Here’s why it’s so hard to be a Democrat: You spend all your time fighting for long-range solutions to fix protracted problems, but most voters want quick fixes for their immediate problems.
Barack Obama caught grief for pushing health care reform while, during the Great Recession, the public worried about jobs. Jimmy Carter obsessed over energy independence while, during the “stagflation” crisis, the public worried about inflation as well as economic growth.
Following the passage of the bipartisan infrastructure bill, President Joe Biden is trying to pass the Build Back Better legislation. The sweeping package includes funding for clean energy, health care, housing, universal preschool, higher education, child care, and elder care. It’s funded by progressive tax reform. But once again, the economy is on the public’s mind and getting in a Democrat’s way: supply chain disruptions, understaffed businesses struggling to attract workers, and, once again, inflation.
In mid-October, a CNBC poll found that inflation tied with the pandemic as the public’s top concern. Some 87 percent of Fox News poll respondents said they were “very concerned” or “extremely concerned” about inflation, more than any other issue. And that was before the news that inflation is now at a 30-year high—6.2 percent over the past 12 months, more than triple the Federal Reserve’s target of 2 percent.
This price spike won’t help secure Senator Joe Manchin’s vote for Build Back Better. Back in September, the wily West Virginian called for a “strategic pause” regarding the bill. His reason? “Democratic congressional leaders propose to pass the largest single spending bill in history,” Manchin said, “with no regard to rising inflation.” He has gotten his wish; Build Back Better has been paused for more than two months while Biden has cut the bill in half. But Manchin is still holding out, and the inflation data won’t soften him up.
To calm Manchin and the public, Biden quickly reacted to the recent inflation data by portraying Build Back Better as part of the solution. He noted that it is “fully paid for and does not add to the debt.” He further argued that “17 Nobel Prize winners in economics have said that my plan will ‘ease inflationary pressures.’”
Unfortunately, Biden’s Nobel talking point stretches the point. The economists’ statement, which was made two months ago, actually said the 10-year package would “ease longer-term inflationary pressures” (emphasis added). It did not comment on how the package would impact inflation today.
According to The New York Times, “Many economists say it could create a short-term stimulus” because the spending components are somewhat front-loaded and the taxing components back-loaded. A Moody’s Analytics report published on November 4 estimated that the spending and tax cuts in Build Back Better will outweigh the revenue increases by $121 billion in 2022, and it’s not until 2027 that the package will be in the black. (We still are waiting for the official Congressional Budget Office cost estimates.)
Still, you need not panic that Biden is dooming us to Venezuelan-esque hyperinflation. One hundred and twenty-one billion dollars is a rounding error when compared to the annual size of the American economy, $22 trillion. That amount of deficit spending would have only a slight impact on inflation. Moody’s is projecting that inflation will cool by the final quarter of 2022, settling at an annual rate of 2.5 percent if BBB passes, 2.1 percent if it doesn’t. (Without discussing the potential impact of Build Back Better, Goldman Sachs similarly estimates that the rate of inflation will fall to 2.15 percent by the end of 2022.) Voters likely would be relieved with either number, making Build Back Better’s marginally higher number politically insignificant.
Of course, Wall Street analysts are not psychic. One need only remember the role credit rating agencies played in the 2008 financial crisis, when they missed the collapse of Lehman Brothers. Inflation could remain stubbornly high in 2022. And if that’s the case, it won’t matter come Election Day if Build Back Better only barely contributed to higher prices. A fire chief could not defend throwing a scrap of paper on a raging fire by arguing that the paper only barely fueled the flames. People would rightly wonder why the chief didn’t douse the fire with water.
With inflation, the fire chief is less the president than the Federal Reserve, which can tamp down inflation with higher interest rates that cut down on borrowing and tighten the money supply. The downside risk with raising rates too high is triggering a recession. So even though the Federal Reserve is independent, presidents have a tendency to lean on the Fed chair to keep rates low.
So it was notable that Biden said on November 10, immediately after the latest inflation data was published, “I want to reemphasize my commitment to the independence of the Federal Reserve to monitor inflation, and take steps necessary to combat it.” Biden appeared to signal to the current Fed chair, Jerome Powell—whose term as chair expires in February and who is angling to be reappointed—that raising rates won’t jeopardize his chances. (And Biden might also be sending a signal to Manchin, who previously told Senate Majority Leader Chuck Schumer that tighter monetary policy from the Fed would help get his vote for BBB.)
If Biden intended to encourage higher rates, it was a gutsy move. The last president to grapple with a significant inflation problem, Carter, avoided stiff measures from the Fed for nearly three years until he finally appointed a known inflation hawk—Paul Volcker—as chair. Before that point, according to the Carter administration official Stuart Eizenstat in his book President Carter: The White House Years, Carter rebuked two aides for trying to pressure Volcker’s predecessor to raise rates. But by the summer of 1979, Eizenstat recounted, “Carter had lost confidence in the anti-inflation remedies his economic advisers had given him . . . and was ready to take a chance on someone committed to administer tough medicine even at his own short-term political peril.”
Volcker let loose the chemotherapy, sending interest rates soaring. While it did eventually tame inflation, it also created short-term political peril. The Carter biographer Jonathan Alter, who interviewed Volcker, recently shared with the Washington Monthly that “[Volcker] said that he was at the same fishing lodge when Carter was there a few years after the presidency” and told him, “I’m sorry if I cost you the presidency.”
Democratic presidents are not the only presidents who have struggled with inflation. The only reason why Carter had to deal with inflation was because his Republican predecessors failed to contain rising prices.
In 1971, ostensibly to clamp down on inflation, Republican Richard Nixon abandoned conservative orthodoxy and instituted wage and price controls. Then in 1972—when Nixon was up for reelection—he successfully pressured the Federal Reserve chair to lower interest rates and goose economic growth. These policies were at odds, as lowering rates was inflationary. But Nixon didn’t care. “I cannot think of one election where inflation had any effect whatever in determining the result,” he wrote to the Fed chair.
The economy grew ahead of the 1972 election and helped carry Nixon to victory. Then when Nixon ended wage and price controls in the spring of 1974, inflation exploded. In his memoirs, Nixon admitted that his approach was wrong: “The pressures that built up after the period of controls led [to] destructive double-digit inflation . . . The piper must always be paid.” The historian Melvin Small concluded that Nixon’s policies were “cynical and completely political.”
Nixon resigned over Watergate and handed the inflation problem to his successor Gerald Ford, who tried to sloganeer his way out of the problem. In an address to Congress, he called on legislation to raise taxes and cut spending. Then he called on the public to sacrifice. To “whip inflation now,” he asked people to “grow more and waste less [food],” “drive less,” “heat less,” and “share with others.” He pointed to a lapel pin with the acronym of his slogan: WIN. The slogan quickly became a joke, and the campaign fizzled, though inflation ebbed enough by 1976 for that election to turn on other issues.
But neither Nixon nor Ford had grand legislative ambitions that involved major spending. In 1979 Carter proposed a $142 billion investment (about $700 billion in today’s dollars) in energy independence, paid for with a tax on oil profits, though after suffering public blowback, he had to settle for a much smaller bill. Now, after enacting pandemic relief, health care subsidies, an expanded child tax credit, and infrastructure, Biden is on the cusp of securing another trillion-plus in forward-thinking long-range public investments, though at a time when the public is increasingly frustrated at their present state of affairs.
Biden can’t let short-run inflation concerns ruin his long-run agenda, especially when most polls show support for that agenda. But he also can’t expect Build Back Better to inoculate him and his fellow Democrats from short-run concerns politically. The infrastructure bill is hugely popular, yet passage of it has done nothing so far to nudge Biden’s job approval number upward. Instead of overselling Build Back Better’s anti-inflationary elements, he should do his best to separate the 10-year package from today’s inflationary concerns entirely and detail a near-term strategy on inflation that stands on its own.
Tackling an immediate economic crisis while also investing in the future is not easy—but no one said it was easy to be a Democrat in the White House.