Jane Timken, Republican primary candidate for the U.S. Senate from Ohio, calls herself a “mom on a mission.” She seeks to mix a pro-Trump agenda with a focus on kitchen table issues. In a recent ad, she targeted inflation and the policies of President Joe Biden.
“Joe Biden’s wasteful spending has caused prices to skyrocket,” Timken said in the April 13 announcement. “Now everything from groceries to gas and meals with our families costs more.”
The ad shows a headline from an article in the conservative National Review ‘Inflation rises to highest level in four decades’.
We decided to look at the impact of Biden’s spending on prices.
We contacted Timken’s office and did not hear back, but this criticism of Biden generally refers to the passage of the $1.9 trillion US bailout.
The March 2021 Democratic bill included payments of $1,400 to every American, $360 billion for state and local governments, and $242 billion in expanded unemployment benefits, among other things.
As lawmakers worked on the measure, some economists, including Larry Summers, a top aide to President Barack Obama, warned the bill would lead to inflation. Fiscal conservatives joined in the warning.
“The US bailout was way bigger than the economy could handle,” said Marc Goldwein of the Committee for a Responsible Federal Budget, a group that promotes deficit reduction.
In the months that followed, inflation took off in the United States. In March, prices were 8.5% higher than 12 months ago. Even excluding the cost of food and energy, which can go up and down quickly, inflation remained at an annual rate of 6.4%.
How much of this can be put at Biden’s feet? Some, but not all, experts say.
“Without a US bailout, we would still have inflation above the Federal Reserve’s 2% to 3% target,” Goldwein said.
The post-COVID-19 inflation story is more complicated than federal spending. Other forces, including changes in the labor market, rising global energy and commodity prices, supply chain dysfunction and the war in Ukraine, all contributed to higher prices. .
Estimated impact of the US bailout
No magic formula can reveal precisely how much the US bailout fueled inflation, but the general consensus is that it did. Some economists believe it added two percentage points to the rate, some say it added up to four percentage points. In other words, on the rate of 8.5% in March, the measure represented something between a quarter and a half of inflation.
Economist Dean Baker of the left-leaning Center for Economic and Policy Research puts that figure at around two percentage points.
“My main basis for saying this is that other rich countries, without remotely comparable stimulus packages, have seen comparable jumps in their inflation rates,” Baker said.
Baker looked to Europe to help distinguish global inflation drivers from American drivers.
Douglas Holtz-Eakin, president of the conservative American Action Forum, also compared the United States to Europe. Between the first and last quarter of 2021, European inflation increased by three points. During the same period, US inflation rose by more than four points.
Several inflationary forces have affected almost every nation.
COVID has reduced the supply of workers and goods. Companies are struggling to find employees. Manufacturers couldn’t get the parts they needed – the microchip shortage was a prime example. Both of these dynamics pushed prices higher.
The resurgent economy outstripped the supply of oil and natural gas, driving up energy costs. As the pandemic subsided, the economic recovery also caused shortages in the supply of grain and other agricultural products.
“Europe had to deal with supply, broken supply chains and the rest,” Holtz-Eakin said. “They didn’t do stimulus to the extent that we did, and they still had inflation.”
Holtz-Eakin pointed to when the United States and Europe parted ways – in the second quarter of 2021. It was right after the US bailout was passed.
About half of the U.S. four percentage point increase “you can easily attribute that to the stimulus,” Holtz Eakin said.
Other economists estimate higher impacts.
Michael Strain of the free market-focused American Enterprise Institute put the figure at around three points for 2021. Harvard economist and former Obama administration official Jason Fourman said he could reach four points in 2022.
Sorting out war effects and pre-Biden spending
Going forward, it will likely be more difficult to disentangle the inflationary impact of the US bailout. Russia’s attack on Ukraine disrupted a global economy that was still coping after COVID. Sanctions aimed at cutting Russia’s energy revenues have driven up oil and gas prices. The crippling blow of the war on Ukraine’s agricultural sector, combined with the sanctions (Russia is a major wheat producer), has driven up the prices of basic commodities like wheat and sunflower oil.
Baker says that in ordinary times, with most of the stimulus already spent, the economy would be on a path to equilibrium.
“However, the particular factors of the pandemic and the war prevent this,” Baker said. “And of course oil is a big part of the problem.”
Another complicating factor is the effect of spending leading up to Biden taking office. Two bipartisan COVID relief programs cost more than $3 trillion. Goldwein said all of this contributed to inflation, although he thinks the US bailout added more, as it came as the economy was already recovering. Holtz-Eakin also said past spending was more in line with the level of economic damage from the pandemic.
There are fears that companies will take advantage of inflation and fuel it further. Baker said corporate earnings are high, but he’s neither surprised by the trend nor sees anything conspiratorial at hand.
“The way you ration demand is with higher prices,” Baker said. “That could be a good argument for higher corporate taxes, because they’ve been the big winners, and there are clearly competitiveness issues in many industries, but I don’t think that’s the case. History of Current Inflation.”
Timken said Biden’s spending “has sent prices skyrocketing.”
The 2021 U.S. Bailout Act added about $1.9 trillion to the economy, and economists across the political spectrum say it boosted inflation. They differ on the precise magnitude of its impact, with estimates ranging from an additional two to four points above the current inflation rate of around 8.5%.
However, none of the experts we contacted, liberals or conservatives, said Biden’s actions were responsible for all the inflation. Past government spending, COVID disruptions to labor markets, energy prices and supply chains also played a significant role. More recently, the war in Ukraine has aggravated a difficult situation.
We rate this statement as half true.