Does the Biden Agenda Really Help Reduce Inflation?

The United States has serious problems to address at the present time such as the Ukraine War and Climate Change.  But, as I have recently discussed, the most serious and urgent problem of all is inflation.

Our enormous national debt of $30 trillion, plus the trillions of dollars in bond holdings by the Federal Reserve (Quantitative Easing) have created far too many trillions of dollars sloshing around in the U.S. monetary system.  It is not surprising that another $5 trillion in Covid stimulus spending in 2020 and 2021, especially the last $1.9 trillion after Joe Biden became president, has now tripped off a sharp increase in inflation.

The current issue of Barron’s warns that inflation is worse than it looks and harder to solve.  This is because of three shortages: labor, energy, and trust in government which have resulted in structurally higher inflation than most people realize. The U.S. workforce has shrunk 12% since the beginning of the pandemic and the transition to green energy means consuming more resources for similar output.  Furthermore, inflation is inversely proportional to the level of public trust held by a country’s citizens, with trust in institutions scarce in high-inflation countries.

The Biden Administration’s Inflation Reduction Act (IRA) purports to address inflation by reducing the deficit by $300 billion over ten years.  But, as pointed out by the Concord Coalition, the deficit reduction is back-end loaded and so may never actually occur.

But more generally, as pointed out by Greg IP in the Wall Street Journal, the IRA is only one of several major pieces of legislation signed by Mr. Biden in the past year.  For example, he signed a bill that vastly expands benefits to veterans exposed to toxic burn pits which adds an estimated $278 billion to deficits over the coming decade.  The infrastructure law from late last year adds $257 billion over a decade and the semiconductor manufacturing and scientific research law adds $79 billion.  This all adds up to a net increase in the deficit by $300 billion, not a $300 billion deficit decrease.

Mr. Biden is thus clearly not giving priority to deficit reduction. His priorities are expanding the social safety net, narrowing social and racial inequities, and combatting climate change.

The deficit reduction in the IRA (see chart) mostly takes place from 2027 – 2031.  But the time to help the Federal Reserve is now, with inflation running above 8%.  The immediate spending on the Internal Revenue Service and healthcare subsidies increases the deficit in the short term.  Again, incentives to invest in green energy, domestic semiconductor manufacturing, and public infrastructure only boost the economy’s supply side in the long run.  In the short term, such investment adds to demand.

Conclusion.  Helping veterans, lowering the cost of healthcare, and encouraging domestic semiconductor manufacturing are worthy goals but they increase deficits, and therefore inflation, in the short run.  The Federal Reserve will have a difficult time reducing inflation on its own. It needs help now!  The Biden Administration should be putting far more emphasis on immediate deficit reduction.

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The U.S. Greatly Needs a Sustainable Climate Policy

I have discussed global warming on this blog many times, most recently here.  Global warming is real and serious but it is not an emergency.  We know that the temperature has risen by 2 Fahrenheit since preindustrial times.  Arctic sea ice is receding.  The ocean is rising at the rate of one foot per century.  Miami could, theoretically, be flooded in a hundred years, but it has lots of time to adapt to rising sea levels.

The greatest threat to the decarbonization of energy sources comes from unsustainable energy policies, especially those proposed by the current U.S. administration.  America’s announced climate goals seek a transition to 100% clean electricity by 2035 and net-zero carbon emissions by 2050.  Such aggressive timelines are at odds with three hard realities: economic, geostrategic, and political.

  • According to the federal Energy Information Administration, global demand for energy will rise nearly 50% by 2050, with fossil fuels still accounting for roughly 75% of the world supply.  A McKinsey & Co. report shows that achieving net-zero carbon emissions globally by 2050 would require $6 trillion in new spending every year for the next 30 years, clearly a practical impossibility.
  • It is increasingly clear that both Russia and China view aggressive Western climate commitments as an opportunity to increase their power and influence.  We have already witnessed what Europe’s reliance on Russian natural gas has wrought: unacceptable dependence on one of the world’s vilest governments.  Meanwhile, China continues to increase its use of fossil fuels as it tries to catch up to and surpass the U.S. as the world’s largest economy.
  • Without committed action by the Group of Seven nations – the U.S., Canada, France, Germany, Italy, Japan, and the U.K. – there is little hope for real climate progress in the coming decades.  And these are the world’s leading democracies, accountable to their public.  The voters in these countries could easily rebel against energy policies that ramp up energy prices, hinder economic growth, and even lead to rationing and blackouts.  According to a July NYT/Siena College poll, only 1% of U.S. registered voters rank climate change as the country’s most important issue, far behind inflation and the economy.

The U.S., which sits atop massive natural gas reserves and has the world’s most innovative economy, is perfectly positioned to lead a realistic green transition.  The administration should announce that U.S. natural gas will become the world’s vital bridge to an eventual carbon-free future.  The U.S. should also strongly support research in carbon capture and storage, the development of lightweight, high-capacity lithium batteries, and next-generation nuclear reactors.

Conclusion.  A transition to clean energy will be more effective and happen more quickly if it is based on sustainable policies and makes full use of America’s vast resources and well-known capacity for innovation.

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What Is Our Most Urgent Problem at the Present Time?

The United States, and the rest of the world, are facing three major problems at the present time: the War in Ukraine, Global Warming, and Inflation.  I have written about all of these problems separately in the recent past, see here, here, and here.

These three problems are, in fact, highly interrelated.  Consider:

  • The Ukraine War. Ukraine wants to be free and independent.  Russia invaded Ukraine to keep it in its own orbit.  The brave Ukrainians are willing to fight and die to expel the Russian forces.  The U.S. and its European allies are helping Ukraine defend itself by supplying military armaments.  This should be continued as long as Ukraine is willing to resist.   But Europe is dependent on Russian gas and Russia is now threatening to cut off gas exports to Europe. This puts huge pressure on Europe to find alternative sources of energy.
  • Global Warming. Global warming is real and serious.  But we need to keep things in perspective.  Yes, the average world temperature has risen 2 degrees Fahrenheit since pre-industrial times.  Although half a million people die each year from heat, 4.5 million perish each year from cold.  Cheap and reliable energy is needed to afford air conditioning in the summer and heat in the winter.
    Rising fuel prices are also making food more expensive.  Low-cost synthetic fertilizer, made from natural gas, is one of the greatest technologies mankind has invented for feeding the world.
    The world gets almost 80% of its energy from fossil fuels.  Instead of sending energy prices sky-high by trying to force a premature transition to renewables, we should focus on funding research to decarbonize traditional energy sources, such as carbon capture and storage, that are affordable and reliable.

  • The annual inflation rate has now reached 9.1% and the Federal Reserve has just raised interest rates again by .75 percent, for a total increase this year of 2.25%, not nearly as much as the 7% increase in inflation during the past year.  Such a modest plan for fighting inflation is based on the optimistic outlook that Pandemic- related supply problems will quickly resolve themselves.
    But focusing on supply issues only does not take into account the enormous buildup in national debt as well as Fed bond holdings (quantitative easing) in the past decade.  This has created an enormous amount of money sloshing around in the economy which has caused way too much artificial stimulation.
    A more aggressive Federal Reserve, aided with fiscal restraint by Congress, will get our inflation rate back down to a reasonable level more quickly and with less pain in the long run.

Conclusion.  The U.S. is handling the Ukraine War as well as it can.  But the war is putting Europe in a bind because Russia is threatening its energy supplies.  Trying to make a transition to clean energy too quickly is causing a lot of unnecessary pain and suffering around the world.  On the other hand, inflation is a more urgent problem than is recognized by our national leaders.  The Federal Reserve and Congress should be taking it much more seriously than they have so far.

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The Federal Reserve Cannot Fix Inflation by Itself

Inflation is now increasing at a 9.1% annual rate.  The Fed is likely to increase short-term interest rates by at least .75% (perhaps as much as 1%) at its July meeting in order to reduce demand by slowing down the economy.  Increasing interest rates is a blunt tool.  It could easily set off a recession and put a lot of people out of work, creating additional misery at a time when wage increases are already lagging behind price increases.

In my last post, I discussed the basic causes of inflation, namely irresponsible deficit spending by Congress over many years as well as the huge amount of quantitative easing carried out by the Fed in recent years.  These actions have enormously increased the amount of money floating around in the economy by many trillions of dollars.  On top of this enormous buildup of federal debt in the system, it was the $5 trillion in Covid relief stimulus funding in 2020 and 2021 which tripped off the current flare-up of inflation.

Of course, the Fed must now take the strong measure of raising interest rates.  But the Fed cannot fix inflation by itself.  It needs help from Congress on fiscal policy.  Here are a few things that Congress can do:

  • Stop digging, i.e. stop making the inflationary environment worse. This includes ending the remaining Covid relief – that is boosting price levels by 0.2 to 0.7 percentage points.  Avoid adding more to the deficit by such measures as a gas tax holiday, student debt cancelation, expanded veteran’s benefits, or new tax cuts.
  • Lower health care costs. Thoughtful healthcare reform, especially for Medicare providers, Medicare Advantage plans, and coverage of prescription drugs can significantly reduce the inflation rate.
  • Reform the tax code to raise more revenue. Tax increases can reduce demand in a distributionally desirable way, putting downward pressure on inflation.  Congress could also limit tax expenditures and subsidies which drive up specific prices in the economy.
  • Limit discretionary spending, reduce consumption-oriented spending, and shrink aid to states. Congress should reimpose discretionary spending caps and reduce spending on various programs from farm subsidies to Social Security benefits for high earners and federal aid sent to cash-flush states and local governments.
  • Promote work, savings, and investments. Congress could reduce barriers to work by eliminating the Social Security earnings test, allowing older workers to collect the Earned Income Tax Credit, and providing vocational training for disabled workers.
  • Lower energy, trade, and procurement costs. The government could reduce tariffs, end regulations that boost shipping costs, and encourage more extraction of fossil fuels.

Conclusion.  As described above, there are lots of things that Congress and the President can do to help the Fed bring inflation under control.  Such help would lessen the pain by speeding up the whole process, thus increasing the chance of achieving a “soft landing” with a shorter and milder recession than would otherwise occur.

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The Big Picture on our Inflation Problem

Inflation has now become a very serious problem for the U.S.  The annual rate is averaging above 8% (8.5% in March, 8.3% in April, and 8.6% in May).  The Hoover Institution’s John Cochrane has given an excellent analysis of the underlying fiscal and monetary policies related to inflation.  Consider:

  • The current inflation was sparked by fiscal policy – during 2020 and 2021 the government printed or borrowed $5 trillion and sent checks to people and businesses.
  • The Federal Reserve’s monetary policy tools to cure inflation are blunt. By raising interest rates, the Fed pushes the economy toward recession.  It hopes to push just enough to offset the fiscal stimulus boost.  But monetary brakes and a floored fiscal gas pedal mistreat the economic engine.
  • Higher interest rates will directly make deficits worse by adding to interest costs on the debt. Each percentage point interest rates are higher means $250 billion more in inflation-inducing deficit.
  • Many governments, including the Biden administration, want to address inflation by borrowing or printing even more money to help people pay their bills. That will only make matters worse.
  • Monetary policy alone can’t cure sustained inflation. The government will also have to fix the underlying fiscal problem.  Short-term deficit reduction, temporary measures, or accounting gimmicks won’t work.  Neither will a growth-killing high-tax “austerity.”
  • A favorable outcome requires economic growth, which raises long-run taxable income. The U.S. also needs spending reform, especially on entitlements.  And it needs to break the cycle that each crisis will be met by a river of printed or borrowed money, bailouts for the big financial firms, and stimulus checks for voters.
  • The good news is that inflation can end quickly, and without a bruising recession, when there is joint fiscal, monetary and economic reform. In the U.S. tight money in the early 1980s was quickly followed by tax, spending and regulatory reform.  Without these reforms, the monetary tightening might have failed.

Conclusion.  A very serious inflation problem is facing the United States.  It is clear (as described above) what needs to be done to address it.  Does the Biden Administration have the political will to get the job done?   Or will Biden flounder like Herbert Hoover did after the stock market crash of 1929 and allow inflation to remain a damaging economic issue all the way into the next presidential campaign?

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The Difference Between Equity and Equality

I have devoted many posts on my blog, ”It Does Not Add Up,” to the topic of racism in America, one of the most contentious topics in the public domain today. For example, “Is There Structural Racism Still Remaining in the U.S?” concludes that the major form of structural racism still existing is the academic achievement gap between blacks and whites, and suggests specific programs for addressing this disparity.

The newest hot topic in race relations is the concept of equity which means equal outcomes achieved, if necessary, by unequal treatment, biased competition, and preferential judging.  Equality, on the other hand, means equal treatment, unbiased competition, and impartially judged outcomes.

The problem with the concept of equity is that it challenges America’s bedrock principle that people should be treated equally and judged as individuals, not as members of groups.

Americans are very generous and support some form of social safety net for the poor and disadvantaged.  The debate has always been about how extensive the social safety net should be and how long it should last for each recipient.  But most Americans don’t want to turn welfare programs into large and permanent entitlement programs, giving substantially different treatment to different groups, even if those groups have suffered historical wrongs.

The black policy expert, Shelby Steele, says that blacks don’t have to fight so much for freedom anymore, but have to do something more difficult: fully accept that they are free, and stop acting like victims.

The black linguist, John McWhorter, explains that the current version of antiracism, in its focus on an oversimplified sense of what racism is and what one does about it, is content to harm black people in the name of what can only be called dogma. It exploits modern Americans’ fear of being thought racist to promulgate not just antiracism, but an obsessive, self-involved, totalitarian, and utterly unnecessary kind of cultural reprogramming.

The black scholar, Ian Rowe, promotes the four-point plan F.R.E.E. (freedom, religion, education, and entrepreneurship) for all children to overcome the victimhood narrative and discover their pathway to power.

Conclusion.  The problem with equity is that it has the radical goal of re-engineering society through coercion.   Equity is just a new brand name for a very old program of achieving equal outcomes.  Its name is socialism and we know from long experience that it doesn’t work.

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The Enormous Achievements of Western Civilization

“Hey, hey, ho, ho, Western Civ has got to go”
Reverend Jesse Jackson, Stanford University, January 15, 1987

Americans, and other people growing up in the western world today, are among the luckiest people in human history.  We are lucky because men and women before us worked hard to make it so and performed feats extraordinary and mundane to see that luck was what we got.  A luck that much of the world still wants to take part in.

Douglas Murray, in his new book, “The War on the West,” describes very clearly why westerners are so lucky.


  • The west has given the world a disproportionate number, if not most, of the things that the world currently benefits from.
  • They include almost every medical advancement that the world now enjoys. They include almost every scientific advancement that the world now benefits from.
  • The west led the world in the invention and promotion of the written word. Westerners founded most of the world’s oldest and longest established educational institutions.
  • Western peoples happen to have also developed all the world’s most successful means of commerce, including the free flow of capital.  The system of free-market capitalism has lifted more than one billion people out of extreme poverty just in the twenty-first century alone.
  • It is the western people who developed the principle of representative government of the people, by the people and for the people. The western world has developed the principles and practice of political liberty, of freedom of thought and conscience, of freedom of speech and expression.  It evolved the principles of ‘civil rights,’ rights that do not exist in much of the rest of the world.
  • Western achievements have led to a footfall that is entirely one-directional. There is today no serious movement of peoples in the world struggling to get into China or Russia, as they are, at great personal risk, trying to move to America.  The migrant ships across the Mediterranean go in only one direction – north.  In spite of everything that is said against it, America is still the world’s number one destination for migrants worldwide.
  • The culture which is now so fashionable to deprecate remains the only culture in the world that not only tolerates but actively encourages a dialogue against itself.

Conclusion.  For all the above reasons and many more, Americans and other westerners have the highest quality of life that has ever been achieved in human history.  It is truly amazing that so many people in the West today apparently cannot see this.  Most of the rest of the world wants the same prosperity as well as the personal freedom and security that we enjoy in such great abundance.

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Americans Should be (Generally) Optimistic about the Future of our Country

According to a recent PEW poll, Americans are in a pessimistic mood.  Of course, there are a lot of things to be worried about right now, but things are not really as bad as they seem.  Consider:

  • The Pandemic. The pandemic is clearly subsiding.  94% of American adults now have Covid antibodies, either through vaccination or previous infection.  This means that we have achieved herd immunity.  The latest surge in new daily infections is also subsiding.  In other words, the pandemic is on track to becoming endemic (routine) and we will continue addressing it in the same way as we deal with the common seasonal flu on an annual basis.
  • Inflation appears to be leveling off at an annual rate of about 8% (8.5% in March, 8.3% in April, and 8.6% in May). The Fed will have to keep raising interest rates until the inflation rate comes down.  This process could take a year or more and, in the meantime, there will be real pain for millions of people on fixed incomes.  The current inflation was tripped off by the government’s fiscal stimulus in response to the pandemic and there will be political repercussions starting in November.  But inflation is likely to be back down to its normal 2% level about a year from now.

  • The Ukraine War. Ukraine wants to be free and independent and we are helping the Ukrainians defend themselves against Russian aggression.  The Ukrainians themselves will have to decide how to end the war: drive the Russians out or reach a lesser compromise.  But our willingness to defend democracy around the world is one important reason why America is so widely admired by other countries.
  • Polarization.  The current intense level of polarization in our politics is a sign of our vigorous democratic system in action.  There are many contentious issues such as an increase in crime, abortion rights, gun rights, and K-12 educational policy which can only be resolved through the democratic process.  The inter-workings can get messy, but this is how democracy operates in practice.
  • National Debt. This is the one issue that I am less optimistic about. Our national debt is now over $30 trillion and growing rapidly.  It will probably take a new financial crisis to force our national leaders to get federal spending sufficiently under control so that, at least, we stop adding to the debt and, therefore, shrink it as a percentage of GDP over time.  As the attached chart shows very clearly, it is entitlement spending that is the main culprit in our massive and growing debt accumulation.

Conclusion.  Many of our apparently severe political disagreements on such issues as abortion rights, gun rights and educational policy will be resolved through our normal, even if highly contentious, democratic processes.  The out-of-control national debt, unfortunately, may require a major new financial crisis to force our national leaders to take major corrective action.

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America is a Beacon of Democracy for the Rest of the World

Any free country like the United States will always have serious problems to solve: mass shootings, political polarization, inflation, etc.  But our democratic system of government and versatile economy are very good at addressing new problems as they arise.  Many other countries around the world admire our achievements and would like to be as free and prosperous as we are.


  • The Pandemic. We have now virtually defeated the world-wide pandemic by adopting a decentralized approach with the states in charge of requiring lockdowns, mask mandates and school closures.  It is American pharmaceutical companies, which developed the world’s most effective vaccines in record time, that have allowed the U.S. to essentially achieve herd immunity. The latest U.S. variant is already decreasing in the number of new daily infections.  Compare this with the Chinese zero-Covid approach which is floundering and badly hurting their economy.
  • Democracy is flourishing around the world (see chart).  Democracy is fragile and hard to establish but it is also contagious because people everywhere have a yearning for the personal and political freedom which democracy provides.  More democracy means more peace in the world because democracies seldom go to war with each other.
  • The Ukraine War. Ukraine wants to be free and independent from Russia and the U.S. and its allies are rightly helping Ukraine defend itself.  Russia is a huge troublemaker all around the world and hopefully will be severely punished for starting this war.
  • Economic and social progress in the U.  The U.S. not only has the highest median individual and household incomes in the world among major economies, but also African/Americans are making much economic and social progress as well.  American social and economic progress is highly visible to the whole world and this, of course, adds greatly to our stature among other nations.

Conclusion.  America is leading the world by example.  We’ve got the pandemic under control with American-made vaccines and a decentralized political system.  We’re demonstrating our commitment to democracy by defending Ukraine against the Russian invasion.  We are constantly demonstrating the superiority of our own political and economic system by steadily improving the lives of the vast majority of our citizens.  We’re doing the big things right and tackling new problems as they arise.  We should be optimistic about the future of our country and its crucial role in world affairs.

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The Solution to Polarization: Decentralize by Giving States More Responsibility

Politics in the United States is highly polarized.  We easily recognize this at the national level because the parties in Congress are constantly squabbling with each other.  But it is also true in state government as well.  In fact, of our 50 states, only two, Minnesota and Virginia, have split legislative chambers.  All of the other 48 states have both legislative houses either Republican (30 including Nebraska which is unicameral) or Democratic (18).   Also, notice how both individual Democrats and Republicans are becoming more ideological in their views. This, of course, increases the degree of polarization at all levels.

Politics is polarized because there is such a sharp division of opinion in the country on so many basic issues.  The answer is not to try to force unification, which won’t work anyway, but rather to let the states resolve more issues on their own. Consider:

  • The Electoral College. This brilliant invention by our founding fathers aims to elect presidents who represent the nation’s great diversity by obliging them to earn votes across many states and regions.  It can bestow a broad-based national mandate on a president who won only a plurality of the popular vote such as Lincoln in 1860, Nixon in 1968, and Clinton in 1992.  Election by popular national vote would encourage candidates to campaign only in large, voter-rich metropolitan areas and media markets.  A multiparty democracy would result, in which runoff elections would be necessary for the ultimate winner to achieve a majority vote.
  • The pandemic. The attached chart shows which ten states did the best job overall handling Covid, based on the three variables of the economy, education, and mortality, and which ten did the worst.  The best performers were largely small red states (Florida is a large red state) and the worst performers were mostly large blue states.  The leaders largely avoided lockdowns, mask mandates, and kept their schools open.  A national Covid policy, run by the bureaucracy-controlled CDC, would have been a disaster.  Note also the huge red and blue difference in attitudes about the seriousness of Covid.         
  • The likely overturn of Roe vs Wade. The 1973 Roe vs Wade decision by the Supreme Court was clearly unconstitutional.  The likely repeal will return abortion policy to the states (closer to the people) where it will be resolved on a state-by-state basis.
  • Gun Control. Notice the widening gap between Republicans and Democrats on the attitude towards gun possession.  Red states and blue states will decide gun control issues differently as their legislatures see fit.  This is how it should be done.

Conclusion There is huge polarization in our body politic at both the state and national levels.  This polarization exists because there is such a wide divergence of views on so many fundamental issues.  Our constitution has set up a strong central government to perform basic national functions such as providing for national defense, conducting foreign relations, and maintaining a common currency.  But we should adhere more closely to the Tenth Amendment which says that all powers not specifically assigned to the federal government are reserved for the states.  This would go a long way to decentralizing the way public issues are resolved and defusing much of the hostility now directed at the federal government.  Making government closer to the people in this way would go a long way towards depolarizing our nation.

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