Tag: larry summers
Chamber of Commerce Earns Big Pinocchio Nose For False Claim About Build Back Better

Chamber of Commerce Earns Big Pinocchio Nose For False Claim About Build Back Better

Reprinted with permission from The American Independent

The nation's largest corporate lobby is trying to defeat President Joe Biden's $1.75 trillion climate and caregiving infrastructure plan, arguing it would make inflation even worse.

In a new radio ad released Wednesday, the political arm of the U.S. Chamber of Commerce presses Sen. Kyrsten Sinema (D-AZ) to oppose the Build Back Better plan over inflation concerns.

"Higher gas prices and skyrocketing grocery bills are crippling Arizona families. But we count on Sen. Kyrsten Sinema to be our voice, someone who will stand up for us. Like when it comes to the reconciliation bill that would add to inflation," a narrator claims.

Constituents are urged to call Sinema and tell her to oppose Build Back Better and "stand up for Arizona families." The White House has argued that the bill will help hundreds of thousands of Arizona families by providing more affordable child care, health care, long-term care, and housing.


Last Friday, the lobbying group demanded Congress halt consideration of the package.

"With prices rising 6.8% over the past year, squeezing budgets for families and small businesses alike, it is time for Congress to hit pause on the reconciliation bill and not add any more fuel to the inflationary fire," Neil Bradley, the group's executive vice president and chief policy officer urged. "Rather than 'building back better'– the reconciliation bill will just be bringing back bad inflation."

The lobbying behemoth, which represents many of the nation's largest corporations, does not like the fact that Build Back Better would be partially funded by collecting more in revenue from the nation's largest corporations.

It argues, "The proposed tax increases, including a new corporate minimum tax on book income, a new tax on stock buybacks, and tax increases on U.S. business income earned abroad, will harm the recovery and hamstring America as we work to compete globally, especially with China."

But it has focused much of its public opposition on the idea that inflation is high and the package "will make it worse." In November, the group published a roundup of "non-partisan and center left experts" who have stated Build Back Better would "add to inflation over the next year."

The inflation argument has been a common talking point for Republicans in Congress and their dark-money backers. But the opposite is likely true.

The White House Council of Economic Advisers has argued the plan would be an "antidote" to long-term inflation, increasing economic capacity and offsetting its costs with new revenue or spending cuts.

Nobel Prize-winning economists and major financial ratings agencies have concurred, saying it will likely have a negligible effect on inflation in the short term and could curb it over a longer period of time.

Even many of the economic experts the group cited while warning of inflation have publicly said Build Back Better will not significantly fuel inflation.

Jason Furman, a former Council of Economic Advisers chair, wrote a November 15 Wall Street Journalopinion piece urging passage of Build Back Better to address the economy's "chronic problems"

"Build Back Better would have a minuscule impact on inflation over the medium and long term," he argued. "The potential short-term effects of Build Back Better on inflation are dwarfed by the good it would do."

Former Treasury Secretary Larry Summers, who has been frequently cited by congressional Republicans as an inflation soothsayer, has also endorsed the package.

He wrote in a November Washington Post piece that it "would spend less over 10 years than was spent on stimulus in 2021. Because that spending is offset by revenue increases and because it includes measures such as child care that will increase the economy's capacity, Build Back Better will have only a negligible impact on inflation."

Mark Zandi, chief economist for Moody's Analytics, told Reuters in November that Build Back Better and the now-enacted Infrastructure Investment and Jobs Act "do not add to inflation pressures, as the policies help to lift long-term economic growth via stronger productivity and labor force growth, and thus take the edge off of inflation."

In a Fox Business interview on Wednesday, Zandi said "the inflation we're observing now, the high inflation — that has nothing to do with fiscal policy, that has nothing to do with the Build Back Better agenda." He added that it would lift long-term economic growth by "raising labor force participation, so lowering the cost of work."

The House passed its version of Build Back Better on Nov. 19, despite unanimous GOP opposition. The bill is now pending in the Senate.

A spokesperson for the organization did not immediately respond to an inquiry for this story.

Federal Reserve Bank of Cleveland

Why I’m Not (Very) Worried About Inflation

For a long time, inflation has been the phantom of the American economy: often expected but never seen. But the latest Consumer Price Index, which showed that prices rose by five percent from May of last year to May of this year, raises fears that it is breaking down the front door and taking over the guest room.

The price jump was the biggest one-month increase since 2008. It appears to support the warning of former Treasury Secretary Larry Summers, who wrote in February that President Joe Biden's budget binge could "set off inflationary pressures of a kind we have not seen in a generation." Senate Republican leader Mitch McConnell charged last month that the administration has already produced "raging inflation."

For anyone who lived through the turbulence of the 1970s, when the CPI climbed year after year, peaking at a rate of more than 13 percent, the specter of inflation is enough to induce night terrors. One of the great governmental marvels of the past 40 years was the Federal Reserve's complete conquest of this malady. To let it return would be a grievous setback.

There are reasons to think that could happen. The Fed has pumped huge sums of money into the economy to offset the effects of the pandemic, and the Biden administration got Congress to approve a huge economic relief package. Americans saved a lot over the past year, and if they decide to burn through all that cash, they could push prices still higher.

At this point, though, watchful concern is a more appropriate attitude than outright alarm. For now, I'm not worried — not very worried, anyway — about inflation.

Why not? One reason is that a spike in prices is not inflation any more than a stretch of rain is Noah's flood. It's no surprise that prices in May were appreciably higher than a year earlier — when much of the economy was shut down because of the pandemic.

Prices will keep going up as life continues to return to normal and Americans rush to spend money on all the things they missed because of COVID-19. Lingering supply chain snarls will put additional pressure on prices. But this should be a one-time phenomenon. Inflation is not inflation unless it persists over months and years.

Another reason for optimism is that even when it was trying to raise the inflation rate, during and after the Great Recession, the Federal Reserve found it remained stubbornly low. The central bank's monetary expansion should have brought about the higher inflation it sought. But it didn't — suggesting that something has changed about the connection between the money supply and consumer prices.

Back then, conservative critics forecast an outbreak of inflation caused by easy money and excessive federal spending. In 2009, economist Arthur Laffer wrote, "We can expect rapidly rising prices and much, much higher interest rates over the next four or five years." Sen. Rand Paul (R-KY) said Americans should be "prepared to carry money to the grocery store in a wheelbarrow."

Let's hope their hallucinations have subsided. If those policies didn't cause inflation then, they may not cause it now. Stable prices have become the intractable norm over the past quarter-century, for reasons we don't fully understand. Loose fiscal and monetary policies don't seem to matter the way they once did.

One danger is that the recent price increases will fuel inflationary expectations, prompting businesses to raise prices and workers to demand higher wages, setting off a self-perpetuating upward spiral. But what inflationary expectations are we talking about?

Data compiled by the Federal Reserve Bank of St. Louis indicate that, as of June 10, the expected inflation rate over the next five years is just 2.23 percent. Interest rates on 30-year mortgages have fallen below three percent, compared with nearly five percent in 2018.

Given their performance over the past 13 years, it's not unreasonable to believe that the Federal Reserve officials who set monetary policy actually know what they're doing. When the pandemic hit, the economy was well into the longest peacetime expansion ever — and inflation was still subdued.

Fed Chairman Jerome Powell and his colleagues have earned the benefit of the doubt. They haven't forgotten the trauma of the 1970s, and they don't want to go down in history as the people who brought it back.

When prices jump, vigilance against inflation is entirely justified. But we should also watch out for false alarms.

Steve Chapman blogs at http://www.chicagotribune.com/news/opinion/chapman. Follow him on Twitter @SteveChapman13 or at https://www.facebook.com/stevechapman13. To find out more about Steve Chapman and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Lesson From December’s Jobs Report: Turn On The Fiscal Jets

Lesson From December’s Jobs Report: Turn On The Fiscal Jets

The economy is not yet strong enough to cope with tighter monetary policy, but fiscal policy is what’s really missing from this recovery.

The weak employment report out today reinforces the view that the Federal Reserve should not ease up on monetary policy soon. The strength of this economic recovery is not yet clear, and the Fed is the only game in town due to sequestration of government funds.

Waiting another three or four months to tighten policy and reduce quantitative easing will not change the course of America’s destiny. But moving now, as they have done ever so slightly, could easily pull the rug out from under this modest recovery.

The sharp fall in the unemployment rate to 6.7 percent was just about entirely accounted for by people dropping out of the workforce. The employment-to-population rate is roughly at its lowest level in more than 30 years. Too many people are not working in America. For all the economic weakness in Europe, they have higher participation rates than the U.S. does.

The drumbeat of optimism emanating from most economists recently will now be muted until the next set of data. The jobs numbers are the most telling indicator of economic strength. Economists turn on a dime when they are issued, but only because they can, given the computerized models that shift modestly with every piece of economic news. They should have a stronger analytical thesis than to depend on one month’s data.

The path forward is clear. We should keep in mind that the economy is not doing badly. On average, there has been moderate job growth over the last three months, just not nearly enough to justify an end to monetary stimulus now. We should wait at least a few months to make sure this recovery and expansion is truly solid.

The good news is that the disappointing employment data will reduce pressure on the Fed as Janet Yellen takes over the reins. The bad news is that it will unleash the anti-Obama forces who blame the slow economy on Dodd-Frank’s costs to the financial community, future fears of inflation, and of course the federal budget deficit. Tune in to Fox News after the employment data release and you’ll find them saying “Obama did it.”

Larry Summers offers the best advice: we have to turn on the fiscal jets. The first words out of anyone’s mouth about the economy should be that sequestration did it. Fiscal de-stimulus was huge in 2013. Government spending fell sharply. The deficit is no longer an issue, given unemployment around the current level.

Summers is being criticized by economists and commentators from across the political spectrum for claiming the nation may be in a period of secular stagnation. Summers noted that the economy was disappointing even before 2007. How could that be, ask some, if the unemployment rate got down to roughly 4.5 percent?

John Taylor of Stanford is especially vociferous about how good the economy was under George W. Bush. Of course, he worked for Bush. But even apart from that, it is hard to take his claims seriously.

Three points here. The labor participation rate under Bush never rose to the heights it reached in the second half of the 1990s. Had it done so, the unemployment rate would likely have been around 5.5 percent.

Second, wages rose very slowly. The low unemployment rate—to the extent that it fell—had a lot to do with slow-rising wages. And the wage share of GDP fell significantly, to levels well below what they were in the 1990s. The rise in consumption to support growth was based on borrowing, as we know, not strong incomes.

Third, capital investment was weak before 2007, never even close to returning to the levels of the second half of the 1990s. The right wing loves to blame lack of business confidence on low levels of capital investment today, but how do they explain the Bush era?

So, to reiterate, Summers is right. We are wading in dangerous territory. On top of all this, there has been a confusing and disturbing downturn in productivity growth for several years—starting, again, before 2007.

We have a tool to deal with this: more government spending. But we get the opposite. Obsession with the budget has led to full-fledged austerity policies in America, as well as Europe.

There are some sweet spots in the economy. I am skeptical of fracking, but it is helping the economy now. Housing is picking up.

But any increase in interest rates without serious fiscal stimulus now is outright dangerous. The inflation fearmongers are still out in force, of course. So let me repeat this: There is no appreciable inflation right now. And one last point: More growth in output could stimulate growth in productivity as well, a well-known economic relationship known as Verdoorn’s Law.

Will America do what’s necessary? Not enough of it. But at the least it should not reverse monetary policy yet. And there may be a little political room to push Washington toward spending in 2014. If so, the nation had better take advantage of it.

Jeff Madrick is a Senior Fellow at the Roosevelt Institute and Director of the Bernard L. Schwartz Rediscovering Government Initiative.

Cross-posted From Rediscovering Government.

The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.

AFP Photo/Brendan Smialowski