Thursday, December 2, 2021

Biden seeks to do what presidents often cannot: beat inflation


WASHINGTON (AP) – LBJ tried to cut himself. Richard Nixon issued a presidential decree. The Ford administration has printed buttons urging Americans to “contain inflation now.”

Over the years, American presidents have tried – and in most cases have tried unsuccessfully – to quell the economic and political threat of consumer inflation.

Now President Joe Biden is giving a chance.

Faced with a spike in gasoline and other consumer goods prices that are worrying American households, Biden on Tuesday ordered the release of 50 million barrels of oil from US strategic oil reserves. The move, taken in collaboration with several other major countries, is designed to contain energy costs. Oil markets, anticipating this move, were not impressed with the details: oil prices actually rose on the news.

It was just Biden’s latest move to show that he is doing everything he can to fight inflation, as gasoline and food prices, in particular, are placing an increasing burden on American households. On Monday, he announced that he would reappoint Jerome Powell as chairman of the Federal Reserve, in part to reassure financial markets that Washington is serious about curbing consumer prices. Last month, he announced a deal to reduce delivery delays at the Port of Los Angeles, expanding operations there to 24 hours a day, seven days a week.

Nevertheless, it is believed that none of the president’s actions will be able to significantly affect the rise in prices in the near future.

“I don’t think the president has a lot of leverage to bring inflation down anytime soon,” said Mark Zandi, chief economist at Moody’s Analytics. “What he does is positive and there are no downsides … but they are on the edge. They are not going to move the dial too much. “

Inflation is always a tough enemy, further complicated by an unusual recovery from a pandemic recession, material and labor shortages, and transportation problems that drive up prices.


The government’s CPI soared 6.2% in the 12 months ended October, the steepest jump since 1990.

The CPI news, emerging after nearly four decades of more or less stable prices, represents “a once-in-a-generation surge in inflation,” said Sarah Binder, a political scientist at George Washington University who studies the Fed. “The problem is quite serious, because voters notice it. It is difficult to avoid the impact of the surge in inflation on your daily life, be it buying milk or gas. “

According to AAA, the average price of regular gas rose to $ 3.40 a gallon from $ 2.11 a year ago.

Compounding pain and increasing pressure on Biden, inflation is outstripping American income. Adjusted for price increases, average hourly wages were down 1.2% last month from a year earlier.

“Inflation is painful and always political,” said Diane Swank, chief economist at accounting and consulting firm Grant Thornton.


This is partly due to some very good news. The global economy – and America in particular – has recovered with unexpected speed and strength after a short but intense recession last year. This was the result of ultra-low interest rates, huge government spending and, ultimately, widespread vaccine proliferation that allowed much of the economy to resume operations.

The swiftness of the recovery took the business by surprise. A year and a half ago, they were preparing for the worst – they laid off workers, left shelves and warehouses empty, reduced investment and production.

And the energy companies did the same: They cut their oil and gas production as demand for transportation fuels plummeted. Once demand returned, they weren’t ready. They struggled to call workers back and buy enough to fulfill customer orders. Ports and cargo yards could not handle the traffic. Countries competed over liquefied natural gas transhipments at inflated prices. Periodic COVID-19 outbreaks are closing Asian ports and factories. Global supply chains have collapsed.

As costs have risen, many businesses have found that they can shift the burden to consumers in the form of higher prices. In the meantime, many families keep their government bailout checks and build up their savings. Some critics also blamed Biden’s $ 1.9 trillion bailout package for overheating the economy and escalating inflationary pressures.

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Economists disagree on how long the inflation spike will last. Gus Faucher, chief economist at PNC Financial, predicts inflationary pressures will ease as supply chains self-organize.

“I expect inflation to slow down in 2022,” he said.


The White House has limited tools to reverse price increases. This task belongs more to the Fed, which can raise borrowing costs to cool the turbulent economy. However, during the 1960s and 1970s, presidents felt more and more pressure to do something about inflation because it had become a serious political threat.

President Lyndon Johnson tried to convince companies to refrain from raising prices and to persuade unions to limit wage requirements – a practice known as “exposure.” When Bethlehem Steel raised steel prices in 1965, Johnson criticized its leadership as unpatriotic and, according to Robert Samuelson’s book The Great Inflation and Its Consequences, they backed down. When egg prices rose in 1966, Johnson ordered America’s surgeon general to look at the health risks of cholesterol in eggs, with the intention of lowering egg sales and therefore prices.

Nixon introduced wage and price controls in 1971 and 1973, which briefly suppressed inflation, but prices skyrocketed after the controls were lifted.

Gerald Ford’s Whip Inflation Now program encouraged Americans to grow their own vegetables, reduce food waste, and consume less. The Americans mostly responded by mocking the program. Some have flipped the presidential WIN buttons, explaining that the resulting NIM means “No Instant Miracles.”


Last week, Biden signed into law a $ 1 trillion public works program that pours money to repair roads, bridges and ports, potentially closing the supply chain backlog that has driven prices up. Unraveling shipping bottlenecks would be doubly beneficial: it would ease inflationary pressures and spur the economy by increasing the flow of goods to customers.

Last week, Biden sent a letter to the FTC asking the chairman of the FTC to consider whether the rise in gasoline prices was the result of “illegal behavior.” The White House is also stepping up antitrust measures against the meat processing industry in an effort to increase competition and reduce meat prices.

His decision to reappoint Powell to head the Fed was in part intended to convince financial markets of Washington’s determination to keep consumer prices out of its control. Another likely contender for the position, Lael Brainard, a member of the Fed’s Board of Governors, was perceived to be less hawkish about inflation.


The idea was that by putting more oil on the market, prices would fall. That did not happen. But depending on what happens in the rest of the world, there is a chance it will work.

America’s oil reserves are about 605 million barrels of oil in underground caverns in Texas and Louisiana. It was developed in the 1970s in response to the Arab oil embargo to store oil in the event of a supply disruption or emergency. But the dynamics of the global oil industry have changed dramatically in recent years, with the US now exporting more oil than it imports.

The 50 million barrels that Biden promised to release is likely to be sold slowly, at a rate of about 1 million barrels a day, which means that the new inflow of oil could last for about two months. According to Jim Burkhard of IHS Markit, adding even a small amount of oil to the market could create a surplus of oil and potentially drive the price down.

“An immediate price response is not a final judgment on the effectiveness of these efforts,” he added. “It really will happen in the coming months.”


Bussewitz reported from New York.

AP economics writer Martin Krutsinger contributed to this report.

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