Inflation always punishes the American left


The inflation hawks in the United States are always prone to cry wolves. Since they predicted hyperinflation that never happened after 2008, it is not surprising that few people sat down when they issued the same warning last year. The hawks are right now, but for the wrong reasons. As they claim, the recent surge in inflation in the United States has nothing to do with the Fed’s loose monetary policy. Nonetheless, Democrats should resist letting their deep-seated skepticism cloud their sense of self-protection. Continued inflation may ruin their chances of staying in power.

Historically, the damage caused by inflation to the left-wing government is far greater than the damage to the right-wing government, even if the responsibility should be shared equally. In 1972, Republican Richard Nixon, like his Democratic predecessor, Lyndon Baynes Johnson, made a lot of efforts to instigate inflation. At that time, he coerced Fed Chairman Arthur Burns to lower his position on the eve of his re-election. interest rate. It was Democrat Jimmy Carter who sent the inflation killer Paul Volcker to the Fed, which contributed to Carter’s failure in 1980. Beneficiary, Republican Ronald Reagan, Unsuccessful attempt Ask Volcker to lower interest rates during his re-election in 1984.

President Joe Biden’s reappointment of Jay Powell last week should reassure the market that he values ??the independence of the Federal Reserve.Powell Withstand pressure Donald Trump from the Republican Party to keep interest rates low before the pandemic.

However, popular wisdom represented by Angela Merkel’s admiration for “Swabian housewives” usually punishes the left, which suggests that a balanced family budget should be a model for the state budget. In today’s situation, because the inflation rate reached 6.2% last month, which is the highest level in a generation in the United States, Biden’s Democrats have to bear a lot of responsibilities. They made two mistakes, and they came back to haunt them. The first was the adoption of a $1.9 trillion stimulus plan in March. Few economists expressed dissent.

Since the output gap in the United States—the gap between actual economic output and potential output—approximately US$400 billion, the bill is a huge overcorrection. This means too much money chasing too few commodities, which is the most common driver of inflation. The bill is also politically short-sighted because it forces the Democratic Party to reduce the size of its much smaller but more valuable “rebuild better” investment legislation. History may regard such stimulus measures as a groundbreaking mistake of the Democratic Party.

Biden’s second mistake was to bet Covid-19 will subside With the introduction of the vaccine. If this is the case, American consumers will be eager to use stimulus checks for all face-to-face services that were sealed during the pandemic. But the coronavirus has not disappeared-partly because of the arrival of the more virulent Delta strain, but mainly because most Americans refuse to be vaccinated or respect social distancing. Covid’s insistence means that consumers use their expanded accounts for goods rather than services, which squeezes the dollar onto a smaller subset of normal consumption. The pandemic-related blow to the global supply chain will not help. But the culprit is the surge in demand.

Normally, the Democratic Party Be a victim Wishful thinking. Since taking office, Biden’s distorted defense of “freedom” has triggered so much anti-vaccine resistance, which cannot be blamed on Biden. Protesters wearing yellow stars compare themselves to Jewish victims of Nazism. This is a weird example that the President of the United States cannot explain. But Biden could have been tougher on the vaccine issue – and it should still be. The White House can also better explain why high inflation is something the left should fear more than it.

The frontline victims of inflation are those trying to save a fixed salary for retirement, as well as retirees. After years of stagnant incomes, the American middle class should enjoy the benefits of a tight labor market. However, although wage growth is the highest in decades, the inflation rate is even higher, which means that blue-collar Americans have not felt the benefits of economic recovery. Rising food and energy prices have hit those who live on salaries the hardest. Inflation is good for debtors, including the billionaire class in the United States, whose consumption is mainly through borrowing to offset unrealized capital gains. Contrary to left-wing folklore, higher inflation has increased inequality because the IMF Has shownTherefore, price stability is gradual.

As Biden knows, once inflation is excluded, the President of the United States has almost no right to influence inflation. The temptation is to play with gimmicks and make him look like he is acting. Biden’s move last week to release 50 million barrels of oil from its strategic reserves is optical trumps substance. The new supply will account for a little more than half a day of global consumption. Oil prices actually rose due to the news. Keeping Powell is the right step, even though the Fed Chairman has been extending the term “temporary” (related to inflation) to a tipping point.

This left Covid. This is what Biden should have done. The obvious steps include creating a federal QR identity for vaccinated people and preventing people who have not been vaccinated from flying. The faster the coronavirus subsides, the faster the US service industry will return to normal. Another option might be for the federal funds rate to be higher than other pricing. Faced with trade-offs, Biden should enthusiastically embrace the vaccine culture war.

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