all Republicans to Florida Senator Rick Scott’s non-specific proposal that all Americans should pay some federal income tax and all congressional laws would cease to exist after five years.
“The congressional Republican agenda,” Biden warned, would “put Social Security, Medicare and Medicaid in the box every five years.” Who believes this? Mr. Scott’s plan was not approved by the rest of his team.
Mr. Biden said Republicans want to “lower” Americans’ wages, but real disposable personal income increased by $4,205 (in 2012 dollars) from January 2017 to December 2012. 2020 but then dropped $374, almost all of which follow his track. Inflation is causing real wages to fall despite nominal wages rising.
Americans have learned the hard way over the past two years that no federal wire transfer payment can make up for the drop in real wages caused by inflation. President Costanza hasn’t yet.
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Appears in print May 11, 2022.
https://www.wsj.com/articles/president-costanza-on-inflation-joe-biden-prices-11652215621 President Costanza Takes On Inflation