Biden worsened inflation
The question is how much? Multiple recent studies from economists, the Federal Reserve, analysts, and media pin the spike in inflation squarely on Biden, concluding Biden worsened inflation. One major contributor- the partisan $1.9 billion American Rescue Plan passed in March 21. The massive spending law sent $1,400 checks for each person in a family, expanded unemployment insurance and child tax credit benefits. It also propped up state budgets (targeted mainly to blue states) with hundreds of billions of dollars. Economists argue this triggered a massive increase in inflation.
Countries around the world didn’t see similar inflation spikes. Politics didn’t trump reality – they spent less. Inflation has brought with it two big problems. Americans’ wages haven’t risen enough to keep up with inflation as real (inflation-adjusted) wages have been declining at the highest rate in four decades. Additionally, inflation remains persistent. Reining it in will be painful. The Federal Reserve isn’t blameless in this fiasco and has started raising interest rates. Like most government plans, the American Rescue Plan was drafted with good intentions, but it caused more real problems than it solved.
The US had significantly worse “core” inflation than comparable economies
Regarding inflation around the world, the US stands out. And it started to stand out shortly after President Biden took office. A recent article published by the Federal Reserve Bank of San Francisco makes this point. The authors compare core inflation in the US to the average of eight wealthy countries. Before 2021, these and the US had similar inflation levels. Then the US’s shot up.
The authors don’t mince words about the cause, suggesting that the spending may have added 3% to inflation by the end of 2021. The US did a lot more stimulus than other countries. Now it’s seeing a lot more core inflation. And the stimulus most at fault was Biden’s $1.9 trillion spend. This spending was a primary factor in how Biden worsened inflation. It was enacted after more than $3 trillion had already been spent with one big chunk of that being approved just three months prior. Gasoline poured on a fire. This core inflation excess in the US continued into 2022. The US has consistently been about 4% higher than Europe. That is a HUGE difference.
Some economists peg the extra inflation at a 7% increase including energy and food prices, and a 5.5% increase excluding them solely due to Biden’s spend. Conversely, every country that did basically nothing has recovered. The side effects [in the US] have been quite problematic.
The criticisms of the American Rescue Plan
The case that the American Rescue Plan contributed to inflation has three parts: its size, its timing, and the details of its spending. Economists predicted the $1.9 trillion was unnecessary. $1 trillion had just been approved a few months earlier and NOT YET SPENT. Some economists did argue that a limited, targeted spend of perhaps $300-500 billion MIGHT have been justifiable. Much of the ARP’s spending did quite a lot of damage. Money to state and local governments went under the outdated assumption that they’d be facing budget crises. By early 2021 it was already clear most states weren’t facing such crises.
The $1,400 checks were another issue. As a purely political ploy partly to win the Georgia Senate runoffs, the checks totaled about $400 billion in spending.
Good intentions don’t always make good policies
High inflation is now here. Rectifying it will be painful. The Fed may need to raise rates high enough to cause a recession. Not that the Fed’s earlier inaction didn’t already contribute a lot towards out of control inflation and government spending. Unfortunately, it’s difficult for politicians, especially Democrat politicians, to give up spending dreams. Even if those policies that could make it a much worse problem.
Democrats simply didn’t take this seriously enough back in early 2021. They wrongly concluded that a stimulus far in excess of what models said was necessary was the less risky option. They thought they were still in the “money printing business” era. The results are significantly worse economic problems in 2022, 2023, and 2024. Perhaps even electoral consequences for Democrats.