Chris Hayes responds to today's good inflation news:
I'm gonna bang this drum until it tears, but this has been the best macro-economic stewardship of any administration *and Fed chair* of my lifetime. https://t.co/x7T6yaZSEO
— Chris Hayes (@chrislhayes) July 11, 2024
I don't seriously disagree with any of this, but there's an irony here. The single biggest contributor to Biden's good economy was the CARES Act, the $3.5 trillion rescue package passed in April 2020 and signed by.......Donald Trump.
It was the perfect Keynesian stimulus: big, broad, and put in place with lightning speed before the recession could take hold. But Trump has trouble taking credit for it because his base doesn't like the idea of either Keynesian stimulus or social welfare supports. And it did blow up the deficit.
It's deeply unfortunate that we won't learn the right lesson from this stimulus. It was politically possible only because the March 2020 recession was very sudden and plainly caused by the pandemic. This gave Republicans cover to support it.
The same kind of stimulus could also stop a normal recession in its tracks, but Republicans would never permit it. Early on they'd fight over whether we were really in a recession yet. They would insist on tax cuts instead of spending. They would nickel and dime everything for fear of de-incentivizing work. They would scream about the deficit and its impact on inflation.
COVID put all that to the side. It was obvious why people were out of work and it had nothing to do with laziness. It was obvious we needed to act fast: speed was more important than getting every detail right. It was obvious that inflation wasn't an immediate problem. It was obvious that we needed to put money in people's pockets, not promise them a tax cut in a year's time.
It worked, and there were no real downsides. The subsequent inflationary surge was due to supply shortages, not stimulus. People went back to work as soon as the economy recovered. And the recovery proceeded nicely with the same old taxes as before.
We could do this for every recession if we had the political will. We could especially do it if we had the political will to raise taxes and moderate spending during expansions, thus building up a surplus to be used later. Unfortunately, political will is in even shorter supply than usual these days. It takes a massive, once-a-century pandemic to goad us into doing what's right.
POSTSCRIPT: As an aside, I'm not as big a fan of Jerome Powell as Chris is. Powell has been OK, but I continue to think he overreacted on interest rates. It's possible that the economy needed a little reining in, but there was never any need to push rates so high to battle inflation, which came down of its own accord when supply shortages eased.
MAGAs think that Trump has supernatural powers, but many self-described liberals still attribute such powers to the Fed. Why? Did the Fed prevent inflation in the 70's? Did it prevent inflation last time? Exactly how did it put an end to pandemic supply issues?
The best the Fed can do is create conditions in which the economy may perform well. If they are lucky and Congress and President take the right measures along with the Fed the chances are pretty good.
reuters:
U.S. President Joe Biden mistakenly referred to Ukrainian President Voldymyr Zelynskiy as "President Putin" on Thursday, as more members of his Democratic party called on the 81-year-old to drop his bid for re-election.
He didn't just "refer" to him as Putin . . . he *introduced* him as Putin!
Biden is giving a press conference right now, 4:30pm pacific time, at NATO conference.
Shorter explanation for the rescue package passing: A recession threatened within a year of a presidential election with a republican in the White House running for reelection, along with a republican Senate.
Ding-ding. Give the man a cigar!
yup.
& even then, neoliberal nancy pelosi had to pull teeth to get it.
As far as I remember the idea came from Nancy Pelosi. She was the speaker then. She pushed it hard and got the votes.
Somehow this geriatric dementia patient has done a great job running the country. So weird . . .
Also so weird that Kevin does not feel the need to contemplate this.
He was doing a great job until just a few months ago, when his cognitive decline got really noticeable.
further proof how much the presidency ages you.
& proof that trump hardly did any presidenting to come out the other side of his time in office with little obvious wear.
Nothing weird about a competent administration doing a good job running the country. As you well know, that's not the issue. The issue, rather, is that the head of this administration is also the presumptive nominee of the Democratic party, and said nominee is en route to a catastrophic loss to Donald Trump.
Unfortunately, there is no reason to think anyone else will do any better. I, like you, want to keep Trump out of the white house more than anything.
I don't disagree with your point that this was a good example of effective economic management in the case of a once-in-a-lifetime (hopefully) global pandemic.
As far as staving off any future recession with a shot of fiscal-busting stimulus I think that is a very bad idea. Recessions that result from natural business cycles seem necessary to correct for irrational exuberance, and for a flush of creative destruction that frees up capital from declining of over-invested sectors and companies to be directed to new and emerging sectors, companies and technologies. Pulling out a stimulus bazooka to prevent them every time they threaten is not only impractical, but likely counter-productive.
von mises is in the house
http s:// youtu.be/ d0nERTFo-Sk? si=b0OvCO3q Fe4zv-7W
I agree. Instead we should improve the social safety net in general so people are not crushed during recessions.
We abandoned the gold standard because fiat money gives us a tool to combat recessions. Under a fixed money regime (that is, a gold standard) there may be a need to "free up" capital, but under a fiat regime the money supply can expand and contract to meet the needs of the economy. And a growing economy will generally need a growing money supply to remain healthy.
I think it also helped that a TON of GOP members (along with others) got COVID 'loans' that were supposed to help over the hump but just went into people's pockets. What's not to like?
Hey, that enabled my landlord to not raise our rent for 4 years.
I charge my tenant way below market rent. Partly, that's because I am sufficiently well off that I don't need to increase it. Part of it is that he's been my best friend for more than 30 years. Part of it is that my mortgage payment, which his rent is meant to cover, hasn't gone up, either. And the biggest part is that he does all of the yard work, as my fibromyalgia and total lack of interest in upkeep mean that I'm not going to do it.
Most years, he keeps increasing his own rent by the legally allowable maximum.
"They would insist on tax cuts instead of spending. They would nickel and dime everything for fear of de-incentivizing work. They would scream about the deficit and its impact on inflation."
Only if a Democrat is in the White House. If a Republican is in charge, they'd cut taxes and spend also. And not a word would be spoken about the deficit or inflation.
It also blew up inflation, which Biden has beaten down without causing a recession. I'm so old I remember when everyone was saying Bidenomics was going to cause an imminent recession. Wrong. Biden beat covid, he beat inflation, he beat a (predicted) recession. This is why I'd crawl over broken glass to vote for Biden's reanimated corpse if I need to.
"It also blew up inflation"
It did not. It was effective because it essentially made up -- barely -- for the extent the economy had contracted due to the pandemic. Inflation in 21-22 was a global phenomenon because of labor and supply chain disruptions. I do think one of this administrations best accomplishments was to take a lesson from that and move to make our supply chains more robust, re-shore more manufacturing, and keep our infrastructure up and running.
And another broad point is that when both prices and wages go up, it's generally to the benefit of people who have taken out loans - such as loans on their house. Because the loan balance didn't go up.
We really could have used some of this during the Great Recession. We got something else.
And for the exact same reason, it's bad for the people who wrote those loans. And this is why Republicans propagandize and resist this kind of thing.
Inflation isn't simple. So I just go with, Trump's stimulus likely contributed to the inflation that bloomed in 2021, Biden's additional stimulus likely contributed, supply chain disruption contributed, and Russia's war in Ukraine contributed. The inflation rate stayed high for an uncomfortably long time, and eventually subsided due to the influence of multiple factors, including the resolution of supply chain issues, the Federal Reserve's interest rate hikes, and Biden's Inflation Reduction Act. There isn't necessarily a single cause or a single solution.
When there are similar rates of inflation across the developed world, the majority of explanations should probably reflect things that were true all over the world... What kind of stimulus were they doing in Europe or the UK for example?
dingdingding.
Lots of stimulous packages around the world: https://www.investopedia.com/government-stimulus-and-relief-efforts-to-fight-the-covid-19-crisis-5113980
The UK also had Brexit, so they contracted by 10%.
Most of the countries of the developed world passed stimulus packages at about the same time as the US that were similar in size as a fraction of GDP.
why you always lyin'?
I don't see the evidence that interest rate hikes reduced inflation, and may have actually contributed to it. Higher rates raise costs for producers, and those producers will try to pass the increase on to consumers.
I agree interest rates had at most a nominal effect on easing inflation this time around. As Kevin writes, inflation eased as supply chain issues resolved themselves. The only places I can think of where higher rates kinda sorta *slowed* the rate of inflation was in housing prices.
Higher rates also likely pushed up the cost of rent/shelter.
There is an argument to be made that the Fed made inflation worse, not better.
Shorter Kevin Drum - "The remarkable economic recovery presided over by Biden was not caused by anything Biden did, but rather was the result of President Donald Trump's genius economic policies. Also, Biden should resign immediately. I am very smart,"
maybe kevin drum isn't an orange county republican, after all.
perchance he's surfrock matty yglesias.
I think you are underselling the stimulus. It also generated both wage increases and productivity increases.
The subsequent inflationary surge was due to supply shortages, not stimulus.
This is nonsensical. Stimulus in an environment in which there is a supply crunch will lead to higher inflation than there would have been without the stimulus. Every inflationary period can be viewed as caused by a supply or a demand issue. If no inflation was your goal, then you don't do the stimulus.
Given the situation in the spring of 2021, I think passing another stimulus bill, knowing that higher inflation was one likely consequence, was the right decision. But let's not pretend that it didn't help boost inflation.
Actually this isnt a simple econ 101 curve drawing exercise. It never is, even if it makes for easy, broad conclusions.
The stimulus measures assuredly created more demand but also definitely created more supply.
Absent any stimulus, demand would have been lower, but so too would supply.
How exactly these curves were drawn in reality is going to make for excellent research and analysis.