Let’s start with a simple truth: we all share responsibility for today’s inflation and soaring national debt.
Why? Because we elected the leaders whose economic and political decisions over the past two decades created inflationary conditions and allowed the debt to grow to today’s $28.4 trillion, up $7.2 trillion since 2017.
Economists have long established that the inflationary impact of fiscal and monetary decisions comes with a time lag, so this year’s inflation comes as no surprise. The fundamental factors: years of fiscal red ink and Fed easy money policies.
Americans in the upper half of the nation’s income levels benefited greatly from those decisions via lower taxes, low interest rates, and a rising stock market. Americans in the lower half — people largely not in the stock market — benefited less, if at all, and struggled particularly during the COVID-19 pandemic. This group will suffer most from the burden of renewed inflation.
Twenty years of official US data tell the story:
The fiscal score card starts with the Clinton administration’s final year budget surplus of $128 billion. Under Bush 2, Republican tax cuts, the economic impact of 9/11 and the Afghanistan/Iraq wars pushed the budget into deficit, hitting $458 billion before the 2007-2008 financial crisis which ballooned the 2009 deficit to $1.4 trillion. Total Bush 2 deficits over eight years: $3.4 trillion.
Government stabilization measures responding to the financial crisis brought some recovery under the Obama Administration. Deficits fell back to the $500 billion range, with an eight-year Obama total of $6.5 trillion.
The 2017 tax cuts, lauded by Republicans for presumed but imagined job-creating impact, stifled government revenues and, together with spending increases, doubled the deficit to $984 billion by 2019. COVID economic dislocation widened the deficit gap to $3.1 trillion in 2020; Trump administration red ink over four years totaled $9.2 trillion.
Secondly, Federal policies flooded the country with cash. Years of low interest rates and easy money floated the stock market to new records. Real estate boomed in many areas.
Thirdly, the pandemic’s economic shock spurred emergency spending to sustain consumer purchasing power and to assist hard-hit low-income groups. In March 2020, President Trump signed into law, with huge bipartisan support, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), providing one-time cash payments, unemployment relief, support to small businesses, and almost a trillion dollars in support to corporations and state and local governments, including $8.4 billion for Florida.
In March 2021, President Biden signed into law, with no Republican support, the $1.9 trillion American Rescue Plan (ARP) which provided further COVID-related support to individuals and the economy, which saw welcomed declines in unemployment.
Inflation’s uptick began in March 2021 in response to past fiscal and monetary actions, the impact of 2020 CARES spending and pent-up consumer purchasing power. Simultaneously, energy and gasoline prices rose due to supply constraints and renewed demand. Food prices increased. The appearance of supply chain bottlenecks as economic normality returned added to upward pressure on prices.
Against this backdrop, we face another round of contrived political drama on the U.S. national debt limit. Trump administration budget deficits made the need to increase the debt limit inevitable; it is disingenuous to try now to justify a decision not to raise the debt limit on Biden Administration budget intentions.
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In the past, both political parties generally recognized their shared responsibility for the debt and acted to increase the limit accordingly. The looming Dec. 15 impasse is simply a dangerous — and unnecessary — game of national political and economic “chicken.”
Curbing inflation will be a real challenge and will take time as the U.S. experience in the 1970s and ’80s showed. What lies ahead? Likely higher interest rates with the ending of the easy money party, and fiscal adjustment, likely through some modest upward readjustment of tax rates on corporations and upper-income Americans toward more traditional levels.
Complex problems of our own creation; let’s hope our leaders across the political spectrum get the response right.
Mike Mozur is a retired U.S. State Department Senior Foreign Service officer and environmental executive who now lives in the Pensacola area.
This article originally appeared on Pensacola News Journal: When it comes to inflation and the national debt, we're all responsible | Guestview