Economists say Joe Biden’s Build Back Better plan would worsen already soaring inflation, notes J.D. Tuccille at Reason. He points out that “plans by congressional Democrats for trillions of dollars in taxes and spending hikes” may be scaled back somewhat due to the worries of Sen. Joe Manchin (D-W.Va.), who is concerned about the “‘Build Back Better’ bill’s near-certain escalation of already worrisome federal debt and inflation…as prices have risen across the board for Americans.”
As Tuccille notes, “Economic sense is on his side, since the ambitious bill threatens to further strain Americans’ budgets.” Manchin says he “won’t support a multitrillion-dollar bill without greater clarity about why Congress chooses to ignore the serious effects inflation and debt have on our economy and existing government programs.”
As Tuccille observes, “inflation has hit a year-on-year rate of 6.8 percent, the highest level since 1982, according to the Bureau of Labor Statistics. Also, since then the Congressional Budget Office (CBO) estimated that the Build Back Better bill ‘would result in a net increase in the deficit totaling $367 billion over the 2022-2031 period’ [even] under unrealistic congressional assurances that its policies would be temporary. In the more likely case that the extra spending becomes permanent, it “would increase the deficit by $3.0 trillion over the 2022–2031 period,” says the CBO.”
As a result, “Manchin over the past two weeks has intensified his criticisms about inflation” and the risks of passing the Build Back Better bill without scaling back its spending levels, the Washington Post reported this week.
“Manchin has good company in his fears that trillions of dollars of new federal spending is likely to send inflation rocketing even higher,” says Tuccille. Many economists have said it will increase the inflation rate.
“In our assessment, the very front-loaded and relatively progressive nature of Build Back Better means that it is more likely to be inflationary,” the Committee for a Responsible Federal Budget cautioned earlier this month; “it carries undesirable risks of contributing to a possible inflationary spiral in a time of already high inflation.”
“Widespread inflation always comes from people wanting to buy more of everything than the economy can supply,” observed economist John Cochrane, a senior fellow at Stanford’s Hoover Institution. “Where did all that demand come from? In its response to the pandemic, the U.S. government created about 2.5 trillion new dollars, and sent checks to people and businesses. It borrowed another $2.5 trillion, and sent more checks to people and businesses. Relative to a $22 trillion economy, and $17 trillion of existing (2020) federal debt, that’s a lot of money.”
Tracy Miller, a policy researcher at George Mason University’s Mercatus Center, agreed with Cochrane, especially regarding the dangers of money created out of thin air.
“We’re already experiencing the highest rates of inflation in 30 years, and it can be blamed on the expansion of the money supply since the beginning of the pandemic,” Miller said. He warned that the Build Back Better bill’s reliance on debt funded with money created by the Federal Reserve threatens more rapid inflation.
In a video discussion on rising government debt for the Hoover Institution, John Cochrane argues that you can keep running deficits only so long as you keep the red ink within limits as a fraction of a growing economy. That’s no longer the case when debt is more than 120 percent of GDP and the government plans to keep spending much more than it takes in.
“Growing out of debt requires that taxes equal spending for a generation or two while growth outpaces interest,” Cochrane points out. “The U.S. situation is an intractably exploding debt-to-GDP ratio. Steady large deficits. Not a slowly declining ratio with balanced budgets that we might bump to a higher level with a one-time expansion.”