Andy Puzder is a former CEO of CKE Restaurants, chairman of 2ndVote Value Investments, Inc., and a senior fellow at the America First Policy Institute.
Jim Talent is a former U.S. senator from Missouri and the Chairman of the Reagan Institute’s National Leadership Council
‘The labor market we had before the pandemic… that’s what we want to get back to.’
So said Federal Reserve Bank Chairman Jerome Powell last week following his announcement that the Fed is raising its benchmark interest rates three-quarters of a percentage point – the most aggressive hike in 28 years.
With inflation surging, it’s little wonder he’s nostalgic for a time when inflation was low, unemployment was at historic lows, labor participation was increasing, and real wages were increasing faster than inflation.
In short, Powell wants to return to the conditions which prevailed during President Donald Trump’s Administration before the pandemic.
Of course he does; as of today, his stewardship at the Federal Reserve is an epic fail.
The Fed’s major job is to protect against inflation, which last month was officially 8.6% but was actually much worse.
Unlike most Americans, Powell knows that the official figures dramatically understate the price increases that consumers are facing.
If inflation were determined using the same methods the government used during the Carter years, it would be well into double digits.
Powell (right) wants to return to the conditions which prevailed during President Donald Trump’s (left) Administration before the pandemic
Meanwhile, President Joe Biden continues to bemoan his inability to stem the inflationary tide.
In reality, there is much he could do to reduce inflation.
He could start by following the medical profession’s maxim – First, do no harm.
The best short-hand definition of inflation is ‘too much money chasing too few goods.’
To reduce inflation, the government needs to curb the amount of money it is injecting into the economy (the ‘too much money’) while increasing the economy’s capacity to produce commodities like fuel and food (‘the too few goods’).
Treasury Secretary Janet Yellen got at least the first part right when she testified before the House Financial Services Committee in November when she said that ‘Inflation is a matter of demand’.
Chairman Powell made the same point stating that ‘the path (to 2% inflation) is to move demand down.’
It would have been nice if Yellen and Powell had discovered the danger of too much demand last year when the Democrats in Congress were borrowing and spending trillions of dollars.
In retrospect, Yellen testified that ‘it was extremely’ hard to know whether that stimulus was necessary.
In fact, it wasn’t hard for people like former Clinton and Obama economists Larry Summers, Jason Furman and Steve Rattner (among others) – who warned that such spending was inflationary.
In any event it shouldn’t be difficult now for Yellen to understand that infusing even more money into the economy – further juicing demand while the Fed is simultaneously increasing interest rates to drive it down – obviously makes no sense.
Nonetheless, Congressional Democrats continue to push for a revised version of his Build Back Better big government spending plan.
Assuming Yellen is aware of the danger of those spending plans, she should inform her boss.
It would have been nice if Yellen (right) and Powell (left) had discovered the danger of too much demand last year when the Democrats in Congress were borrowing and spending trillions of dollars
President Biden recently told a union crowd in Pennsylvania that he doesn’t ‘want to hear any more of these lies about reckless spending. We’re changing people’s lives!’
Indeed, he is.
But Americans may well be wondering whether Biden’s policies are changing their lives for the better with inflation set to cost American households ‘an extra $5,200 this year ($433 per month) compared to last year for the same consumption basket,’ according to Bloomberg Economics.
At this point, rather than Build Back Better, most Americans would prefer that Biden just put it back the way it was.
In addition to simply doing no more harm, there are several positive actions Biden could take to actually rein in inflation.
For example, he could push for a work requirement as a prerequisite to able bodied individuals receiving federal welfare benefits – as President Clinton and Speaker Newt Gingrich did in the late 1990s.
This would reduce government outlays (slowing demand) while simultaneously encouraging work to address the current labor shortage (enabling businesses to increase the supply of goods).
With over 11 million job openings but fewer than 6 million people actively looking for work, a work requirement could help alleviate that imbalance while – as the welfare reforms of the 90’s proved – lowering the poverty rate.
Democrats may complain that this would reduce the pressure on employers that has been driving significant post-pandemic wage increases, but inflation has already eliminated those gains.
President Biden recently told a union crowd in Pennsylvania (above) that he doesn’t ‘want to hear any more of these lies about reckless spending. We’re changing people’s lives!’ Indeed, he is.
Employees are much better off when wages increase 3% and inflation is 2% (as was the case pre-pandemic) than when wages increase 5% and inflation is 8% (as is the case today).
Stemming inflation would be a positive step towards returning to the Trump era labor market for which Chairman Powell hungers, when real wages consistently exceeded nominal wages.
Biden could also reduce regulatory burdens making it easier for businesses to produce the goods necessary to meet high demand.
Aggressively increasing regulatory burdens, as the Biden administration is currently doing, makes it tougher to produce and deliver goods exacerbating inflation.
The Trump administration’s rule that agencies had to eliminate two old regulations for every new one would be a great place to start.
Finally, the sector where Biden could have the most significant impact is energy.
Oil prices rise and fall on both actual supply and anticipated supply.
When the market anticipates sustained production increases, oil prices decline.
Gas tax holidays and releasing oil from our Strategic Petroleum Reserves are temporary pre-election political moves not long-term solutions.
Biden could take to the teleprompter and declare that circumstances since the 2020 election have changed requiring a reassessment of his anti-oil energy policies.
He could commit his administration to maximizing 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 increased US production, oil prices will decline, maybe not to Trump era levels but certainly below where they stand today.
Clearly, there is much Biden could do to address the current surge in inflation and begin a return to President Trump’s pre-pandemic labor market prosperity.
As Chairman Powell stated ‘[w]e’d love to get back to that place.’
But getting there requires polices that reduce inflation rather than exacerbate it – and a president who understands the difference.