Congress is back in session this week and negotiations over President Biden’s Build Back Better Act continue. House Democrats are waiting for the Congressional Budget Office (CBO) to release its cost estimate for the package and then, hopefully, a vote will be held immediately after, as soon as this Friday.
There are still obstacles in the Senate, however. Some Senators, most notably Joe Manchin, claim to be worried about inflation, and have indicated they might think it’s better to wait to pass the Build Back Better Act.
With so much hinging on what is going on with inflation, we’re shining a spotlight on the issue this week. While it’s true that inflation is on the rise, with prices of everyday items like food, gas, and clothing up an average 6.2% from this time last year, fears of runaway inflation are no reason to hold up the Build Back Better agenda.
Who’s to Blame for Rising Prices? by Neil Irwin
There are several “culprits” as to who or what is to blame for rising inflation. Irwin highlights four such culprits:
1) Biden and Congress injecting a total of $2.8 trillion into the economy through pandemic relief
2) The Federal Reserve keeping “ultra-easy” monetary policy in place during the pandemic
3) Corporate America deliberately cutting supply levels at the beginning of the pandemic and consequently now struggling to keep up with soaring demand
4) Americans demanding physical goods at an extraordinarily high rate and not working/working less because of the pandemic.
In the end, Irwin argues that number 4, Americans’ unique purchasing and employment patterns, is probably the most important factor in explaining the rise in inflation. This means that Congress shouldn’t worry that the Build Back Better Act would exacerbate inflation – it could actually lower inflation by investing in America’s productive capacity and reducing monetary supply through taxing the rich.
Here’s when high inflation will come to an end by Mark Zandi
Yes, inflation is on the rise, but it’s being driven by some unique pandemic-related factors. That means inflation will be temporary, because the pandemic is (hopefully) temporary. This article provides some greater insight into why global supply chains have been disrupted because of the pandemic. In emerging Asian economies, where most global supply chains begin, entire factories have shut down because of COVID outbreaks, and in our own country, workers have not returned to the workforce because they are sick themselves, caring for sick loved ones, taking care of children engaged in remote learning, and more. Once we tackle the pandemic, there won’t be as many disruptions in the supply chain, and prices will go back down. Most importantly, Zandi also stresses that the facts refute the argument that the Build Back Better Act would exacerbate inflation; instead, the social spending created by the legislation would grow the economy and consequently slow the rise of inflation.
Inflation is manageable. Inflation panic is out of control. by Paul Waldman
There is no debate that runaway inflation is a problem. But this article argues that inflation panic is the real problem plaguing America right now. People are making way too big of a deal out of a very manageable rise in prices in everyday items. If everyone were to take a step back and look at the whole of the economy, they would see that in many other respects we’re doing remarkably well. Millions of jobs are being created, wages are rising because of workers’ collective action, demand for retail goods is off the charts, and even the stock market has set records. Don’t fall victim to inflation panic – it’s only a smokescreen to convince the public that Biden and the Democrats don’t deserve to win in 2022 and 2024.
A month of inflation does not a crisis make by Ryan Cooper
With prices rising on everyday items across the country, political pundits have called on the Federal Reserve to raise interest rates. But doing so would be a mistake, as Cooper argues America is on the precipice of an economic boom not seen for decades. Raising rates would not do anything to tackle the pandemic, which is the real cause of inflation, and it might actually land all of us back into an economic slump like we experienced in the post-Great Recession decade. The levels of inflation that we are experiencing are manageable and temporary; we just have to let the good parts of the economy – higher wages, strong job creation, high demand for physical goods, and more – shine and we are more than capable of riding out the storm.