Fed chair Powell wants to ‘get back’ to Trump economic era and we agree: ANDY PUZDER and JIM TALENT
Andy Puzder is former CEO of CKE Restaurants, chairman of 2ndVote Value Investments, Inc. and senior fellow at the America First Policy Institute.
Jim Talent is a former United States Senator from Missouri and the chairman of the Reagan Institute’s National Leadership Council
“The labor market we had before the pandemic … we want to get back to that.”
So said Federal Reserve Bank chairman Jerome Powell last week after announcing that the Fed is raising its benchmark interest rates by three-quarters of a percentage point — the most aggressive hike in 28 years.
With inflation soaring, it’s no wonder he’s nostalgic for a time when inflation was low, unemployment was at record lows, employment rates increased and real wages grew faster than inflation.
In short, Powell wants to return to the conditions that prevailed during President Donald Trump’s administration before the pandemic.
Of course he does; as of today, his stewardship of the Federal Reserve is an epic failure.
The Fed’s main job is to protect against inflation, which was officially 8.6% last month but was actually much worse.
Unlike most Americans, Powell knows that the official numbers dramatically underestimate the price hikes consumers are facing.
If inflation were determined using the same methods that the government used during the Carter years, it would be well into the double digits.
Powell (right) wants to return to pre-pandemic conditions during President Donald Trump’s administration (left)
Meanwhile, President Joe Biden continues to complain about his inability to turn the inflationary tide.
In reality, he can do a lot to reduce inflation.
He might start by following the maxim of the medical profession: First, do no harm.
The best short definition of inflation is ‘too much money chasing too few goods’.
To reduce inflation, the government must limit the amount of money it injects into the economy (the ‘too much money’) while increasing the economy’s capacity to produce commodities such as fuel and food (‘the too few goods’). ).
Treasury Secretary Janet Yellen certainly got the first part right when she testified before the House Financial Services Committee in November when she said “inflation is a question of demand.”
Chairman Powell made the same point, stating that “the path (towards 2% inflation) is to bring demand down.”
It would have been nice if Yellen and Powell had discovered the danger of too much demand last year as Democrats in Congress borrowed and spent trillions of dollars.
Afterwards, Yellen testified that it was “extremely” difficult to know if that stimulus was necessary.
In fact, it wasn’t hard for the likes of former Clinton and Obama economists Larry Summers, Jason Furman, and Steve Rattner (among others) — who warned that such spending was inflationary.
Anyway, it shouldn’t be hard for Yellen right now to understand that of course there’s no point in pumping any more money into the economy — further stimulating demand while simultaneously raising interest rates to lower them.
Nevertheless, Congressional Democrats continue to push for a revised version of its Build Back Better major government spending plan.
Assuming Yellen is aware of the danger of those spending plans, she should notify her boss.
It would have been nice if Yellen (right) and Powell (left) had discovered the danger of too much demand last year as Democrats in Congress borrowed and spent trillions of dollars
President Biden recently told a Pennsylvania union crowd that he “wants to hear no more of these lies about reckless spending. We change people’s lives!’
Indeed, he is.
But Americans may wonder if Biden’s policies are changing their lives for the better, as inflation will cost American households “an additional $5,200 ($433 per month) this year compared to last year for the same basket of consumption,” according to Bloomberg Economics.
Right now, most Americans would rather Biden put it back the way it was, rather than rebuild it better.
In addition to simply not doing more harm, there are several positive actions Biden could take to actually curb inflation.
For example, he could push for a job requirement as a condition for able-bodied individuals receiving federal Social Security benefits — as President Clinton and Chairman Newt Gingrich did in the late 1990s.
This would reduce government spending (decreasing demand) while encouraging employment to address the current labor shortage (enabling firms to increase the supply of goods).
With more than 11 million job openings, but fewer than 6 million people actively seeking work, a job requirement could help reduce that imbalance, while – as the welfare reforms of the 1990s proved – would lower the poverty rate.
Democrats may be complaining that this would ease the pressure on employers that led to significant wage increases after the pandemic, but inflation has already wiped out those gains.
President Biden recently told a union crowd in Pennsylvania (above) that he “wants to hear no more of these lies about reckless spending. We change people’s lives!’ Indeed, he is.
Workers are much better off when wages are up 3% and inflation is 2% (as was the case before the pandemic) than when wages are up 5% and inflation is 8% (as it is today).
Curbing inflation would be a positive step toward returning to the Trump-era job market that President Powell craves, when real wages have been consistently higher than nominal wages.
Biden could also reduce regulatory burdens, making it easier for companies to produce the goods needed to meet high demand.
Aggressively increasing regulatory pressure, as the Biden administration is currently doing, is making it more difficult to produce and deliver goods that exacerbate inflation.
The Trump administration’s rule that agencies had to scrap two old rules for each new one would be a great place to start.
Finally, the energy sector is the sector where Biden could have the greatest impact.
Oil prices rise and fall due to both actual and expected supply.
When the market anticipates continued increases in production, oil prices fall.
Gas tax holidays and the release of oil from our strategic petroleum reserves are temporary political steps ahead of the election, not long-term solutions.
Biden could go to the teleprompter and declare that circumstances have changed since the 2020 election, forcing his anti-oil energy policy to be reassessed.
He could use his government to maximize energy production by approving pipelines, granting leases and permits, and encouraging banks to finance energy exploration and production.
Since the United States is one of the world’s largest producers and exporters of fossil fuels, if the world anticipates higher production in the US, oil prices will fall, perhaps not to Trump-era levels, but certainly below the level they are now.
Clearly, Biden could do much to address the current rise in inflation and initiate a return to President Trump’s pre-pandemic labor market prosperity.
As Chairman Powell said: “[w]I would like to go back to that place.’
But getting there requires policies that reduce inflation rather than exacerbate it — and a president who understands the difference.