The timing could hardly have been better. Just as Democrats roll out their massive, partisan $3.5 trillion spending package, a mammoth bill that comes on top of all normal spending and seemingly countless trillions in COVID relief money under Presidents Donald Trump and Joe Biden, a new economic report shows inflation spiking to alarming levels.
According to the Labor Department, consumer prices jumped 5.4% year over year after their largest monthly gain in 13 years.
Bad as that is, it gets worse. Economists often measure inflation, excluding energy and food prices because these tend to ride volatile and unpredictable commodities markets up and down. But by that measure, inflation is rising at its fastest clip in 30 years.
Inflation is bad for consumers and savers because it makes today’s dollars less valuable than yesterday’s. It punishes those who behave responsibly with their money. Although some investments can protect against inflation, especially commodities, stocks, and leveraged real estate, this does not help workers who can't afford as much with their wages.
The Trump era was remarkable because, for the first time in modern memory, it produced real wage gains for lowly workers. Inflation is now undoing that progress. Thanks to inflation, real average hourly earnings fell by 0.5% in June.
As further confirmation of the inflation problem, on Wednesday, the Bureau of Labor Statistics separately reported that the Producer Price Index, another measure of inflation, soared 7.3% year over year.
Why is inflation so out of control? Most blame must go to the government. As round after round of COVID relief was passed by both parties with scant consideration, we warned that government was sending money to chase goods and services that, because of pandemic lockdowns, were no longer being produced in such great numbers. This is the definition of inflation, a growth in the money supply that exceeds growth in the value of goods and services available for purchase.
The United States is also suffering an inflationary labor shortage, thanks largely to the Biden administration’s misuse of supplemental federal unemployment funds to create perverse incentives. Because workers can make more money by collecting benefits through August than by returning to lower-wage jobs, productivity lags while Washington pumps more money into the market, whether it be borrowed government funds or lavish bonuses companies are forced to pay to get fast-food workers to show up consistently for a few months.
The last thing needed now is the Democrats’ proposed $3.5 trillion reconciliation package, a bill that costs more by itself than all combined federal revenues from last year. It is stuffed with irrelevant far-left policies that couldn’t survive politically in a national infrastructure package. It includes such gems as a massive expansion of a Medicare program that is already going bust.
Despite their zero-margin control of the Senate, Democrats are governing as though voters had given them a massive majority that justified dispensing with negotiation and bipartisanship. In an inflationary economy, they want to borrow and spend even more money for ideological goals that are irrelevant at best and damaging at worst to the vigorous economic recovery that Biden inherited upon taking office.
Biden took over an economy well on its way to complete recovery, with vaccines available and already being administered. But he is blowing it.