President Biden and his media allies have attempted to downplay this painful inflation. Mr. Biden has claimed that price increases are easing, and they will “change sooner, quicker, and more rapidly than most people think.” In reality, inflation may be even higher than the top-line numbers suggest. And Democrats’ $5 trillion Build Back Broke legislation would make it even worse.
As measured by the Consumer Price Index, inflation is officially at its highest point since the Jimmy Carter presidency and the brief hangover it caused for the Reagan Administration. The CPI increased by a historic 11.3% in 1979, 13.5% in 1980 and 10.3% in 1981. Yet the CPI methodology has been updated over the years to discount actual inflation levels and make direct comparisons between now and then difficult. If today’s CPI is adjusted to resemble the old CPI, current inflation may be as bad or even worse than the sky-high Carter levels.
Consider that the CPI no longer directly measures housing prices, which were part of the index until 1983. This omission means that the current CPI doesn’t fully account for housing prices that have increased by 19.5% over the last year. According to economist Peter Schiff, if the CPI still included housing prices, it would be growing at around 11% rather than 6.8%.
Updated CPI methodology also incorporates other tricks to deflate real inflation. It uses a process known as substitution, which essentially assumes consumers will replace rapidly price-increasing goods with similar lower-priced alternatives.
The CPI methodology also now incorporates the concept of hedonics, which discounts price increases when there are corresponding quality improvements in goods and services. This process is most evident in the technology space, where rapid computing improvements help reduce the CPI increases.
There are compelling economic arguments in favor of and opposing these methodological changes. However, since they were not incorporated during the last period of high inflation, today’s price increases are artificially low by comparison. If housing prices were added into today’s CPI and substitution and hedonics were removed, current inflation would resemble Mr. Carter’s.
The BBB threatens to send today’s inflation out of control by any measure. It would flood the economy with even more money and create numerous programs that disincentivize work, exacerbating the inflationary labor and supply chain shortages. For instance, the legislation would extend the de facto monthly universal basic income for families and significantly expand rental assistance and public housing construction. University of Chicago economist Casey Mulligan estimates the BBB’s provisions would reduce full-time equivalent employment by about 6% — nearly nine million jobs.
These programs would be partly paid for by dramatic tax hikes on successful small businesses to some of the highest levels in the developed world. Even with these tax hikes, the legislation wouldn’t come close to paying for itself as Mr. Biden and top Democrats have promised. The nonpartisan Congressional Budget Office recently estimated the BBB would increase the deficit by $3 trillion.
Reckless spending and high inflation make Mr. Biden’s presidency a modern-day reincarnation of Mr. Carter’s. Recognizing that current inflation rivals 1979-1981 when adjusted to make an accurate comparison makes this Carter 2.0 reality even more evident than it already is.
Alfredo Ortiz is president and CEO of Job Creators Network.