Republicans blame Joe Biden and Kamala Harris for high inflation. Whose fault is it?
Donald Trump and fellow Republicans repeat it over and over: Kamala Harris and Joe Biden are the reasons prices are so high.
“Kamala — who cast the tie-breaking Senate vote for trillions in spending that sent inflation sky-high — owns the failures of the Harris-Biden economy,” the Republican Party rapid response team said recently.
“Kamalanomics is Bidenonmics,” Trump’s campaign team tweeted Monday.
Trump promised during the GOP convention last month that if he’s elected, “Inflation will vanish completely.”
Chances are no president, or for that matter any U.S. policymaker, can make that happen.
While the Biden administration policies arguably contributed to the worst inflation in 40 years, the American and world economies are complex and driven by several diverse, often uncontrollable factors.
Economists have different views of the impact of the Biden administration’s policies.
“I don’t think the Biden administration has much to do with the high inflation we’ve suffered over the past several years. There’s a long list of reasons, and if it makes it to the list, it’s at the bottom,” said Mark Zandi, chief economist at Moody’s Analytics.
But Mark Schniepp, director of the Santa Barbara-based California Economic Forecast, saw policy as very much an important factor in stoking inflation.
“The runaway spending during the Biden term did contribute largely to inflation,” he said.
In short, there’s no easy answer to how much, if at all, Biden administration policies contributed to price increases.
Biden’s plan
The American Rescue Plan was the Biden administration’s signature effort to ease the brutal economic impact of the Covid pandemic, and has been the major debating point between the parties as to whether Democratic policies sent prices soaring..
At the time the bill passed in March 2021, critics contended that the economy was already recovering nicely. They argued the $1.9 trillion stimulus was too expensive and that huge amounts of money from a 2020 Covid-inspired stimulus had not yet been spent.
Biden was inaugurated in January 2021, and the act was his initial major effort to give the economy a boost. It passed Congress without a single Republican vote.
The Senate was split 50-50. Harris, who as Senate president only votes to break ties, was the 51st vote that allowed the Senate to consider the bill, a crucial step towards the bill’s passage.
Biden signed the plan was signed into law in March, 2021. That February the annualized increase in the cost of living was 1.7%. In March, it jumped to 2.6%, and in April, 4.2%. By June 2022 the rate had hit a 40-year high of 9.1%.
The rate fell below 4% a year later, and the latest reading, taken in June, was 3%. During Trump’s four years in office, the rate was never as high as 3%. Trump didn’t make inflation vanish, though as the Covid pandemic paralyzed the economy the rate hit 0.1% in May 2020 as energy prices plunged.
Experts said the Biden plan added at least a few percentage points to the inflation rate. Pouring more money into the economy in theory meant people had more to spend, so sellers had less incentive to keep prices down.
Marc Goldwein, senior vice president at the nonpartisan Committee for a Responsible Federal Budget, cited not only the Biden plan as a price stimulant, but also the Covid relief package Trump signed into law in March 2020.
“We put a tremendous amount of fiscal stimulus in the economy. I don’t think anyone can seriously claim it had no effect on inflation though we can argue about the magnitude,” Goldwein said.
Schniepp also cited the 2020 plan, which boosted unemployment benefits and made millions more eligible, as well as its relief for businesses.
“Giving away tons of money with generous unemployment benefits, then (business) loan money that was not vetted properly, then direct money payments from California to taxpayers, then local and state government subsidies and outright grants that allowed cities and counties to finance pension obligations and wipe out their non-pandemic related debt resulted in a spending spree by individuals and institutions,” he said.
The Uncontrollables
Prices are affected by a variety of factors that the White House can’t control.
The Federal Reserve aims to keep inflation in check by raising interest rates, and starting in March 2022 it’s increased rates 11 times. The Fed was criticized for moving too slowly to recognize the inflationary threat by waiting too long to start raising rates.
The target rate now is between 5.25% and 5.5%. The higher rates have had an impact on sales, particularly of big ticket items, which theoretically motivate sellers to avoid big price increases.
The Fed chairman is Jerome Powell, first appointed by Trump in 2017, confirmed by the Senate in early 2018 and reappointed by Biden in 2022.
The Fed historically avoids even the appearance of responding to politics, and Biden has not tried to influence their decisions.
Other important factors in price changes have been energy costs and supply problems.
“Oil prices were high and continued to remain high due to regional conflicts – initially the Russia war – disrupting supply and the decision by OPEC+ to extend the cuts,” said Gokce Soydemir, Foster Farms endowed professor of business economics at California State University, Stanislaus.
“This undoubtedly resulted in persistent cost-push inflation affecting pretty much all goods and services produced in our economy. This was the main culprit,” he said.
Gasoline prices peaked in the summer of 2022. In California, the average price of a gallon of regular gasoline hit a high of $6.44 in June 2022, according to AAA. Monday’s average was $4.60.
Another influence on prices: The Russian invasion of Ukraine, which began in February 2022, rippled through the world economy.
“It caused oil prices to go skyward, natural gas prices to jump and agriculture prices that affect food and grocery prices to increase,” said Zandi.
During the peak of the Covid pandemic, supply chains were disrupted, particularly from other countries that were unable to manufacture parts needed for cars.
There’s simply no yes or no answer as to how much Biden administration policy was a major driver of inflation.
“It’s impossible to know. Ordinarily a president and a Congress exerts very little control on inflation,” said Goldwein. “This wasn’t ordinary.”
This story was originally published August 12, 2024 at 12:09 PM