Inflation: Biden’s Speed Bump
By
Leonard Zwelling
The first one hundred days went pretty well. President Biden was able to get a covid relief package through the Congress and the economy is picking up as unemployment is dropping. But is it dropping quickly enough?
When a large swath of the country’s work force loses jobs as occurred during the pandemic, it takes a lot to get things moving again. What has alarmed many economists is the slow recovery despite the progress in getting people vaccinated. About 170 million Americans have had at least one shot and the percentage of fully vaccinated over 65 years of age probably approximates the President’s 70% goal. That’s good. Then why are we not back to where we were with unemployment?
The Republican argument is that people are receiving more in welfare and unemployment benefits than they can make at low paying, but available, jobs. Thus, they stay at home. The progressive argument is that this would all be solved with a minimum wage of $15 per hour which would bring more people into the work force. Either way, from the delays in the supply chain leading to scarce supply and thus higher prices to the need to raise wages at entry level jobs raising costs, prices are going up and there is very little the Federal Reserve can do to prevent this inflation.
It seems inevitable that both wages and prices will be rising and inflationary pressure will be growing. It should hit about a year from now as a lead-in to the 2022 mid-term elections. Therein lies the problem for Mr. Biden. He is a ransom ware attack on another pipeline away from gas lines and higher prices for everything. What can he do?
He’s trying to pass a huge trillion dollar infrastructure bill and another to aid American families. How does he plan to pay for this? Higher taxes on corporations and private citizens. He wants to roll back the Trump tax cuts. That would also be inflationary as the price of products will rise in response to any tax increase on businesses.
I do not see a way that inflation will not take hold. The degree to which the stock market has baked it into prices will determine, for the most part, the performance of the Dow Jones and Standard and Poor’s. I am more concerned about what it means for average Americans when price inflation exceeds wage increases. I think Mr. Biden gets that but continues to press on huge spending initiatives. My guess is that Congress will just push back and the 50-50 split in the Senate may preclude the passage of any progressive legislation on infrastructure or families.
Personally, I think that the 2022 election will be a referendum on the Biden plan, most of which will not be passed by November of 2022. My guess is that the Democrats will lose control of the Senate and perhaps the House (watch how redistricting goes in those red and purple states that have picked up seats after the 2020 census). Mitch McConnell is playing the long game here and Biden the short one. It’s a standoff for now which means Mitch wins.
Look for no new legislation of meaning unless the Democrats compromise on smaller packages. Look for Republicans to block the passage of even a modest infrastructure bill if it includes new taxes. Look for inflation taking hold anyway as wages must rise to populate the needs of the service industries.
It’s no wonder Biden is in a hurry to get something passed. With every passing day, that becomes less likely. Perhaps that’s not all bad, but I believe that inflation is coming no matter what anyone in Washington does and the only hedge is stocks. Earnings on bonds and conservative savings vehicles will never keep up with the rate of inflation.
Inflation is the secret threat to the Democratic majority in both houses of Congress. What’s more, the Republicans know it. By delaying the passage of the huge spending bills, the Republicans are delaying the date when inflation hits, but it will be before the mid-terms. Mitch is one cagey dude.
