Bidenomics architects deny this

The policy problem facing the pugnacious behemoth of the Biden team (and its supporters in academia and on Wall Street) is inflation. The price level has risen more than 20% during President Biden’s administration, while inflation-adjusted wages have lagged. While the team touts a decline in inflation from 2022 (an economic term for a slowdown in price increases), this does not mean prices are returning to their pre-pandemic levels. This is far from true: Inflation rates are consistently above 2.6%, meaning prices continue to rise faster than the Federal Reserve’s 2% target.

Voters blamed President Biden and Congressional Democrats. The main culprit is the $1.9 trillion American Rescue Plan (ARP), passed on a party-line vote in March 2021. Even some liberal economists, such as Larry Summers, warned that it would lead to inflation, and soon after its passage, consumer prices began to rise rapidly. It didn’t help that the Fed effectively monetized much of that debt through a quantitative easing program that added $3.2 trillion to the central bank’s holdings of Treasury securities between March 2020 and spring 2022.

One element of the rearguard defense of bidenomics is the claim that inflation was a consequence of pandemic shocks, almost entirely independent of Washington’s increased spending. An example is Peter Orszag, the Obama-era head of the Office of Management and Budget, who recently blamed supply chain disruptions for 79% of the inflation that occurred in 2021.

A growing number of economic studies attempt to separate the supply-side and demand-side causes of inflation in this way. These papers generally conclude that the demand side (i.e. Biden’s spending target) had relatively little to do with it.

But this misses the question of how and why consumers were able to pay higher prices caused by supply chain disruptions, and why prices of other goods and services did not fall to compensate. Biden’s budget bloat is largely the answer, and voters seem to have noticed this oversight even before the election.

This leads other revisionists to argue that even if Biden’s spending bills were inflationary, they were worth doing because the economy would be worse without them. “Any scenario that envisions less inflation through lower ARP would also have to contend with slower growth, higher unemployment and more child poverty,” Jared Bernstein of the White House Council of Economic Advisers told the Journal.

Really? By March 2021, gross domestic product (in nominal and real terms) had returned to its pre-pandemic levels, and the unemployment rate had fallen to about 6% from a high of nearly 15%. The main headwind to growth has been lower supply due to ongoing school closures, ongoing social distancing and efforts to mandate vaccines in workplaces. Oh, and the chronic threat of higher taxes, costly energy policies and over-regulation.

Voters saw through that argument, too, perhaps because Trump himself was on the ballot. His first term delivered impressive pre-Covid-19 economic growth and low unemployment without soaring inflation. Voters did not believe that Mr. Bernstein’s trade-off between inflation and employment existed.

Regardless of any self-awareness, Biden’s rearguard is now warning that Mr. Trump will bring, well, the same bad results that they did. In particular, they warn that his tariffs and large deficits resulting from tax reform will lead to inflation.

There are a lot of negative things to say about Trump’s tariffs—we have and we will—but that’s the wrong argument. This highlights the revisionist confusion about the difference between relative prices (which will change as a result of tariffs) and the general price level (which depends on many factors).

When it comes to fiscal policy, much depends on the nature of the tax cuts, the size of the deficit, and whether households and businesses believe tax and spending decisions will generate enough economic growth to pay down the debt. Mr. Trump must prove that he can find that balance, but don’t trust revisionists to judge whether he has succeeded. They will oppose any tax cuts because they want more spending.

The story of the Biden years is that Democrats boosted demand through massive spending while remaining on the supply side of the economy with pandemic policies and measures that made it difficult for businesses to invest. Voters understood the failure, and Democrats looking to restore trust would be wise to reflect on this.