Inflation Is New Battle Line as Republicans and Biden Spar Over Spending
WASHINGTON – Republicans have made American concerns about rising prices their main line of attack against President Biden’s economic agenda, seeking to derail billions of dollars in spending programs and tax cuts by warning that they will produce 1970s-style inflation.
They seized on the rising costs of gasoline, used cars and other goods and services to accuse the president of stoking “bidenflation”, first with the $ 1.9 billion stimulus bill. dollars he signed in March and now with a $ 3.5 trillion economic bill that Democrats have started drafting in the Senate.
The development of inflation in the coming months raises unusually large uncertainties, given the uncertainties surrounding the restart of an economy hit by a pandemic. Yet even many economists who fear the high prices will persist longer than analysts initially expected say there is little reason to believe the problem will worsen if Mr Biden is successful in his attempts to strengthen child care, education, paid time off, low emission energy and more.
“There have been a lot of fears about inflation,” Joseph E. Stiglitz, a liberal economist at Columbia University, said on a conference call in support of Biden’s economic plans on Tuesday. But the president’s spending proposals, he said, “are almost fully paid.”
“If they are adopted as proposed,” he added, “there is no conceivable way that they will have a significant effect on inflation.”
The debate over the effects of the proposals “has nothing to do with the current anxiety about inflation,” said Mark Zandi, an economist at Moody’s Analytics who modeled Biden’s plans.
However, growing fears of inflation have forced the president and his associates to shift their economic argument to voters. Officials have pointed to the potential of its efforts to lower the cost of health care, housing, university and children’s education, although they insist the current inflation spurt is a temporary artifact of the pandemic recession.
The administration’s defense has at times mixed rapid price hikes with inflation-dampening efforts that could take years to bear fruit. And officials concede that the president recently exaggerated his case on the national stage by wrongly claiming that Zandi had found his policies “to reduce inflation.”
The economics of the inflation situation are muddled: The United States has little precedent for the distorted supply chains and padded consumer savings that have emerged from the recession and its aftermath, when large parts the economy closed or withdrew temporarily and that the federal government sent $ 5,000 billion to individuals, businesses and local governments to help them weather the storm. The economy remains seven million jobs below its pre-pandemic total, but employers are struggling to attract workers at the wages they are used to paying.
But the political danger to Mr. Biden, and the opportunity for Republicans who have sought to derail his plans, is clear.
The price index that the Federal Reserve uses to track inflation rose nearly 4% in May from a year earlier, its fastest rise since 2008. Republicans say it stands to reason that ‘An increase in spending would make those increases even worse – yet another rationale for a long-standing Conservative attack on the vast expansion of government programs Mr. Biden is proposing.
Nine in 10 respondents to a new national poll for the New York Times conducted by online research firm Momentive, formerly known as SurveyMonkey, say they have noticed a recent rise in prices. Seven in ten fear that these increases will persist “for an extended period”. Half of those polled say that if the increases persist, they will cut household spending to compensate.
Administration officials acknowledge that inflation concerns are weakening consumer confidence, notably in the University of Michigan survey of consumer confidence, even as the economy rebounds from recession with its highest annual growth rate in decades.
The question gave Mr. Biden’s opponents their clearest and most consistent message to attack a program that remains popular in opinion polls.
“There is no question that we have serious inflation right now,” Republican Senator Patrick J. Toomey of Pennsylvania told CNN’s “State of the Union” on Sunday. “There is a question as to how long this lasts. And I’m just worried there is a high risk that it will be with us for a while. And the Fed has put itself in a position where it is going to lag behind. You combine that with massively excess spending, and it’s a recipe for serious trouble. “
Some Republicans argue that part of Mr. Biden’s spending plans would not drive up prices – particularly the bipartisan deal he and senators are negotiating to invest nearly $ 600 billion in roads, pipelines. water, broadband and other physical infrastructure. But the party is united in criticizing the rest of the president’s proposals in ways that many economists say ignore how they would actually affect the economy.
Some of the proposals would distribute money directly and quickly to U.S. consumers and workers – by raising wages for home health care workers, for example, and pursuing an expanded tax credit that effectively functions as a monthly allowance for all except the highest paid parents. But they would also increase taxes on top earners, and much of the spending would create programs that would take time to find their way into the economy, like paid time off, universal preschool, and free community college.
Some conservative economists fear that the relatively small tranche of immediate payments will further heat an already hot economy, pushing up prices. The direct payments in the proposals “would exacerbate pre-existing inflationary pressures, put additional pressure on the Fed to withdraw its monetary policy support sooner than it had expected, and jeopardize the longevity of the recovery said Michael R. Strain, a conservative economist at the American Enterprise Institute.
Other economists inside and outside the administration say these effects would be overwhelmed by the potential of spending programs like paid holidays to reduce inflationary pressures.
“The economics of these investments strongly belies Republican criticism because they are investments that will produce faster productivity growth, greater labor supply, expansion of the economy’s supply – which very clearly eases inflationary pressures, does not exacerbate them, ”Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers, said in an interview.
Administration officials pivoted their sales pitch on the president’s agenda last week to highlight the potential of his price-cutting plans.
Mr. Biden’s agenda is to “lower costs for families at all levels,” Mike Donilon, senior White House adviser, told reporters. He said officials believed they were “in a strong position” against Republican attacks on inflation, in part citing Zandi’s recent analysis. The president also referred to the analysis last week at a forum in Ohio on CNN, saying he had found his proposals “will reduce inflation.”
Moody’s analysis did not say that; instead, he found that some of Mr. Biden’s spending plans could help ease price pressures several years from now. He specifically cited proposals to build additional affordable housing units nationwide, which could help maintain rents and housing prices and lower the cost of prescription drugs.
White House officials admit Mr. Biden overstated the analysis, but point to more measured remarks in a speech this month, when he said his plans would “improve our productivity – raise wages without raising wages. price”.
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