When one listens to the President in a pre-arranged and canned News Conference, one is overwhelmed by political campaigning. Equally, one is underwhelmed by Biden’s lack of knowledge of fundamental economics—both Micro and Macro.
Such was his distorted and Three Pinocchio press conference yesterday. He gets the Three Pinocchio’s for his neglect of basic Macro and Micro. It is possible he took economics while in college and just doesn’t remember any of it. More likely, he is campaigning and uninterested in fundamental economics.
Macro: POTUS claimed he was reducing the deficit. Hardly. This is simple: Calculate G-T. The latest data shows this is negative…ergo the deficit is growing, not shrinking. But, maybe he meant the change in G-T? This is the old “second derivative” problem that politicians confuse all the time…or maybe it isn’t an unforced error? Perhaps, he has little regard for the intelligence of the average voter. Perhaps, he thinks they might rbuy his faulty economic reasoning? The GDP data are essentially correct (plus-or-minus the revisions that will start next quarter and continue for quite some time). If we have a deficit in the current period, however, then our total deficit is growing in the period in question, not shrinking. Sorry, POTUS, you fail Econ 1.
Of course, the POTUS may yet be able to claim that G-T over the entire calendar year will be positive, or that the deficit (G-T)<0 is still not as large as last year or that the QI2022 deficit is smaller than Q12021, but the relevance of the comparison is another Pinocchio, at least 1, maybe more!
Unfortunately, the economic malapropisms continued while the POTUS exuded a whitewash of Federal Reserve behavior. ‘They were doing their job’ and the President alleges Inflation is a Supply Side Problem: The POTUS answer: first Covid then the Putin attack on the Ukraine. These claims are easy to dismiss. Inflation was heavily stimulated by excess monetary ease, despite the early allegations of a poorly reasoned commentary in 2021 by Jay Powell that observed inflation increases were transitory (Jay Powell was also trained as a Lawyer: please, JAY, never use the word “transitory” again!). Inflation was rising well before the Russian attack on the Ukraine. The President also claimed most economists agreed about the “transitory” nature of inflation. Total Hogwash! Many economists spoke out against the Monetary expansion that accompanied the fiscal blow-out.
Perhaps Lawyer Biden never heard of Milton Friedman’s obiter dictum, “Inflation is always and everywhere a monetary phenomenon… But, any good Econ1 course would have noted that quote or at least a reasonable summary of the monetary causes of inflation. One suspects that Law School didn’t do much for the economic education of the POTUS.
What about the other economic faux pas yesterday? Beware. Biden throws sinkers!
The Oil Price Rise: Cause? the gouging of Oil Monopolists. He doesn’t get a formal Pinocchio, even though his timing of the GROWTH of oil monopolies would be questioned by most oil economists. Secondly, the cutback in crude oil shipments from the OPEC members never gets mentioned or rising world oil demand as Covid lessened. Too complex for a campaigner? Believe voters are stupid?
A few other politically correct but economically incorrect assertions include the 9000 Federal Leases that are not being drilled during the huge increase in Crude Oil prices? Why not? NIMBY? Not enough pipelines from the well sites to major pipeline interchanges? No new pipeline approvals and the unlikely granting of new pipelines going forward? The whimsical nature of the current Administration posturing on the Climate Crisis that makes building new production capability an exercise in what oil producers think the next turn of the screw from DC might be? The 9000 un-drilled Federal Leases that his Press Secretary has been instructed to ridicule at her Press Conferences that are not being drilled by the gouging Oil Industry? Another dog that won’t hunt. One has to wonder whether the Press Secretary understands the propaganda her coaches wish her to pitch. If the lease was so good that a leaseholder would drill it given $100/barrel prices, they would drill it. Listeners should ask, what barriers are there are that the Leaseholder must overcome? We suspect mostly Government restrictions. The whimsical nature of current posturing on the Climate Crisis also makes building new production capability an exercise in what oil producers think the next turn of the screw from D.C. might be? It is unlikely to be support. At best less attacks, but POTUS teed off pretty strongly over alleged gouging.
Of course, the fascination with warding off Global Warming ignores the misguided love affair certain politicians have with electricity. As if it is a ‘free good.’ They ignore that new base load power has to be generated either by that hated word—COAL— or use higher price petroleum products (Fuel Oil, Diesel, Natural Gas) …or perish the thought that the even more hated source (Nuclear Power) is advocated. Here, the POTUS might have looked at the turn-around of of GREEN NONSENSE in Germany or why the French don’t complain as much because significant quantities of their base load power is generated by rather safe NUKES!
We will ignore the caveat uttered by the POTUS that “Americans are working 18 hours a day just to keep food on the table.” Shucks, if you can’t tell a first derivative from a second derivative, maybe 8 hours and 18 hours are about the same!
Then, there are the ingenuous attacks on tax policy by Right Wing Republicans…”they wish to raise your taxes, but my tax policy of raising Corporate Taxes and making the Rich pay Their Fair Share will lower your taxes!’ Of course, the POTUS ignores the generally acceptable Public Finance finding that raising taxes on capital LOWERS the return to LABOR!
When he finally allowed a few questions, he stumbled when he came to “lowering tariffs.” They are just “under consideration.” Finally, what about some of the more obvious political solicitations that might help to lower gasoline prices by depleting our corn supplies (15% ethanol)? Are there some real alternatives to this posturing? At least a few that could work.
Here’s my list of easy ‘do’s.”
Suspend the Jones Act and allow cheaper transportation of crude and products around the US including Alaska by other than expensive U.S. flagged carriers.
Let the KEYSTONE XL Pipeline be finished so we don’t create more CO2 by rail and truck shipping while we expand crude output.
Permit quicker approval to new pipelines that will increase the flow of both natural gas and crude oil from the oil fields to the refinery or processing plants.
The above list will not be a ‘do’ in this Administration nor will meat prices go back to their pre-Covid levels unless grain prices fall or this Administration teaches cattle and pigs to hold onto to their own methane!
One other important comment comes from the Graph below, available from the vast quantity of St. Louis Federal Reserve data. The key point is to show that expectations by the public of rising prices are not very well anchored anymore and haven’t been since 2021. That means the Fed has a much bigger job to do than it has been admitting.
Did today’s collapse in the Stock Market reflect investors suspicions that the Fed is much further behind than it has been admitting? It is a plausible hypothesis, even if not easily proved. The graph triggered some commentary from the nominally Democratic supporters at the New York Times. If in fact expectations of rising prices are indeed growing, then it will take a lot more action by the Fed to choke off economic demand…and getting to a soft landing might be far more difficult.
The graph suggests a little relief at the end of the current time period, but we should expect that the little relief we got yesterday in the monthly change of prices may not continue against still rising food and gasoline prices.
Tough markets reflect poor policy choices in the past and the conflicts they pose for the present and the future.