Most Americans spend the Memorial Day weekend with family and friends. Democrats campaigning for re-election are going to have it in hell — gas prices soaring, inflated prices forcing bargain-brand picnic lunches on the table, stocks close to a bear market, voters wondering the difference between recession and… seek stagflation, and the President is . . . Joe Biden, whose falling approval ratings have become the most reliable indicator of political future.
Mr. Biden spent his week in Asia speaking about the economy at home. Connoisseurs of how the president is arranging reality have noted that the Putin-did-it rationale for the struggling US economy has given way to the argument that it is an economy “in transition”.
As an art of political nomenclature, this is a step forward, and I would say Mr. Biden’s argument deserves a hearing.
“In terms of gas prices,” he said in Tokyo, “we’re going through an incredible change that God willing when it’s over, we’ll be stronger and the world will be stronger and less dependent on fossil fuels.”
Chairman of Mr. Biden’s White House Economic Council, Brian Deese, anticipated that argument a few days earlier: “Our economy is in transition from the strongest recovery in modern American history to what may be a more resilient period of growth that’s better for families.” functions.”
Messrs. Biden and Deese are being ridiculed in some circles for glossing over the current mess as a “transition.” But these remarks are not just psakiesque word salads. These “transitional” statements help define how Mr. Biden and the Democratic Party want American workers to live in the distant future. Accepting this “transition” is what the party will present to voters in the autumn elections.
One could say that their argument has become irrelevant as the party is almost certainly headed for election defeat and Republicans are simply picking up the pieces. Too bad this isn’t a presidential election year, which would lead to a more focused debate about the appropriate post-pandemic relationship between government and a complex, advanced economy trying to reorganize.
What Americans are going through now is not just another twist in the business cycle. Since 2009, the Federal Reserve has kept interest rates near zero, an unprecedented long era of cheap debt. Ultimately, it led to cryptomania and large investments in digital avatars.
We’ll never know if an economy floating on the Fed’s bubbles could have run like this indefinitely because of a black swan event that turned out to be the 2020 Covid-19 pandemic.
Two years and trillions of government stimulus spending later, the US has an 8.3% inflation rate, not seen since the 1970s, persistent supply chain problems, the phenomenon of some companies spiking wages to attract workers while others are planning layoffs, and inventory -market volatility that is ruining 401(k) retirement plans and turning the best minds in the finance industry to a pulp.
It’s not 1929. Most people kept their jobs. But the intensity of the current economic disruption is reminiscent of the memories of parents or grandparents who lived through the depression. The years before the Depression were the Roaring Twenties. What came after – a world war and the 1950s – was a more sober era of economics.
All we know today is that the previously existing status quo has disappeared. When Joe Biden and Brian Deese say they want to move to an economy with “steadier and more resilient” growth, they describe their alternative to prepandemic foam. This vision has two goals.
The first is to use taxes and government-directed capital investment to offset the widening income gap between workers in the knowledge economy and everyone else. The other goal, of course, is their great white whale — a fossil-free economy. They anticipate that growth in their economy will be slower but somehow more steady and predictable. Substance aside, the advanced economic model is headed down the political drain. Mr. Biden admitted as much in Tokyo, noting that passage of his “Build Back Better” agenda would have reduced child and family care costs and mitigated the impact of inflation. Of course it doesn’t happen.
Still, this great progressive experiment – a final choice between the US as a welfare state or a growth state – came just a Senate vote from reality. Senator Joe Manchin blocked the creation of the transfer payments state, and Democrats’ massive Covid spending created insurmountable policy problems of inflation and labor market distortions. The dream of green energy — whose relentlessly ignored costs will always clash with the high costs of their transfer payments — is on hold for this election cycle and likely the 2024 presidential election.
Republicans will bag November, but shouldn’t brag. Mr Deese is right when he says the goal is a stable, resilient economy. But they screwed it up. Their post-pandemic economy is a historic train wreck. The political gods, in their unfathomable wisdom, have given Republicans a golden opportunity to help voters understand how to build a future out of this ruin. start speaking
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