Over the previous two weeks, I enjoyed
travelling around Iowa holding county meetings and visiting with employers and
employees. It’s always refreshing to hear directly from Iowans. As I often say,
Washington is an island surrounded by reality.
There is no better example of this than
how the Biden administration and Washington elites talk about inflation and
rising prices. To them, inflation is “transitory” or the result of “base
effects”.
To the Iowans I spoke with, inflation is
real and persistent. I heard concerns about inflation wherever I went. It’s
affecting people’s lives right now.
I heard how inflation was cutting into
family budgets making it hard to make ends meet. I heard how prices of grocery
staples, such as meat, milk, fruits, and vegetables are on the rise along with
all manner of household goods.
Yet, the President and his top economic
advisers say inflation is nothing to worry about. Or, as the President’s
Treasury Secretary put it, “I don't think there's going to be an inflationary
problem. But if there is, the Fed will be counted on to address them.”
They shouldn’t be so nonchalant. As we
know from the 1970’s, once inflation takes off, getting it back under control
can require very painful measures. As former Clinton Treasury Secretary Summers
recently stated, “the Fed has had almost no success gently bringing down
inflation once an economy has started to overheat.”
Unfortunately, instead of taking inflation
seriously, the current Administration appears intent on stoking its flames. In
his budget, the President proposes government spending and debt at levels previously
only seen temporarily during war or economic recession.
The non-partisan Congressional Budget
Office (CBO) and economists surveyed by the Wall
Street Journal both recently raised their inflation expectations. CBO
raised its inflation projections because “output now exceeds its potential
level sooner and by a larger amount than previously anticipated.”
Output exceeding its potential is economic
speak for the economy is starting to “overheat.”
Consumer price data released yesterday
shows inflation heating up. In June, prices climbed 5.4 percent over the prior year
compared to 5 percent in May. Moreover, core inflation, which omits volatile
food and energy goods, rose at its highest rate in 29 years.
The trillions of dollars in new spending
proposed by the President could set inflation ablaze. If that occurs, it’s not
going to be the wealthy and Wall Street elite that pay the price.
The average hardworking American living
paycheck to paycheck and the retiree on a fixed income will pay more for less.
The President would be well served to
listen more to everyday Americans about how rising prices are affecting their
lives today. He might then realize pursuing another multi-trillion dollar
spending spree isn’t worth the risk. It could fan the flames of inflation and
devastate the livelihoods of average Americans.
It’s incumbent upon the President and
Congress to avert catastrophe by pursing responsible fiscal policies. We can’t
just expect the Federal Reserve to clean up our mess if we act irresponsibly. By
that time it could already be too late.
