I have an old-fashioned belief that it’s important to be truthful when analyzing public policy. I criticize Republicans when they’re wrong and I criticize Democrats when they’re wrong. And I also praise politicians from both parties in those rare moments when they do good things.
My disdain for empty partisanship explains why I wrote back in 2022 that Joe Biden should not be blamed for high inflation.
I explained that the Federal Reserve was the culprit. America’s central bank panicked during the pandemic and dramatically increased its balance sheet. In simpler terms, they created a huge amount of new money in the economy.
And they continued with that flawed policy even after it became apparent the world wasn’t coming to an end.
The good news is that inflation is now coming down. Catherine Rampell of the Washington Post wants Joe Biden to get the credit. But she explains that he deserves credit for something he didn’t do rather than any of his policies. Here are some excerpts from her column.
…what do Democrats say is moderating price growth…? The White House credits “Bidenomics.” What that means is unclear; administration officials tout vague platitudes about “building the economy from the middle out and bottom up,” as well asbig, recently passed industrial policies… But if you instead define Bidenomics as “respecting Federal Reserve independence and not interfering with Fed decisions even when they’re unpopular,” then sure: Great job, Bidenomics! …The president has been terrific at staying out of the Fed’s way, something presidents don’t always do.
I don’t always agree with Ms. Rampell, but I think this analysis is correct.
The Fed made a mess with bad monetary policy and only the Fed can fix that mistake. Biden, as Rampell noted, “has been terrific at staying out of the Fed’s way.”
If you want to understand the economics of why inflation is beginning to abate, this chart from the St. Louis Federal Reserve provides the answer. Simply stated, the Fed finally has started to withdraw some of the excess money it dumped into the economy.
By the way, while the Fed is finally doing the right thing, the central bank does not deserve praise. The nation could have avoided the pain of inflation if the Fed hadn’t started the boom-bust cycle in the first place.
P.S. Other central banks made the same mistake.
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Image credit: Rdsmith4 | CC BY-SA 2.5.
