President Costanza Takes On Inflation

Biden lays out his plan on prices, but he’d do better if he did the opposite

WSJ editorial.

"President Biden on Tuesday tried to get ahead of Wednesday’s April inflation report with a speech rehashing his well-worn proposals to reduce prices: Boost subsidies, raise taxes, and increase regulation. He should take Jerry Seinfeld’s advice to George Costanza and do the opposite of his every policy instinct.

The President again called on Congress to pass his Build Back Better, er, sorry, “Building a Better America” plan including more subsidies for green energy, electric cars, child care, housing and more. He also doubled down on his proposed billionaire’s tax—i.e., unconstitutional wealth tax—and Medicare drug price controls.

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Mr. Biden again blamed inflation on the pandemic and Vladimir Putin, omitting that Democrats poured kerosene on the accelerating economic recovery last March with their $1.9 trillion spending bill. Inflation was already at 7.9% when Mr. Putin invaded Ukraine (see the nearby chart). At the same time, their policies are hampering the supply side of the economy in myriad and interconnecting ways.

Consider energy and food. The Administration’s war on oil and gas created enormous regulatory uncertainty that is stanching investment in new production despite high energy prices. Producers can’t find workers. Many left the industry when prices nose-dived early in the pandemic and are reluctant to return because Democrats have promised to put drillers out of business.  

Then there’s the left’s blockade on pipelines, which is limiting natural gas production in the Northeast’s rich shale deposits. Progressives blame rising gas prices on natural gas exports, but the larger culprit is increasing demand in the U.S. Hefty subsidies for wind and solar forced coal and nuclear plants to close down, but renewable power needs to be backed up by more gas.

Mr. Biden says more green energy will reduce electricity prices. But then why have power prices increased by 11.1% in the last year? More green energy will make the grid less reliable and increase demand for gas along with diesel-powered emergency generators, as it has in California and Texas. 

Speaking of which, diesel prices have increased by $2.40 a gallon in the last year, a buck more than gasoline prices, amid increased demand from freight and reduced refining capacity. Higher diesel prices filter through to food prices as ships, trains, trucks, tractors and other farm equipment rely on the fuel.

Biofuel mandates and subsidies have spurred refineries to shut down or shift to producing smaller amounts of “renewable” diesel from cooking oils. This is also a large reason soybean oil prices have more than doubled from pre-pandemic levels and why the American Bakers Association has urged the Administration to ease renewable fuel mandates.

Poultry producers say the ethanol mandate is driving up the cost of their feedstock. At the same time, surging corn and soy prices are discouraging farmers from planting wheat to compensate for lost exports from Ukraine. Yet the Administration wants to increase renewable fuel mandates and subsidies.

What the country needs is more investment to boost the supply side of the economy, which will increase worker productivity, real wages and living standards. Mr. Biden’s plan to hammer businesses and investors with increased taxes and regulation will do the opposite.

In his speech he again lobbied for Medicare to negotiate drug prices—i.e., price caps—but this will create more pharmaceutical market distortions and suppress investment in innovation. By the way, prescription drug prices have risen a mere 2.2% in the last year. Thank competition for that, not government.

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As White House aides whispered to friendly media on Monday, Mr. Biden’s Tuesday speech was really less about inflation and more about setting up the fall campaign against Republicans. He claimed the GOP has no plan for inflation, as if Democrats don’t run Congress and the White House. He linked all Republicans to Florida Sen. Rick Scott’s unspecific proposal that all Americans should pay some federal income tax and all Congressional legislation should sunset after five years.

“The congressional Republican agenda,” Mr. Biden warned, would “put Social Security, Medicare, and Medicaid on the chopping block every five years.” Who believes this? Mr. Scott’s plan hasn’t been endorsed by the rest of his party.

Mr. Biden said Republicans want to “depress” American wages, but real disposable personal income increased $4,205 (in 2012 dollars) from January 2017 to December 2020 yet has since declined by $374, almost all on his watch. Inflation is causing real wages to decline despite rising nominal wages.

Americans have learned the hard way over the last two years that no amount of federal transfer payments can make up for the decline in real wages caused by inflation. President Costanza still hasn’t."