Bidenomics and Bidenflation

James Freeman:

[Thursday] this column noted the Washington Post story about White House economists who were refusing to endorse the Biden message tying inflation to corporate consolidation. Now a former Obama Treasury official is taking the president to task for blaming inflation on corporate supply chains. Eventually Mr. Biden will have to stop blaming business and acknowledge his own role and the role of Federal Reserve Chairman Jerome Powell in fueling the worst inflation in four decades.

The headline over a new op-ed in the New York Times reads: “Biden Keeps Blaming the Supply Chain for Inflation. That’s Dishonest.” Steven Rattner, counselor to the Treasury secretary during the Obama administration, says that the Biden supply-chain excuse is “both simplistic and misleading” and adds:

… supply issues are by no means the root cause of our inflation. Blaming inflation on supply lines is like complaining about your sweater keeping you too warm after you’ve added several logs to the fireplace.

The bulk of our supply problems are the product of an overstimulated economy, not the cause of it. Sure, there have been some Covid-related challenges, such as health-related worker shortages in factories and among transportation workers. But most of our supply problems have been homegrown: Americans have resumed spending freely, and along the way, they have been creating shortages.. All that consumption has resulted from vast amounts of government rescue aid (including three rounds of stimulus checks) and substantial underspending by consumers during the lockdown phase of the Covid crisis…

It’s a classic economic case of “too much money chasing too few goods,” resulting in both higher prices and, given the extreme surge in demand, shortages.

Mr. Rattner is not coming late to the anti-inflation party. For more than a year, he’s been warning about the problems likely to result from the Biden agenda. And in his new Times op-ed, the former Obama Treasury official offers useful advice for Team Biden:

For its part, the White House needs to be more honest as it rolls out initiatives…the high prices of meat and hearing aids, both of which Mr. Biden has vowed to address, are not at the heart of the current problem…

The Biden administration needs to shift its approach. In particular, with the economy steaming along, it should make deficit reduction as important as its other initiatives… But here again, Mr. Biden has been disingenuous. His Build Back Better plan claims to be deficit neutral, but that assertion is made credible only by using the fuzziest math.

If the White House and its allies among congressional Democrats need further persuasion that it’s time to restrain federal spending, perhaps they’ll heed a new warning from one of America’s foremost government-friendly economists. Bloomberg’s Mike Dorning reports:

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