Too Bad Conservatives Handed Biden His Inflation Talking Points

By John Tamny for RealClearMarkets

In his masterful two-book history about Ronald Reagan and his times, titled The Age of Reagan, Steven Hayward wrote of the dollar’s notable move upward on November 5, 1980, the day after Reagan won the presidency in landslide fashion.

The dollar’s upward tick was further confirmation of what had taken place throughout much of 1980.

For background, a routine line in Reagan’s campaign speeches went like this: “No nation in history has ever survived fiat money, money that did not have a precious metal backing.” The latter rates prominent mention simply because the dollar surged upward from all-time lows after Reagan won the New Hampshire primary in early 1980, and continued to rise right through his election.

It seems currency markets priced in a Reagan victory more quickly than the polls did.

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That the dollar’s direction was so clearly tied to Reagan’s electoral prospects requires lots of thought in light of President Biden’s May 31, 2022 opinion piece in the Wall Street Journal.

In it Biden wrote of how “the Federal Reserve has a primary responsibility to control inflation,” that “I agree with their assessment that fighting inflation is our top economic challenge right now,” and in supporting the Fed, Biden implied that he supports the Fed’s pretense that it can and must plan an economic slowdown that in the words of Biden will allegedly result in “fewer record job-creation numbers.”

No doubt many on the Right will have a field day with the above, along with Biden’s broad analysis of inflation, but an honest assessment from conservatives would conclude that Biden’s surely execrable opinion piece had been largely lifted from their own confused talking points over the decades. 

Biden’s inflation plan implies that the fix for it is centrally planned slower growth. This is the discredited Phillips Curve in motion. And it’s discredited simply because there’s no such thing as labor or capacity limits in an economy, and that’s the case because the supply of both isn’t static; rather both move up and down as market situations merit.

Furthermore, the Phillips Curve theorizing presumes a closed U.S. economy wholly reliant on labor and capacity stateside, when in reality all “Made In America” products and services spring from global cooperation. To use but one of many examples, the manufacture of Apple’s iPhone is a highly global endeavor.

Lastly, the Phillips Curve presumes there are limits to growth that, if breached, cause economic harm. It’s hard to believe even the ignorant could embrace such foolish thinking, but both sides do.

Indeed, as the title of this opinion piece argues, Biden’s inflation talking points were handed to him by conservatives. To this day they make a baseless case that Fed Chairman Paul Volcker centrally planned a recession to “sweat out” the 1970s inflation, and more jaw-dropping, conservatives claim this was necessary. Biden’s just parroting what they’ve long argued.

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Implicit in their mysticism is that the Fed is the source of credit for the U.S. economy, and that it can take away the “punch bowl.” Actually, credit is produced globally. Credit is real resources, which is a reminder that even if the Fed’s attempts at interest rate price controls (that conservatives similarly support) were actually effective, the only closed economy is the world economy.

In a world of borderless credit, what the Fed allegedly takes will be made up for by global inflows. At which point it’s worth asking what conservatives are doing supporting a school of thought implying that “sometimes the private sector acts foolishly, and this calls for the Fed to intervenene and relieve us of our exuberance.”

Don’t worry, it grows stupider. You see, conservatives used to believe inflation was a decline in the value of the currency, in our case the dollar (that the dollar’s exchange rate has never been part of the Fed’s portfolio doesn’t seem to occur to them), but now they’re claiming rising prices are the same as inflation.

Biden’s joining them with his line that “we need to take every practical step to make things affordable for families during this moment of economic uncertainty.” Oh well, “we” when it’s government can’t decree abundance as is, not to mention that economic growth by its very name is a sign of more affordable everything as investment is matched with talented minds on the way to production of exponentially more at costs that continue to fall.

Too bad both sides operate under the pretense that economic growth is the problem now (the Paul Volcker myth lives), as opposed to the solution.

It’s similarly too bad that both sides can’t see the basic truth that it reverses causation to suggest that rising prices cause inflation. Most often high prices aren’t “inflation” simply because a higher price for one market good by definition signals falling prices elsewhere.

Inflation is yet again a decline in the unit (in our case the dollar), and if we measure the dollar versus nearly every foreign currency and commodity since 2021, we can see the dollar is up. Is it still weak? Most certainly, but that fire began back in 2001 and has been burning ever since.

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Without excusing Biden’s economic ignorance for even a second, to say this is inflation now (as opposed to the predictable consequences of command and control related to the coronavirus lockdowns) is to wholly redefine it. How unfortunate that conservatives are helping him redefine it.

Figure that Biden’s even parroting their line about “deficits” causing inflation. Apparently investors line up to buy Treasury income streams in size so that the value of those income streams will decline. You can’t make this up! Except that conservatives and Biden both make the odd case that deficits instigate inflation. Without defending the tax that is government spending for even a millisecond, their arguments are confused.

Which brings us back to Reagan. His presidency, along with Bill Clinton’s, was a reminder that Presidents get the dollar they want. Policy under Reagan and Clinton was non-inflationary not because of the Fed, but because a strong dollar was policy. Too bad Republicans have forgotten this basic economic truism, and worse, that the Democrats have joined them in their confusion.

Syndicated with permission from Real Clear Wire.

John Tamny is editor of RealClearMarkets, Vice President at FreedomWorks, a senior fellow at the Market Institute, and a senior economic adviser to Applied Finance Advisors (www.appliedfinance.com). His most recent book is When Politicians Panicked: The New Coronavirus, Expert Opinion, and a Tragic Lapse of Reason.

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