Former President Barack Obama’s top economic advisers know exactly who is to blame for the current inflation undermining the U.S. economy: President Joe Biden.
Writing back in February, before Biden’s first trillion-dollar spending law was passed by Congress, National Economic Council Director Larry Summers warned, “Macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability… Stimulus measures of the magnitude contemplated are steps into the unknown.”
More recently, President Obama’s Council of Economic Advisers Chair Jason Furman told The New Yorker, “By March of 2021, it looked very likely that the vaccinations were going to be very effective in bringing COVID down, and that the economy was repairing rapidly. So, that last round of checks, I thought at the time, was a mistake.”
“There were also other parts of the rescue plan that were oversized,” Furman continued. “For example, states and localities got a huge amount of money, even though they basically had no fiscal problem by the time the bill passed. It was clear by the time it passed that their tax revenue had recovered, and that they’d got enough other aid that they covered their holes. Why does that matter for inflation? Well, you have states across the country cutting taxes now, so you have another round of upward pressure on demand and inflation happening because of that big fiscal relief.”
And today, Obama auto bailout czar Steve Rattner writes, “The original sin was the $1.9 trillion American Rescue Plan, passed in March. The bill — almost completely unfunded — sought to counter the effects of the Covid pandemic by focusing on demand-side stimulus rather than on investment. That has contributed materially to today’s inflation levels.”
These Obama officials are all right: The $1.9 trillion spending plan passed by President Biden and the Democratic Congress this March spent far too much money and is driving the record inflation people are suffering from today.
Looking ahead to the next round of spending Biden wants to pass, the Obama aides start to disagree. Furman and Summers both claim that the next round of Biden spending won’t be inflationary because, in Furman’s words, “It is mostly paid for by tax increases and some spending reduction.” Summers claims “that the spending is offset by revenue increases.”
Rattner, however, has a different view of Biden’s Build Back Better spending plan. “Build Back Better can be deemed 'paid for' only if one embraces budget gimmicks, like assuming that some of the most important initiatives will be allowed to expire in just a few years,” Rattner writes. “The result: a package that front-loads spending while tax revenues arrive only over a decade."
Rattner is 100% correct. As he goes on to point out, the Committee for a Responsible Budget estimates that if all the budget gimmicks are taken out of the Build Back Better plan, it would add $800 billion to federal deficits in just the first five years alone. Researchers at the University of Pennsylvania's Wharton Business School similarly found that the true cost of Biden’s Build Back Better plan is more than twice what Biden says it is.
It was brave of Furman and Summers to admit that Biden’s first spending plan helped cause the current inflation crisis. And as Democrats who want to continue working in D.C., it is totally understandable that they would tow the company line on Build Back Better being paid for.
But as every honest independent analyst who has looked at it will tell you, Build Back Better is not paid for. It’s full of huge spending plans that Democrats artificially cut short just so they could pretend the plan is paid for.
If Furman, Summers, and Rattner are correct that Biden’s first spending plan added to inflation — and they are — you can rest assured Build Back Better will add to inflation too.