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Op-Ed: It’s a recession – Biden’s economy
continues to hammer families
By Vance Ginn, Ph.D. | Texas Public Policy Foundation
This stagflation on steroids hasn’t been seen in a generation and it
is the direct result of the economic policy disaster coming out of D.C. |
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 It’s official – we’re in a recession. And have been
all year.
The government reported Thursday that there were two consecutive quarters of
declining inflation-adjusted economic output to start 2022, a condition that has
been called a recession every time since 1950. And inflation is running at a
40-year high.
Americans are struggling in the Biden economy. Consumer expectations about the
economy have dropped to the lowest in nearly a decade. Small business sentiment
is at a 48-year low. Even as the Biden administration is stuck on how to define
a “recession,” Americans feel this depressed economy.
This stagflation on steroids hasn’t been seen in a generation and it is the
direct result of the economic policy disaster coming out of D.C.
Forty years ago, the economy dealt with a similar situation after bad policies
from the Carter administration and the Federal Reserve. It took severe monetary
tightening by Fed Chair Paul Volcker and a double-dip recession to correct the
prior government failures.
Fortunately, the Reagan administration balanced some of Volcker’s (correct)
quantitative tightening with a pro-growth policy approach of some spending
restraint, large tax cuts, sensible deregulation, and more free trade
agreements. These policies removed barriers imposed by government and supported
incentives to work and invest so that the economy expanded, such that the next
20 years are called the Great Moderation.
Fast-forward to today and we’re in a similar economic situation with a recession
and high inflation but without the same bravado of sound policy at the Fed or in
the White House.
Instead, Federal Reserve Chair Jerome Powell has been tightening monetary policy
at a faster rate than in recent years – but at a much slower rate than Volcker
did then, meaning high inflation will likely persist.
And President Joe Biden is clearly no President Ronald Reagan.
In fact, just this week President Biden has been pushing a $280 billion spending
bill known as the “CHIPS Act,” which is essentially taxpayer handouts to
semiconductor businesses and the tech industry that may help China in the
process at the expense of all other businesses and Americans. The Senate passed
the CHIPS Act and the House likely will, too, as some see it as “free” money to
win votes.
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Instead of increasing corporate welfare, raising the national debt, and likely
driving inflation higher, the answer should be to reduce the cost of doing
business by cutting taxes, spending, and regulation, which is a proven recipe
for prosperity.
We’ve seen the opposite. When you overinflate an economy through overspending by
Congress, overprinting by Fed, and overregulating by Biden, these are the
depressed and depressing results.
And Biden and Congress are doubling down on bad policy.
There may be an agreement in the Senate on a scaled-down version of “Build Back
Better” in a reconciliation bill, which is being scored over a decade at $430
billion in new spending but potentially a reduction in the debt by $300 billion
from an estimated $730 billion tax hike. But the devil will likely be in the
details of how much more permanent spending is hidden, as in previous versions,
and how much of this temporary tax hike won’t materialize in more revenues as it
makes the recession more severe.
Tax hikes don’t work to reduce the deficit because they slow economic growth,
which reduces tax revenues. And this is the worst time to be raising taxes, much
less paying for $370 billion more for the Green New Deal, forcing us toward
unreliable energy sources at a very high cost.
So this will likely raise the deficit, give the Fed more ammunition, and raise
inflation further at the expense of growth. We can’t afford these progressive
policies.
But we can correct past government failures faster and have another long period
of economic prosperity like after Volker and Reagan.
The Fed should move back to a rules-based monetary policy and tighten more
quickly now. Congress should pass a fiscal rule that restrains or cuts spending
and make the Trump tax cuts permanent while finding more tax relief. And Biden
should roll back his onerous regulation and sign free trade agreements.
And if they don’t, the states and the people have to step up to the plate to get
us out of this depressed economy.
Vance Ginn, Ph.D., is the Chief Economist at the Texas Public
Policy Foundation, and is the Policy Director for the Foundation’s Alliance for
Opportunity campaign, a multi-state poverty relief initiative. Vance formerly
served as the Associate Director for Economic Policy of the White House’s Office
of Management and Budget, 2019-2020. He has appeared on several leading national
and state news shows, such as Cavuto: Coast to Coast and The Evening Edit on Fox
Business. His commentaries have been published in The Wall Street Journal, Fox
News, Washington Post, National Review, and other national and state
publications.
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