Q&A of the Day – The Inflation Reduction Act’s Actual Impact on Inflation
Each day I feature a listener question sent by one of these methods.
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Today’s Entry: @brianmuddradio I'm sorry but the Screw You Act was no better than the CARES Act, which actually kicked off the inflation. Biden just drove the last 1900 Billion nails into the coffin. (After Trump's 2 Trillion).
Bottom Line: Bonus points for the use of the term “Screw You Act”. That’s what I’ve not so affectionately referred to the Inflation Reduction Act as over the past year. Or the “Screw You Acts” in reference to the one-two punch President Biden’s “American Rescue Plan” in conjunction with last year’s Inflation Reduction Act. Today is the one-year anniversary of President Biden’s signing of the Inflation Reduction Act. Legislation President Biden is celebrating as a success with two days of events. However, with President Biden’s approval rating on handling inflation at a paltry 34% currently – it's clear that he’s just about the only person who feels like celebrating. And that’s of course because the Inflation Reduction Act hasn’t reduced inflation. It’s far higher today than it was a year ago today. Hence the name the Screw You Act as I first referred to it just prior to the time of its passage.
The role government spending plays in impacting inflation is something I’ve extensively covered over the past two and a half years. And, in principle, I agree with the premise that the CARES Act, signed into law in March of 2020 by President Trump, wasn’t good legislation. That said, it not only didn’t prove to be inflationary, but it also statistically played no role in creating what eventually led to 40+ year high inflation that we still are struggling as a country to combat. I’ll illustrate the point. In March of 2020 the US inflation rate, when the CARES Act, which was passed at the onset of the impact of the pandemic (at the time lockdowns had just begun), was 1.5%. In January of 2021, when Joe Biden was sworn in as President of the United States the inflation rate was 1.4%. So not only was the CARES Act evidenced not to be inflationary, but inflation actually fell long after its passage. And the reason is pretty simple. The artificial debt stimulus provided through the CARES Act, was only effectively replacing what many Americans weren’t allowed to earn and produce during the impact of early months of the pandemic as businesses were shut down and jobs were lost. And it didn’t even fully do that which is why the US economy entered a recession – shrinking by 2.8% in 2020. That’s how and why the huge government debt spending actually led to lower inflation overtime. As for what came next...The US economy achieved 40+ year high inflation based on a one-two-three-four punch of bad policies under the Biden Administration.
The week one executive actions by President Biden killing the Keystone XL pipeline, banning the harvesting of energy on 2.46 billion acres of land, and inhibiting the ability for energy companies to obtain new permits generally – created the basis for the energy inflation crisis. The March 2021 American Rescue Plan, which did the opposite, was the printing of $1.9 trillion in made up money watering down the US monetary supply while simultaneously creating artificial demand with the inflated dollars. Ditto the November 2021 Infrastructure and Jobs Act which invented hundreds of billions of more dollars out of thin air and created even greater artificial demand. And last but not least, one year ago today we had the Inflation Reduction Act which was more of the same under a different name. The rate of inflation was 1.4% the day Joe Biden became President of the United States and Democrats gained complete control of Congress. One year later it was 7.5% (and eventually peaked above 9%). Today, two and a half years later it’s still greater than double the rate that it was the day Joe Biden become President at 3.2%. But because of how high inflation has been, even the rate of inflation doesn’t tell the whole story. That’s 3.2% higher inflation than what had already been a 41-year high rate of inflation last year and what had been a 40-year high rate of inflation the year before. Context is key here. Joe Biden’s real inflation rate is 18% through the first two and a half years of his presidency. Meaning you have to spend $1.18 to buy today what a dollar bought on January 20th of 2021. And yet the president has the audacity to celebrate this. As I’ve always said, a politician can lie to you about what policy will do, but they can’t lie to you about what isn’t in your wallet. So back to where this conversation started.
There’s a difference between bad public policy, which largely the CARES Act was, and bad public policy that’s inflationary – which is everything which has been passed since that law. The CARES Act was a failure largely because it paid people to stay home, as opposed to working, which as we quickly came to learn should never have happened. But it wasn’t inflationary because we had a government induced recession which was bigger than the stimulative effect of it. But then we had a Joe Biden induced energy crisis – which was an inflationary event - stoked by three huge artificial debt spending packages (the Screw You Acts) during a time in which the US economy was already growing. Any artificial debt spending package during a period of economic growth will be inflationary. Three of them and a self-induced energy crisis gives you what we’ve been living through.