The GQP Has No Plan To Deal With Inflation; The Plans They Do Have Would Increase Inflation

The New York Times reports, Republicans Denounce Inflation, but Few Economists Expect Their Plans to Help:

Republicans are riding a wave of anger over inflation as they seek to recapture the House and the Senate this fall, hammering Democrats on President Biden’s economic policies, which they say have fueled the fastest price gains in 40 years.

Republican candidates have centered their economic agenda on promises to help Americans cope with everyday price increases and to increase growth. They have pledged to reduce government spending [austerity, i.e., cuts to social security and Medicare/Medicaid/Obamacare subsidies] and to make permanent parts of the 2017 Republican tax cuts that are set to expire over the next three years — including incentives for corporate investment and tax reductions for individuals.

[B]ut while Republicans insist they will be better stewards of the economy, few economists on either end of the ideological spectrum expect the party’s proposals to meaningfully reduce inflation in the short term. Instead, many say some of what Republicans are proposing — including tax cuts for high earners and businesses — could actually make price pressures worse by pumping more money into the economy.

They are the lickspittle lackeys of corporate plutocrats and billionaire oligarchs. They woud be much happier in Putin’s Russia.

Be smart with your vote. Expecting the party who support the people causing inflation to be the ones to fix inflation feels…misguided. pic.twitter.com/UGgZQnqvT9

— PoliticsGirl (@IAmPoliticsGirl) October 27, 2022

“It is unlikely that any of the policies proposed by Republicans would meaningfully reduce inflation in 2023, when rapidly rising prices will still be a major problem for the economy and for consumers,” said Michael R. Strain, an economist at the conservative American Enterprise Institute.

[As] they position themselves for the midterm elections, Republicans have also indicated that they might try to hold the nation’s borrowing limit hostage to achieve spending cuts. The debt ceiling, which caps how much the federal government can borrow, has increasingly become a fraught arena for political brinkmanship.

Multiple top Republicans have signaled that unless Mr. Biden agrees to reduce future government spending, they will refuse to lift the borrowing cap. That would effectively bar the federal government from issuing new bonds to finance its deficit spending, potentially jeopardizing on-time payments for military salaries and safety-net benefits, and roiling bond markets.

Mr. Biden has tried to push back against the Republicans and cast the election not as a referendum on his economic policies, but as a choice between Democratic policies to reduce costs on health care and electricity and Republican efforts to repeal those policies. He has accused Republicans of stoking further price increases with tax cuts that could add to the federal budget deficit, and of risking financial calamity by refusing to raise the debt limit.

“We, the Democrats, are the ones that are fiscally responsible. Let’s get that straight now, OK?” Mr. Biden said during remarks on Monday to workers at the Democratic National Committee. “We’re investing in all of America, reducing everyday costs while also lowering the deficit at the same time. Republicans are fiscally reckless, pushing tax cuts for the very wealthy that aren’t paid for, and exploiting the deficit that is making inflation worse.”

The challenge for Mr. Biden is that voters do not seem to be demanding details from Republicans and are instead putting their trust in them [This is delusional; Democrats Have Always Been Better For The Economy … Always] to turn around an economy that voters believe is headed in the wrong direction. Polls suggest Americans trust Republicans by a wide margin to handle inflation and other economic issues.

Based upon what? Republicans have always driven the economy into the ditch. Jesus Christ, the Pandemic Recession under Trump was the worst since the Great Depression. It was barely two years ago! Talk about short-term memory loss. And before Trump, there was George W. Bush’s Great Recession which nearly blew up the world’s economy and financial system. Each time, Democrats had to rescue the economy from this Republican gross mismanagement and economic calamity. This is like the abused spouse who keeps going back to the abuser, or Stockholm syndrome (feelings of trust or affection felt in many cases of kidnapping or hostage-taking by a victim toward their captor or abuser).

In a nationwide deluge of campaign ads and in public remarks, Republicans have pinned much of their inflation-fighting agenda on halting a stimulus spending spree that began under President Donald J. Trump [three packages] and continued under Mr. Biden [One package, building on the earlier Repubicnan package], in an effort to help people and businesses survive the pandemic recession. Those efforts have largely ended, and Mr. Biden has shown no desire to pass further stimulus legislation at a time of rapid price growth.

American’s ignorance of economics is no excuse for committing political suicide.

Economists largely agree that the Federal Reserve is most responsible for fighting inflation, which policymakers are trying to do with rapid interest rates increases. But they say Congress could plausibly help the Fed by reducing budget deficits, in order to slow the amount of consumer spending power in the economy.

You mean like just occurred under the Biden administration, announced just last week:

Today, my administration announced that this year the deficit fell by $1.4 trillion — the largest one-year drop in American history — $1.4 trillion decline in the deficit.

Let me repeat that: the largest-ever decline in the federal deficit.

Let me be clear: This record deficit reduction includes the cost of my student loan plan and everything else we’re paying for. The deficit is down $1.4 trillion this year, even after accounting for 30 years of debt relief paid in advance.

You know, this — this follows last year’s drop of $350 billion in the deficit.

And because we’re making sure the largest corporations pay their fair share; cracking down on billionaire tax cheats; and giving Medicare the power to negotiate lower drug prices in the future beginning — just getting underway, which lowers one of the biggest costs that government and families have to pay, we’ll reduce, because of that, the deficit another $250 billion over the next 10 years.

[The way Republicans would] do that would be to significantly and quickly reduce federal spending. Such a move could result in widespread government layoffs and reduced support for low-income individuals — who would be less able to afford increasingly expensive food and other staples — and could prompt a recession.

“The amount of cuts you’d have to do to move the needle on inflation are completely off the table,” said Jon Lieber, a former aide to Senator Mitch McConnell of Kentucky who is now the Eurasia Group’s managing director for the United States.

* * *

Biden administration officials contend that the Republican plans, rather than curbing inflation, could worsen America’s fiscal situation.

Administration economists estimate that two policies favored by Republicans — repealing a new minimum tax on large corporations included in the Inflation Reduction Act and extending some business tax cuts from Mr. Trump’s 2017 legislation — could collectively increase the federal budget deficit by about $90 billion next year.

Such an increase could cause the Federal Reserve to raise rates even faster than it already is, further choking economic growth. Or, alternatively, it could add a small amount to the annual inflation rate — perhaps as much as 0.2 percentage points. Fully repealing the Inflation Reduction Act would also mean raising future costs for prescription drugs for seniors on Medicare, including for insulin, and potentially raising future electricity costs.

“Their plan to repeal the I.R.A. and double down on the Trump tax cuts for the wealthy will worsen inflation,” said Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers. “On top of that, they’re also explicit that they’re coming for Social Security and Medicare, making this a terribly destructive agenda that starts by fighting the Fed and moves on to devastating vulnerable seniors.”

[A] budget proposal unveiled this year by the Republican Study Committee, a conservative policy group within the House Republican conference, included plans to permanently extend the Trump tax cuts and to impose work requirements on federal benefits programs, in hopes of reducing federal spending on the programs and increasing the number of workers in the economy.

[As] they eye the majority, top Republicans have suggested that they will consider an economically risky strategy to potentially force Mr. Biden to agree to spending cuts, including for safety-net programs [social security, Medicare/Medicaid/Obamacare subsidies]. Representative Kevin McCarthy of California, who is the minority leader and is seen as the clear pick to be speaker should Republicans win control of the House, suggested to Punchbowl News this month that he would be open to withholding Republican votes to raise the federal borrowing limit unless Mr. Biden and Democrats agreed to policy changes that curb spending.

Economics professor Paul Krugman writes, Republicans Have No Inflation Plan:

Few things I’ve written in recent years have generated as much hate mail as a relatively low-key, somewhat nerdy newsletter I put out just before the release of data on gross domestic product for the second quarter of 2022. In that newsletter I explained why, despite a lot of misinformation in the news media, a recession is not defined as two quarters of declining G.D.P. and the first half of 2022 was unlikely to meet the actual, multidimensional criteria used by the committee that determines (after the fact) whether a recession has started.

The reason for the hate mail was, of course, that Republicans were eager to declare a “Biden recession” and falsely accused the administration of a double standard when it said that we were not, in fact, in a recession.

Well, Thursday’s advance G.D.P. report for the third quarter of 2022 showed why a recession call based on two quarters of somewhat bizarre data would have been all wrong. Economic growth has rebounded, back up to 2.6 percent at an annual rate — putting G.D.P. back in line with strong employment growth, which has continued throughout the year. Do you really want to say that we were in a recession from January through June but have miraculously recovered?

I’ll write more about the quirkiness of recent economic numbers, including the strange disconnect between jobs and G.D.P., soon. For now, suffice it to say, we weren’t in a recession earlier this year and aren’t in a recession now, although we could find ourselves in one in the future as delayed effects of rising interest rates kick in.

Politically, however, it may not matter much, because Republicans have largely given up on the recession story. Instead, their economic attacks, in both debates and campaign ads, have been focused overwhelmingly on inflation, especially gas prices.

It therefore seems worth pointing out that the G.O.P. doesn’t have a plan to fight inflation. Actually, it doesn’t have any coherent economic plan at all. But to the extent that Republicans have laid out what they will try to do if they win the midterms, their policies would make inflation worse, not better.

When pressed about how, exactly, they would reduce inflation, Republicans often fall back on some version of “Gas was only $2 a gallon when Trump left office!” [at the height of the Pandemic Recession – are they really longing for those dark days again?] So let’s talk about that comparison.

First, it’s remarkable how the right has reimagined January 2021 as a golden moment for America. At the time, about 20,000 Americans were dying from Covid every week; there were still nine million fewer jobs than there had been before the pandemic. Indeed, the still-depressed state of major economies, including that of the United States, was the main reason world oil prices were unusually low, which in turn was the main reason gas was cheap.

A better comparison would be with 2019, the year before the pandemic, when gas averaged $2.60 a gallon. Bear in mind that average wages have risen about 15 percent over the past three years, so gas would be as affordable now as it was in 2019 if its current average price were $2.99. As of Wednesday, it was $3.75. So yes, gas has become less affordable, but not by nearly as much as Republicans claim.

And despite G.O.P. rhetoric, Biden administration policies have had little impact on gas prices, which have been driven by events affecting world markets — notably Russia’s invasion of Ukraine — and to some extent by bottlenecks in refining, which grew worse for several weeks starting in mid-September [as they do every year]  but have eased again. [See, U.S. Gas Prices Fall For 10 Straight Days—Nearing $3 In Southeast: “The national average price for a gallon of gas has fallen for 10 consecutive days, reaching $3.74 on Thursday, according to data from GasBuddy, as demand cools and several key oil refineries in California and Great Lakes states come back online.”]

So what is the Republican plan to bring gas prices down? There isn’t one.

What about inflation more generally? You can make the case that large deficit spending early in the Biden presidency fed inflation (although it had little effect on the most politically salient prices, for energy and food, which have soared around the world).

If you’re worried about the inflationary impact of budget deficits, however, you should know that almost the only concrete economic policy idea we’re hearing from Republicans is that they want to extend the Trump tax cuts, which would … substantially increase the deficit.

It’s true that many Republicans adhere to an economic ideology that doesn’t see deficits caused by tax cuts as a problem, either because they believe — in the teeth of all the evidence — that tax cuts somehow pay for themselves, or because they believe that government spending, not deficits per se, is what causes problems.

But if you believe that cutting taxes without any plausible plan for offsetting spending cuts isn’t a problem even in a time of inflation, markets beg to disagree. Look at what happened to the pound and British interest rates after Liz Truss, the quickly deposed prime minister, announced an economic plan that, broadly speaking, looks a lot like what Republicans are proposing here. (There’s more to it than that, but still.)

The bottom line is that while the G.O.P.’s election strategy is all about blaming the Biden administration for inflation, the Republican Party doesn’t actually have any plan to reduce inflation. To the extent it has an economic plan at all, it would make inflation worse.

So don’t be stupid and fall for “the banana in your tailpipe” from fear mongering Republicans who literally know nothing about economics, who don’t have an economic plan, and who want to take the country hostage again and bow up the economy.