President Joe Biden and his administration are basing their strategy to fight the soaring inflation that has undermined the public’s confidence in his presidency on a combination of false assumptions, obsolete economic theories, and an extra-large dose of wishful thinking that is disconnected from the grim realities facing US consumers at the gas pump and the grocery store.
With breathtaking speed, a destructive inflationary psychology has taken hold and is now running amok throughout every sector of the American economy. Consumer sticker shock is now spreading faster than the omicron variant of the coronavirus. The additional costs of doing business due to the fast-rising prices of energy, rent, and other consumer and industrial goods are now being passed through to drive up prices throughout the service economy as well.
A big part of the problem facing the Biden administration and the Federal Reserve, which now share the twin responsibilities of bringing inflation under control without throwing the economy back into a deep recession, is that the current combination of vexing economic problems and their causes are very unlike those in any previous period of economic downturn in the modern era. These include the stubborn global supply chain problems, commodity shortages, transportation bottlenecks, energy shortages, a labor force reluctant to go back to work, and fresh disruptions and production shutdowns due to new Covid outbreaks around the world.
As a result, many standard textbook economic policies which worked, to varying degrees, to bring the American economy out of previous recessions, are simply not applicable to the current situation. However, the natural tendency of officials making economic policies — particularly those in the Biden administration — is to blindly apply, out of habit or a lack of imagination, the routine economic treatment protocols which, in this case, are more likely to do harm than good, because they fail to address the very different underlying causes of today’s economic problems.
The ability of the Biden administration to respond to the current economic crisis effectively is also hobbled by its commitment to the liberal progressive political agenda which it has wholeheartedly embraced, and which still takes precedent in setting administration policy when it conflicts with the measures necessary to bring inflation under control.
This is most obvious with regard to the Biden administration’s commitment to pursuing the radical “Green New Deal” energy goals espoused by progressives such as AOC and John Kerry. In setting its energy policies, the administration has put theoretical concerns about the possible impact of greenhouse gas emissions on climate change 25 years from now above the essential economic interests of America’s suffering working- and middle-class families, who are crying out for immediate relief from the runaway inflation.
Even though the angry voter reaction to the soaring price of gas at the pump now threatens Biden and his fellow Democrats with disaster at the polls in the upcoming November midterm elections, the White House remains more determined than ever to continue waging its economic and regulatory war on the American fossil fuel industry, which already has cost this country the energy independence it recently achieved under President Trump.
The Biden administration’s obsessive obedience to the elite dogmas of climate change, which has taken on aspects of a secular liberal religion, has crippled its ability to respond effectively by addressing the underlying causes for the catastrophic rise in global energy prices.
BIDEN’S WRONG ANSWERS TO THE ENERGY CRISIS
Those causes do not include the state and federal taxes imposed on the retail sale of gasoline and diesel fuel. They are essentially user taxes which generate funds dedicated to maintaining the nationwide road system for cars and truck. Suspending collection of the state and/or federal gas tax, which the Biden administration has been considering, would not provide a substantial savings for consumers compared to the nationwide average price at the pump of $5 per gallon. There is also a potential downside for motorists from a gas tax suspension, since states that rely on it to pay for routine highway repairs and maintenance will need to find alternative sources of funding to avoid the gradual deterioration of their roadways.
The same is true for the Biden administration’s recent action changing federal requirements to blend ethanol into gasoline during the summer months. The resulting savings at the pump to motorists will be minimal.
The Biden administration’s most drastic action to date, releasing one million barrels of crude oil from the Strategic Petroleum Reserve (SPR) daily for six months, has failed to relieve the supply shortage which has been driving up crude oil prices. Furthermore, when complete, the drawdown will deplete the SPR to the point that it will only be half full. That may not be sufficient to provide for this country’s oil needs if there is another serious global oil supply shock, such as a repeat missile attack on the Saudi oil fields, or a decision by Iran to halt the tanker traffic in the Persian Gulf by closing the Straits of Hormuz.
The Biden administration is also misleading the public when it accuses the fossil fuel industry of dragging its feet in expanding crude oil production and refinery capacity to pre-pandemic levels and refusing to reinvest its current profits due to high oil and gas prices to finance that expansion.
The big oil companies have been the targets of such accusations for decades. The charges are repeated by liberal politicians every time there is a spike in gasoline prices due to a major disruption in the global oil supply. Each time those charges have been investigated, the findings have been the same. Wholesale and retail oil, natural gas, and gasoline prices are set by vigorous, open competition in the free market, and supplies are controlled by the oil-producing nations such as the members of OPEC — not the big oil companies.
In response to that false criticism and a threat by President Biden to use his “emergency powers” to punish oil companies for failing to boost production sufficiently, ExxonMobil responded that it has invested $118 billion in developing new domestic oil and gas supplies over the past five years, despite the fact that the company lost more than $20 billion during the pandemic and had to borrow more than $30 billion to maintain its investments in the expansion of its production capacity. Rather than profiteering at the expense of consumers, the statement pointed out that ExxonMobil’s investments in production were more than double its total net income during that period, which was $55 billion.
The statement concluded by calling on the Biden administration to change its policies designed to cripple the domestic fossil fuel industry, and respond to the current energy shortage by “promot[ing] investment through clear and consistent policy that supports U.S. resource development.”
THE OPTION THAT BIDEN HAS TAKEN OFF THE TABLE
More fundamentally, the White House claim that “all options are on the table” to reduce the price of gas at the pump is clearly not true. One option the Biden administration has kept off the table is any serious effort to increase long-term domestic fossil fuel production.
The oil companies are simply unable to make the kind of investments in expanding production that Biden is demanding from them until he changes his current regulatory and environmental policies that are designed to deny the oil companies access to the long-term capital they need to fully develop the still-untapped domestic sources of fossil fuels they have already identified.
For example, policies at the state and federal levels have prevented oil companies from building any new refineries in this country since 1976. Those same policies have encouraged the oil companies to redirect their long-term capital investments away from the production of more fossil fuels and into the development of so-called green energy sources.
One of the forces now driving the dramatic price increases for gasoline and diesel fuel is the long-term reduction in US refinery capacity. During the pandemic, when domestic demand for those fuels collapsed, American energy companies decided to permanently shut down some of their older and more inefficient refineries, rather than investing to upgrade and modernize them. Those refinery closures are scheduled to continue in the year ahead, including one project which calls for a large existing American refinery to be converted to produce biofuels, instead of the gasoline, diesel, and other derivatives of crude oil that it had been making until now.
BIDEN ASKS “THE DARK SIDE” FOR HELP WITH THE ENERGY CRISIS
The Biden administration is so determined to shut down the domestic fossil fuel energy that Biden chose to humble himself by issuing a public plea to the dictators running the countries of Saudi Arabia, Iran, Russia, and Venezuela to expand their oil production, rather than remove his administration’s restrictions on American fossil fuel companies.
If Biden had not been pursuing policies designed to cripple their operations, US firms could have easily replaced the oil and natural gas that Russia had been selling to Europe, and spared American consumers much of the pain they are now suffering every time they have to fill up their cars and trucks or pay a household energy bill.
It is sad that President Biden and his fellow Democrats are so committed to achieving the utopian liberal goals of the elites — pushing the Green New Deal, socialist-inspired income redistribution schemes, and a hostile revisionist view of American history and society — that they are deliberately ignoring the current basic living needs of the American people. The result is a wide range of Biden policies that are doomed to fail, including those which seek to radically alter the current American economy.
One example is the effort by the Biden administration to force the conversion of the US auto industry to electric vehicles before the necessary infrastructure is in place to support it, and before the average price of electric vehicles (which today is more than $60,000) has come down to the point that most American car-owning families can afford to buy one.
The same is true of unrealistic restrictions that federal and state policies have placed on carbon emissions. They are forcing the premature closure of safe and efficient fossil fuel and nuclear generating plants which are providing most of this country’s electrical energy, and substituting them for more expensive renewable energy sources, such as wind turbines and solar cells, which cannot match the 24/7 reliability and efficiency provided by the plants they are replacing. The result has been a nationwide epidemic of power shortages, rolling blackouts, and soaring household electricity bills, all of which are undermining America’s energy security.
FOLLOWING PRINCIPLES MOST AMERICANS DON’T SHARE
The Biden administration and liberal Democrats have adopted a new set of basic priorities that are not shared by most of the American people.
They elevate strict adherence to the “woke” principles of social justice and racial equity, placing them above the traditional American goals of independence and self-sufficiency, achieving success through hard work and individual merit, respect for law and order, and appreciation for the unique American heritage protecting individual rights and promoting freedom and democracy.
These new liberal priorities have undermined America’s traditions of self-reliance and reject the can-do attitude, based upon the classic American belief that tomorrow can be better than today if only we work hard enough to achieve our personal goals.
WE ARE SHOCKED, BUT NO LONGER SURPRISED
Americans may be shocked but no longer surprised to discover that American industry can no longer reliably produce enough baby formula to feed our nation’s infants and toddlers, or enough paper towels and basic food items to keep the shelves of our supermarkets stocked, or enough computer chips to finish the new cars our factories have built.
The current plight of the domestic fossil fuel industry is symptomatic of the larger problems afflicting the American economy today. Unlike most previous post-World War II episodes of runaway inflation leading to cyclical recessions, the source of this country’s current economic problem is not the absence of sufficient demand for goods and services. It is the opposite — a shortage of supply and industrial production capacity to meet the return to what were considered to be normal levels of consumer and business demands in the pre-Covid economy.
APPLYING THE WRONG SOLUTIONS FOR A DIFFERENT PROBLEM
Because the source of the today’s economic problems is radically different than in the past, the policies needed to correct those problems need to be different as well. Here is where the inertia of outmoded economic ideas from the past, which still govern the thinking of the policymakers at the Federal Reserve, are doing more harm than good.
The classic formula for taming runaway price increases was devised by Fed Chairman Paul Volcker, who recognized during the early 1980s that the inflation of that era was being driven by excess demand for the purchase of goods and services. Volcker’s solution was to raise interest rates high enough so that it would become too expensive for some businesses and consumers to continue borrowing money to buy the things they wanted.
This reduced demand sufficiently to bring it back into balance with available supplies, easing the inflationary pressures that had been driving the price increases and ultimately bringing the forces of supply and demand in the American economy back into balance. That, in turn, enabled President Ronald Reagan’s pro-growth economic policies to take hold, ending the cycle of stagflation which had stymied the economy for years and restoring the confidence of American consumers in their economic futures.
But by trying to apply Volcker’s 40-year-old policy of raising interest rates in response to today’s inflation problem, the Federal Reserve is likely to make the supply shortages that are ultimately responsible for it even worse. Raising interest rates will discourage businesses and entrepreneurs from borrowing the capital they need to invest in the new production capacity, which is the only way to increase supplies back to normal pre-Covid levels.
THE LIES OUR LEADERS TELL US
It is bad enough that our nation’s top economists are not capable of recognizing the new realities of the post-Covid world, and adapting their policies accordingly. It is even worse that top elected officials are now offering lies and false hope of economic relief to Americans beleaguered by inflation and growing fears of a recession that appears to already be upon us.
The chief lie is the claim that the president of the United States and the members of his administration are powerless to address the critical shortages and rising prices which have undermined the confidence of the American people in their government. Biden is telling us that a recession is “not inevitable,” while at the same time reassuring us that the economic problems facing our European allies are even worse, and denying that his failed policies are responsible for any of them. His policies are right, he continues to insist, and the perceived problems are mostly the result of faulty White House messaging.
Going forward, President Biden is telling the American people to “Be confident, because I am confident we’re better positioned than any country in the world to own the second quarter of the 21st century.”
“That’s not hyperbole, that’s a fact,” the president insisted in an interview with the Associated Press.
Treasury Secretary Janet Yellen echoed that message, declaring in an interview with ABC News that Federal Reserve Chairman Jerome Powell will successfully thread the economic needle and achieve “his goal… to bring inflation down while maintaining a strong labor market.”
“That’s going to take skill and luck, but I believe it’s possible,” Yellen said, and then added, “I don’t think a recession is inevitable,” repeating Biden’s new theme.
Yellen also suggested that American consumer spending will remain strong, even as people are forced to juggle their budgets to pay for sharply higher food and energy prices.
Yellen seems to be under the impression that most working-class families put away enough of the Covid stimulus checks and welfare payments they received last year for a rainy day, and they are now willing to spend those savings, even though many experts say that the country is headed into a recession.
“Bank balances are high,” Yellen said. “It’s clear that most consumers, even lower-income households, continue to have buffer stocks of savings that will enable them to maintain spending.”
Really? Is Yellen talking about the same country where most working-class families have long been living from paycheck to paycheck, and are now steadily losing ground to inflation, week by week?
AMERICANS RISE TO THE OCCASION
The American people have a long history of rising to the occasion and overcoming the challenges facing them when inspired by capable government leaders. In World War II, they responded to the call by Franklin D. Roosevelt to turn American industry into the world’s arsenal of democracy, overwhelming the military might of the Axis powers with the fruits of American productivity and the genius of American engineers and nuclear scientists.
In the 1960s, Americans responded to the idealism of John F. Kennedy when he challenged the country to send a man to the moon by the end of the decade. And as recently as two years ago, President Donald Trump set the goal of developing an effective vaccine to protect the citizens of this country from the deadly new coronavirus in a record amount of time. To the amazement of all the experts at the time, Operation Warp Speed achieved that goal, potentially saving millions of American lives that would otherwise have been lost.
QUESTIONS THAT NEED TO BE ASKED
So the question for the Biden administration today is, why can’t this country do it again? We have the fossil fuel reserves necessary to regain our energy independence and make up for the lost energy source of our European allies — but only if our elected leaders are willing to put aside their personal liberal agendas and put the needs of citizens and loyal foreign allies first.
Why can’t our nation’s farmers, who are the most productive in the world, avoid a global famine by making up for the grain that is now trapped by a Russian blockade in the Black Sea?
Why can’t we make enough of computer chips or medications to meet our own basic needs for living once again?
Why can’t our leaders reassure us that we can overcome the challenges facing us if we are willing to put aside our partisan differences and work together for the greater good of our country once again?
Why can’t they lead by example, instead pretending to “lead from behind”?
Why can’t they put more effort into trying to reunite the country, instead of finding new excuses to drive us apart?
Why can’t they try to help us rediscover the founding principles and ideals that made this country great, instead of telling us there is nothing they or we can do to get ourselves out of the current mess?
WHERE TO LOOK FOR THE ANSWERS
The problems we face as a country today may start with the economy, but a closer look reveals that they go much deeper than that. The American heritage tells us that the right answers to those questions will not come from pointing fingers of blame at others, but rather by looking inside ourselves to rediscover the sparks of greatness and faith upon which this country was founded.