The bill for bad Democratic policies is coming due in the form of historic inflation. Last week, the Bureau of Labor Statistics (BLS) announced consumer prices increased by 9.1 percent over the past year, a 41-year high. Runaway prices are causing real wages and living standards to meaningfully decline. Over the previous year, real weekly earnings have fallen by 4.4 percent, a greater drop than even during the Great Recession.
President Biden reacted to the inflation numbers by calling them “out-of-date” because gas prices have moderated slightly over the past couple of weeks. But this perspective overlooks the fact that “core” inflation, excluding energy and food prices, is accelerating. BLS called price hikes “broad-based.” Biden repeatedly has been wrong about inflation, calling it “temporary” last July and saying it had hit “its peak” in December. So, there’s no reason to pay attention to him now.
Things are especially difficult for small businesses. On Thursday, the BLS revealed that wholesale prices increased by 11.3 percent over the past year. Small businesses operating on narrow profit margins have no choice but to pass along these high costs, potentially alienating loyal customers, reducing demand, and accelerating the inflationary cycle.
New Job Creators Network SBIQ monthly polling of small businesses reveals sentiment fell in June to its lowest level in index history. Small businesses overwhelmingly cite high inflation as the biggest problem they face.
Historic inflation is pushing the economy into a recession. The Atlanta Federal Reserve estimates gross domestic product shrank by 1.2 percent in the year’s second quarter. Combined with the first-quarter slowdown of 1.6 percent, this assessment means the economy shrank in two consecutive quarters, indicating a recession
And for all the talk of a strong labor market, last week’s jobs report shows the labor force declined by 353,000 in June. Weekly unemployment claims released Thursday were at their highest level of the year.
This painful inflation and its broader economic consequences directly result from bad Democratic policies. Exhibit A: Trillions of dollars in reckless spending in 2021 when the economy was recovering led to too many dollars chasing too few goods. Exhibit B: The numerous government programs such as expanded unemployment insurance through most of 2021 that encouraged Americans not to work, reducing labor supply and pushing up costs.
Exhibit C: Radical green energy policies downstream from Biden’s “guarantee” on the campaign trail “to end fossil fuel” that reduced supply and drove up gas prices. Exhibit D: Support for easy money and Modern Monetary Theory policy that led to a historic expansion of the money supply and devalued the dollar.
As I argued in these pages earlier this year, runaway inflation should discredit Democrats’ fiscal and monetary policies. Next time Democrats push for deficit spending, radical green policies, welfare expansions, or quantitative easing, Americans should respond, “We tried that approach already and it caused the worst inflation in two generations.”
In fact, real inflation today may be even higher than levels during the Carter administration because of changes to Consumer Price Index methodology. Economist John Williams estimates that today’s inflation, if historically calculated, would be 17.3 percent.
Unfortunately, Democrats are looking to compound inflation’s pain by pursuing $400 billion of tax increases on small businesses in their latest reconciliation bill effort. A small business tax hike would make it more difficult for entrepreneurs to scale and grow, reducing small business supply when it’s desperately needed to help overcome inflation.
The Federal Reserve will try to control inflation by significantly raising interest rates at its policy meeting this month. Yet this move has consequences of its own, depressing asset prices on which ordinary Americans rely for their retirement and making it more expensive for small businesses to start or expand. But Democrats’ bad policies have left the Fed with no other choice. Unfortunately, ordinary Americans and small businesses are left to pick up the tab.
Alfredo Ortiz is president and CEO of Job Creators Network.