Photo Credit:Joe Biden
Gage Skidmore via Flickr cc2
Bidenflation, combined with the entitlements crisis, heralds trouble ahead.An old Russian proverb admonishes readers to “Pray to God, but row away from the rocks.”
Good advice. But based on the dreadful macroeconomic strategies and visible results of the Biden administration’s policies, their misreading of this adage has had them commanding the ship of state at flank speeds towards the financial rocks.
The broad areas where Biden took us off course toward the shallows deal with strangling oil and gas availability, and unsustainable government overspending, both resulting in higher interest rates. His administration’s radical moves have greatly contributed to the inflationary conditions with which we are now grappling.
There were two major miscalculations that President Biden initiated during his administration which transformed President Trump’s workable, term-ending inflation rate of 1.9% to President Biden’s parabolic three-and half-year aggregate levels of 20% plus.
First off, President Biden’s disastrous energy-related executive orders to stop the Keystone XL pipeline construction dead in its tracks as well as suspending oil/gas permitting and leasing on federal properties was a true gaffe for a fossil fuel economy such as the U.S.
When these pronouncements went into effect, prices for future deliveries of gas and oil shot up immediately. According to the Washington Post, average gasoline prices at one point in President Trump’s last year in office reached a low of $1.85 gallon; during President Biden’s era, average prices jumped to $4.93/ gallon before falling back to the $3.45-$3.25 gallon currently.
To further compound the energy cost increases at the producer level, Biden also suspended additional global exports of liquified natural gas (LNG), claiming that it contributed to the “the existential (climate) threat of our time.”
However, scientists agree that LNG produces much less carbon dioxide relative to oil (-30%) and coal (-40%), making it the cleanest of all fossil fuels. Existential threat? Not in the U.S.; according to the EPA, the U.S. has cut air pollution by nearly 80% in the last 50 years.
Imposing these severely limiting energy regulations negatively impacted the costs of global manufacturing and agriculture. And those higher prices were stepped up and passed along at every point in the supply chain (production, distribution, retail levels).
By doing so, Biden’s team turned their backs on the inflationary consequences of making critical products components’ more costly. Shortages of any element in massive demand by industries and consumers worldwide caused the price increases and they will remain elevated until supply constrictions are loosened.
But these tactics were only the first building blocks of the orchestrated Biden programs to which we have been subjected.
The second significant inflationary cornerstone Biden put in place came about as a result of the COVID outbreak. While government spending to squelch the spread and treatment of this pandemic was, of course, necessary for national health and economic recovery, government outlays went well beyond the pre-COVID baseline spending levels by large percentages. In essence, the Biden economic arsonists went about dumping (very high-priced) gasoline on the inflationary fires which they kindled. But President Biden was not alone in creating these severe difficulties; he had very willing accomplices.
Uncontrolled spending by Congress shares the blame for inflation.
According to the Brookings Institution, by the second quarter of 2021, on a macroeconomic basis, real U.S. output for goods and services (GDP) recovered to pre-pandemic levels. Despite the revival, consumer sentiment remained uneasy; shoppers ultimately shifted more of their purchases to necessities, rather than niceties. While the U.S. government did take notice of changes in consumer spending patterns, the feds threw caution to the wind and accelerated government outlays.
In 2022, U.S. budget figures reported by the Congressional Budget Office (CBO) showed federal government expenditures of $6.3 trillion were running $1.4 trillion more than it took in taxes. That $1.4 trillion shortage (deficit or government spending minus total tax intake) was bridged by borrowing and added to debt pile from prior years’ overspending. As usual, Congress averted their eyes from the fiscal bleeding. In the following year (2023), the U.S. Treasury reported that the federal government spent $6.1 trillion while taking in $4.4 trillion in taxes, adding another $1.7 trillion to U.S. debt. While 2024 has a few more months to run, CBO (as of 18 June) projects $6.8 trillion in federal spending, while collecting $4.9 trillion in taxes, adding another $1.9 trillion to the total debt.
As of this date, the total of U.S. federal debt accumulated from George Washington’s era until the present stands at approximately $34.8 trillion. While the Biden’s administration has been in office, the total debt has increased by approximately 21%.
There are many in Washington who attempt to put the deficit/debt blame on tax cuts, but history illustrates that belief as spurious as these troubles did not occur as a result of tax code changes. Each time tax cuts have been enacted (under presidents Kennedy, Reagan and Trump), revenues to the U.S. Treasury have markedly increased. For example, total tax revenue to the U.S. Treasury has increased by 10% year-over-year from 2023 as a result of the 2017 Trump tax cuts. But government spending has gone well beyond the increase in tax receipts to cover the resultant deficit, debts, and interest payments.
Obviously, we cannot continue down this reckless fiscal path. It is critical that we face up to and act upon the deficit/debt/interest time bomb, as there are major fiscal and monetary challenges looming.
However, there is a germane strategy (not just a faculty lounge, untested notion) that could be implemented to produce a better future for the U.S.
Currently we are witnessing the effects of major reforms of Argentina’s economy, which has been subjected to years of grinding price increases. The inflation rate there during the first five months of 2024 had been running at an average of 250% per annum.
When Javier Milei, the newly elected Argentine president and professor of economics came into office, he immediately implemented massive spending cuts to government jobs, reduced energy and transportation subsidies as well as slashing new infrastructure programs. He also instituted other plans to deregulate industries and severely limit further government borrowing.
Despite the Milei critics’ claims that his ideas were unproven academic theories, he paid them no heed.
The result? In May, Argentine inflation had staged a full-scale retreat to 4.2%. Conditions dictated that austerity was called for and Milei did not cower.
Unfortunately, in the U.S., no Member of Congress is beating that reform drum, even though we have yet to confront much bigger problems on the horizon.
Which ones in particular? The U.S must address the unfunded liabilities catastrophe awaiting us. We have promised an approximate $129 trillion in Social Security, Medicare, and Medicaid benefits to future retirees. (Some estimate this figure to be conservative; they project the number is closer to $175 trillion.) The problem? The promises the government has made are nowhere near fully funded. Under current tax law, there are not enough future tax collections to keep these benefit programs whole. Make no mistake: there will come a point very soon when these calamities land on our doorsteps with a thud.
So, what is to be done?
To keep these promises to the most vulnerable, there have to be spending cuts in other areas of the U.S budget to free up funds for these programs or to slash benefits and/or monthly payments to retirees. But it will take a rare politician to subjugate his/her ambitions and put the country first; they will have to dispense the bad tasting medicine and insist on program revisions as has been done in Argentina. The hard truth is there has never been a budget that could not be reduced by a few percentage points to ensure long-term sustainability.
If excess spending is reined in and the budget comes anywhere near to being balanced over time, debts could be paid down, interest payments would become less impactful, and inflation might become much less damaging. Enacting those measures will ensure that the U.S. does not become the next Argentina of the North American continent.
But be assured: if we do not reverse course soon, the rocks lie dead ahead.
Marc E. Zimmerman is a former legislative assistant to a Member of the U.S. Congress.
Image: Gage Skidmore, via Flickr // CC BY-SA 2.0
