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Q&A – How Much Biden’s BBB Would Increase Inflation & Why Isn’t It Being Pursued
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Today’s Entry: I’ve noticed Democrats including Biden seem to have abandoned BBB. Biden and Pelosi spent all last fall telling us it would bring down inflation. If it would bring down inflation wouldn’t they be as loud as ever about passing it? Especially since they seem to have no answers in addressing inflation other than letting the Federal Reserve slow walk rate hikes. Thoughts?
Bottom Line: Great point. After hearing inflation was transitory from the Biden administration most of last year, they began to pivot last fall to saying Biden’s “Build Back Better” social spending plan would actually reduce inflation. Sidestepping the fact that any assertion that the BBB plan, which would flood the economy with government debt spending is devoid of any economic reality (a one-two negative effect on inflation by watering down the value of the US Dollar by arbitrarily creating more of them and creating artificial demand for goods as a result) – you bring up a good point that it's been dropped of late. After paying homage to it at the State of the Union address, although even that was tweaked with talk of deficit reduction which must be based on more than new math stuff, the administration has dropped any mention of it since. Why? Three likely reasons. Joe Manchin’s opposition, Inflation realities and the fact that we’re not buying the company line on the BBB, or what I’ve referred to as Build Back BS.
Manchin’s opposition is well documented so there’s no need to spend time documenting his concerns with the original proposal. That said, the reason why President Biden and Democrats generally have stopped ganging up on him over his opposition is due to the two other factors I mentioned. So, about those inflation realities. As we’re aware, and as I cited in my Takeaways yesterday, a year ago, the administration’s line was that inflation was low, would stay low and any spikes in prices would be “transitory”. It appears the Biden administration and DNC generally did buy into Modern Monetary Theory. Once something only advanced by Bernie Sanders in Congress, it became mainstream Democrat thinking with the onset of the Biden administration. This was evident in the March 23rd, 2021, quote from Federal Reserve Chairman Jerome Powell I specifically referenced: Our best view is that the effect on inflation will be neither particularly large nor persistent. We have been living in a world of strong disinflationary pressures -- around the world really -- for a quarter of a century. We don’t think a one-time surge in spending leading to temporary price increases would disrupt that. His reference to a quarter of a century of “deflationary pressures”, is code for a belief in Modern Monetary Theory, or the belief that the government can just create money and spend it out of thin air without consequence. That’s why despite trillions of dollars of debt spending having been approved by Congress over the prior year, including the just approved “American Rescue Plan”, last year preceding Powell’s comments – they still had the audacity to suggest inflation wouldn’t be a problem.
The top reason why Biden officials and Democrats generally held on to the notion of inflation being temporary until the end of the year – was the necessary acknowledgment that their belief in the “new math” was wrong. Yes, they could blame the pandemic as to why they were wrong – which is what they’ve done. But we were well over a year into the impact of the pandemic which they were on record as saying it wouldn’t be an issue. Inflation was 1.4% the day Biden became president. The pandemic didn’t create inflation. Bad public policy did. Watering down the US money supply with tons of debt spending while artificially stimulating demand by throwing those newly invented dollars into the hands of people is what did this. At the point where the Federal Reserve and Biden administration admitted inflation wasn’t transitory last December – they had to acknowledge to themselves why there were wrong and also what the passage of the BBB would do.
The most recent version of BBB proposed $2.5 trillion in new spending. If passed it would have resulted in a minimum of an additional 11% boost to inflation overtime as the money would be artificially created and spent. In other words, back in real-world economics as opposed to the fallacy of Modern Monetary Theory, the BBB would have had the potential to take us from 40-year high inflation to potential hyper-inflation. With those realities facing them – it's safe to say Biden’s economic advisors are no longer telling him to go for it. Especially on back of the additional pressures based on Russia’s invasion of Ukraine. And then there’s us. The bottom line. We’ve called out Biden’s BS.
In an aggregation of recent polling only a third of Americans think President Biden is focusing policy on the issues that matter most to them, 70% disapprove of Biden’s handling of inflation and his approval rating on the economy is only 38%. That’s obviously huge. We’re sending a message loud and clear for Biden to change his ways and his policy. But even those numbers aren’t the most stark or dramatic in the context of this conversation. This number is. 4%. What’s 4%? The percentage of Americans who still believe President Biden’s original line that BBB would actually reduce inflation. This speaks to the lack of credibility Biden has on the topic with almost everyone and it’s a realization almost no one would believe him if he were to continue to travel down that rhetorical path. It’s also a bit of a faith restoring moment that almost all Americans still understand that there really isn’t any such thing as a free lunch. Or free puppies and Biden Bucks as the case may be.