The Biden administration’s plans to reduce inflation will make it worse even though it has accurately identified inflation as the greatest threat facing the United States.
“The President’s top economic priority is tackling inflation and reducing costs for American families,” according to a White House statement released on May 10.
In 2021, the budget deficit shrank by $350 billion. It is expected to decrease by another trillion by October; however, this is not due to any heroic actions on the part of the Biden administration. This reduction is the result of the phasing-out of pandemic-era government spending.
While decreasing the deficit is a good idea, a deficit does not cause inflation. Inflation is caused by massive government borrowing, money printing, and injecting cash into the economy. Government transfers for enhanced unemployment, child credits, and other social programs have put the nation on a path of high inflation and a sluggish economy.
Apart from rising inflation, the nation could be facing stagflation, which originates from a combination of massive money creation and government spending.
Some of President Joe Biden’s suggestions are questionable. To fight inflation, he told companies to “lower your costs, not your wages” during his State of the Union address on March 1. He said this in the same speech where he pushed for a $15 minimum wage, a universal paid leave, and the PRO Act, which would encourage unionization and collective bargaining. All of these demands would raise, not lower, costs.
Even the idea that inflation can be fought by companies lowering costs is preposterous. Inflation comes from government fiscal and monetary policy and overspending money that the Federal Reserve creates out of thin air.
Profit-driven companies are always on the lookout for ways to cut costs, and, at any given moment, one can assume that they are operating as cheaply as possible. The same cannot be said for politicians whose salaries are not tied to cost-cutting, efficiency, or performance.
While some of the stimulus spending of 2021 will be abandoned and will not figure into this year’s deficit calculations, the $15 minimum wage is an inflation driver that Biden has handed off to corporations so he can claim the inflation is not his fault.
The average operating profit margin of an S&P 500 company in 2021 was only 9.35 percent. For most companies, labor is one of the largest single expenses, accounting for 20 percent to 35 percent of costs. Currently, the federal minimum wage is $7.25 an hour. Biden is proposing more than doubling this figure. Effectively, he is saying that the way to fight inflation is to double an expense, which already accounts for 30 percent of the cost and is three times the size of the average gross profit margin.
Biden’s other proposed means of reducing inflation include cutting taxes and expanding access to the premium Affordable Care Act. Calling on Congress to pay for child care and elder care is yet another textbook example of government spending, which increases the money supply and drives up inflation.
During a recession, the government often invests in infrastructure and construction projects to create jobs and pump money into the economy. When the nation faces inflation, the government needs to do the opposite. Instead, the Biden administration plans to build 1 million homes with government money. Moreover, the president called these homes “affordable.” This suggests that the government may sell or lease them below market price.
The administration also plans to cut taxes, so the only place the money needed to allow below-market housing could come from increasing the debt or printing money, both of which will drive the dollar down and inflation up.
The only tax-increases Biden is planning are on billionaires and corporations. While a billion dollars is a lot of money for one person to have, there are only 724 billionaires in the United States. And the spending that the government is planning will run into the trillions. So, unless each of these billionaires has $2 billion and the government intends to take all of it, the billionaire tax will not cover a fraction of this spending. The other tax Biden wants to increase is on corporations to make the “largest corporations pay their fair share.”
To be clear, the Biden administration wants to fight inflation by asking companies to cut costs, but he wants to double their labor costs and increase their taxes. This plan seems infeasible for long-term economic growth.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.