When it comes to inflation and the national debt, we are all responsible
Let’s start with a simple truth: We all share the responsibility for the current inflation and skyrocketing national debt.
Why? Because we elected the leaders whose economic and political decisions over the past two decades have created inflationary conditions and allowed debt to rise to $ 28.4 trillion today, up $ 7.2 trillion. dollars since 2017.
Economists have long established that the inflationary impact of fiscal and monetary decisions comes with a time lag, so this year’s inflation is no surprise. The fundamentals: years of red ink tax policy and the Fed’s easy money.
Americans in the top half of the nation’s income levels have benefited greatly from these decisions through lower taxes, low interest rates and a rising stock market. Americans in the lower half – people largely absent from the stock market – benefited less, if at all, and suffered particularly during the COVID-19 pandemic. This group will suffer the most from the weight of the rebound in inflation.
Twenty years of official U.S. data tells the story:
The budget scorecard begins with the Clinton administration’s $ 128 billion budget surplus for the past year. Under Bush 2, Republican tax cuts, the economic impact of September 11, and the Afghanistan / Iraq wars pushed the budget into deficit, reaching $ 458 billion before the 2007-08 financial crisis that drove it higher. the 2009 deficit to $ 1.4 trillion. Total Bush 2 deficits over eight years: $ 3.4 trillion.
The government’s stabilization measures in response to the financial crisis have led to some recovery under the Obama administration. Deficits have fallen back to $ 500 billion, with a total of $ 6.5 trillion over eight years for Obama.
The 2017 tax cuts, hailed by Republicans for their perceived but imagined impact on job creation, stifled government revenues and, together with increased spending, doubled the deficit to $ 984 billion in 2019. The economic dislocation of COVID widened the deficit gap to $ 3.1 trillion in 2020; The Trump administration’s four-year red ink totaled $ 9.2 trillion.
Second, federal policies have flooded the country with cash. Years of low interest rates and easy money have taken the stock market to new highs. Real estate has exploded in many areas.
Third, the economic shock of the pandemic has spurred emergency spending to maintain the purchasing power of consumers and help hard-hit low-income groups. In March 2020, President Trump enacted, with huge bipartisan support, the $ 2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), providing for one-time cash payments, unemployment assistance, a support for small businesses and nearly $ 1 trillion in support for businesses and state and local governments, including $ 8.4 billion for Florida.
In March 2021, President Biden enacted, without Republican backing, the $ 1.9 trillion U.S. Rescue Plan (ARP) that provided additional COVID-related support to individuals and the economy, which has saw a welcome drop in unemployment.
The rise in inflation began in March 2021 in response to past fiscal and monetary actions, the impact of CARES 2020 spending, and pent-up purchasing power of consumers. At the same time, energy and gasoline prices have increased due to supply constraints and renewed demand. Food prices have increased. The emergence of bottlenecks in the supply chain with the return of economic normality has increased the upward pressure on prices.
Against this backdrop, we are faced with yet another round of artificial political drama over the US national debt limit. The Trump administration’s budget deficits made the need to increase the debt limit inevitable; it is spurious to try now to justify a decision not to raise the debt ceiling on the budget intentions of the Biden administration.
In the past, the two political parties generally recognized their shared responsibility for the debt and acted to increase the limit accordingly. The looming December 15 stalemate is simply a dangerous – and unnecessary – national political and economic “chicken” game.
Controlling inflation will be a real challenge and will take time, as the American experience of the 1970s and 1980s showed. What lies ahead? Probably higher interest rates with the end of the easy money party and a tax adjustment, likely through a modest upward adjustment in corporate tax rates and high income Americans towards more traditional levels.
Complex problems of our own creation; Hopefully our leaders across the political spectrum get the right answer.
Mike Mozur is a retired U.S. State Department Senior Foreign Service Officer and Environmental Executive who now lives in the Pensacola area.