I have many concerns about the Biden administration’s management, policy initiatives and leadership, including their approach to the economy and working with the Federal Reserve (Fed). Biden Democrats’ combination of spending since early 2021 and their assault on American energy production ignited inflation. Since the spending and high gasoline, diesel, and home heating costs continue to be inflated, farming, building, manufacturing, and shipping costs have greatly increased. This has been a recipe for the highest level of continued inflation since 1981.
In response to Biden’s economic crisis, the Fed has just recently cut back its quantitative easing or “increasing the money supply” via bond purchases and other means. This move is too little, too late. The Fed erroneously doubled down on Biden Democrats spending spree virtually ignoring the trillions being created through legislation and executive order. Instead, frankly inconceivably, the Fed’s own stimulus plans increased the money supply by 30 percent. The Fed’s reasoning is that they feared an economic slowdown post-COVID-19. The Fed miscalculated as the economy was growing early in 2021. The combination of Biden Democrats’ spending, and Fed stimulus created inflation by having “far too many dollars chasing too few goods.”
The other mistake made was not factoring in the Biden Democrats assault on fossil fuels. This caused a hyper increase in gasoline prices which once losing our energy independence any geopolitical event would have severe impacts on the price of energy. Enter Russian President Vladimir Putin. If we were energy independent, very simply our fuel costs would not have increased anywhere near the level they did. We would have been in control. Not OPEC and not Putin.
This is in the past, however. What concerns me currently is how we plan to move forward. Jerome Powell, the Fed chairman, seems to regularly look at the early ’80s, under Paul Volcker, as the model for correcting today’s inflation. Volcker’s blunt inflationary weapon was interest rates. Such actions at the time sent our economy into two recessions but did eventually abate inflation albeit by beating down the economy. However, to counter that, the pro-growth tax reductions initiated by President Reagan is what lead to the economic growth of the ’80s. Reagan understood that incentivizing a competitive business climate, having supply meet demand rather than killing demand, would reduce inflation.
My concern is that Powell even regularly quotes Volcker’s book, “Keeping At It.” Additionally, that Biden Democrats and the many left-wing economists to whom they listen to recommend raising taxes. This is the worst thing to do when we need to reignite American manufacturing and production. Higher interest rates also strengthen the dollar, which makes our exports more expensive, crushes the stock market, and increases our federal deficit as the cost of servicing our $30 trillion debt goes up. There are many differences to consider between today’s economy and that of the early ’80s. At that time, we had close to a balanced budget even with increasing of defense spending, we reduced federal income taxes, and tightened the money supply. Today, the Biden administration and the Fed are running counter to each other.
As stated, the Fed has recently ramped down its balance sheet and reduced stimulus spending. The problem is that the Biden Democrats have not. Trillions from all their spending bills have yet to be unleashed in the economy. So, the Biden Democrats are effectively negating, running counter to, and fighting against the Fed. This weakens the effect of higher interest rates and will cause rates to be extra high to achieve the intended result of lowering inflation. This is a very dangerous economic plan. We will suffer all the harsh effects of a prolonged recession without a light at the end of the proverbial tunnel.
We, instead, must scale back any future government spending, even much of what’s been appropriated. (With the exceptions of those that grow U.S. production like some of the transportation and infrastructure and CHIPS funds) We must make the 2017 tax cuts permanent, including the small business deduction. We must cease the hiring of 87,000 new IRS agents. We need to consider every performance-based tax cut possible for U.S. manufacturing, including 100 percent depreciation. We must stand down the SEC, and its crazed efforts to force ESG (environmental, social, and governance) mandates on the investment community. We need a responsible, pro-American energy plan to have the cleanest, most efficient energy production in the world. We can also solve some of the workforce issues by securing the border and only then extending legal work visas for those eligible. This cannot be done until the border is secure as it would make the crisis worse. We need to learn from the past but certainly apply factors that exist today to create practical, workable solutions, and focus on outcomes over ideology.
Dan Meuser represents the 9th District of Pennsylvania and is a member of the Small Business Committee.