Biden turns to politics, not economics, as inflation surges

President Joe Biden is getting bad advice about inflation. It’s unclear if that advice is coming from political strategists or economic advisers. Either way: It’s still bad.

The advice? Biden should blame inflation on “corporate greed.”

By most measures, the economic recovery has been strong, thanks largely to expansionary fiscal and monetary policy. Unemployment is 3.9 percent, a rate that a mere year ago the Congressional Budget Office hadn’t expected the economy to reach until 2026. Output growth for 2021 also looks likely to exceed forecasts. Stock markets are up more than 20 percent over the past year.

But one metric has been casting a shadow over all this sunshine: inflation.

Inflation has been higher, and persisted longer, than most economists predicted. Instead of abating as the economy reopened, it recently hit its highest level in nearly four decades. Sharper price growth is due partly to COVID-related supply-chain problems, and partly to stronger demand as consumers spend cash they’ve amassed from lockdownforced savings, appreciating assets and generous government transfers (stimulus payments, etc.).

Many of the same policies that enabled better-than-expected unemployment and gross domestic product have also led to worse-than-expected inflation numbers. High price growth is one downside of running the economy hot.

Democrats have struggled with how to message this mixed outcome.

Focusing on those many positives risks looking like they’re dismissing voters’ concerns about inflation (as some on the left had explicitly done for months). The administration wants to be seen as doing something about high prices. So, White House officials and other Democrats have pivoted their messaging toward warmed-over populist talking points about “corporate greed.”

Don’t worry, Dems now argue, the federal government will crack down on those profit-hungry jerks and force them to offer better prices!

This “corporate greed” narrative is nonsense. Corporations are always greedy. It’s their job to make a buck. They didn’t suddenly become greedy in the past year. They’re charging higher prices, and booking higher profits, because that’s what happens when demand shoots up and supply is relatively constrained.

To be sure, some industries are likely too concentrated, and uncompetitive, and might benefit from government intervention. One is the industry that Biden has made the poster child of his antiinflation efforts: meat processing. But it’s not clear his specific fix for that industry (loans and grants to tiny operators) would measurably reduce meat prices, particularly in the near term.

Even more far-fetched is the idea that these interventions would make any dent in overall inflation in the next few months. Recent inflation has been broadbased — meat and poultry represent only about 1 percent of total consumer spending.

Presumably, White House officials know this. They’re championing their supposedly antiinflationary trust-busting agenda all the same. Maybe they think doing “something” about the meat industry is good policy no matter whats.

Or maybe political strategists have convinced them that blaming “greedy corporations” for inflation is popular. One Democratic pollster told the Washington Post that it advised the White House: “You need a villain or an explanation for this. If you don’t provide one, voters will fill one in. The right is providing an explanation, which is that you’re spending too much.”

Maybe populist demagoguing against “corporate greed” is effective for energizing progressive Twitter in the near term. But since it’s not an effective strategy for actually bringing down inflation, it could well backfire. Biden has publicly professed the ability to quash inflation through these measures; what happens if (when) inflation instead remains high?

The truth is that presidents have relatively limited tools for fighting inflation. Biden has been reluctant to pull even those levers, such as lifting tariffs or accelerating the process for legal immigration. By law, in any case, it’s the Federal Reserve’s job to maintain stable prices.

Biden does have the ability to shape leadership at the Fed. He’s so far made one good choice, in renominating Jerome Powell as Fed chair. (Powell is respected by markets and has lately expressed more hawkishness about the inflation threat.) Biden has three other Fed board seats to fill, though. He has dragged his feet on nominations — even though he’s a year into his presidency and the country faces its greatest inflation threat in a generation.

If Biden is truly worried about the threats posed by inflation, he will immediately nominate three professionals with a track record of political independence and a credible commitment to stabilizing prices. Markets need to trust that the Fed is willing to take the punch bowl away if necessary. Even during an election year.

Those Fed slots have gotten less attention than Biden’s performative attacks on corporate greed. But they’re the most important contribution Biden can make to getting inflation under control — and his political agenda back on track.