Here are some “conventional wisdom”.
It goes like this. High gasoline prices are the main cause of inflation. Inflation is President Biden’s fault, which makes him really unpopular. So the Democrats will lose control of Congress in this year’s election.
This way of thinking is more wrong than right, but it may well produce the predicted political outcome. Many people believe in it.
Something good about it? The price of gasoline is much higher than usual, and it has increased at breakneck speed. In a country where SUVs have replaced sedans, this can hit your wallet hard. Someone has to be held responsible for allowing prices to spike.
Because presidents tend to take credit for the economy when times are good, it’s only natural that they take the blame when the good times end. This leads to a demand for new leaders, which would mean handing over control of Congress to Republicans.
What Biden did wrong, according to his opponents, was to promote the replacement of oil with green resources. Oil companies have cut production as they see the rise of electric cars.
The world market price rose as the Middle East tried to maintain revenue as demand fell. The US oil industry saw a chance to increase profits by riding this wave rather than displacing competitors by selling more oil at a lower price. As one industry analyst put it, “Returns have taken over from growth.”
The economy increased as the impact of Covid-19 began to be controlled, requiring more fuel. But oil production has lagged, leading to higher prices and windfall profits for oil companies.
Then came the war in Ukraine and the West’s efforts to punish Russia’s aggression by buying much less of its oil and gas. This drove up oil prices. Biden appeared to acknowledge criticism of his pro-renewables policy by asking oil companies to ramp up production and drilling.
But it has also taken steps to cut costs. He ordered oil drawn from the strategic petroleum reserve. He has now proposed that Congress temporarily suspend the gasoline and diesel tax.
Did Biden create inflation by pushing huge federal spending and increasing the national debt?
Two-thirds of the massive Covid-19 impact and stimulus spending was passed before he came to power and was supported by both sides. It may have been more than necessary and poorly controlled. It gave people more money to spend, spurring inflation and savings, and now supports increased spending by state governments. Much remains to be spent.
While Congress and the President injected funds into the economy, the Federal Reserve seemed to take no notice. He kept interest rates at historic lows, near zero, instead of acknowledging that the economy was recovering.
Now, with inflation taking off, the Fed is raising interest rates to make purchases more expensive. This process works, but painfully. Meanwhile, rate hikes appear to be pushing inflation up before slowing it down. If the Fed’s catch-up effort works too well, the economy could not only calm down, but reverse – a recession.
Nobody likes economic uncertainty, but it is happening at an extreme level. After more than two years of fighting Covid-19, the virus does not seem to lack variants producing waves of cases. Activities ranging from international trade to travel for office work are impacted.
China is battling Covid-19 with measures that can shut down parts of its economy. This drives up the cost of its exports to the United States. Supply chains have been disrupted, which is also driving up retail prices. In addition, a federal law blocking imports of low-cost goods produced in China by Uyghur forced labor has just come into effect.
Add to this economic turmoil the proxy war between NATO and Russia on the battlefields of Ukraine. With a lot at stake in the global balance of power, this war could go on for months or even years. Like any major war, it has an impact on national economies.
Covid-19 and a tougher stance towards China and Russia are transforming the global economy and having a far greater effect than short-term inflation. There is no chance that inflation will be brought under control and everything will return to normal. In the United States, pay levels and prices have changed for good.
Biden bears some responsibility, of course, and he could pay politically if gasoline, diesel and heating oil prices remain high. But the origins of inflation predate his administration, and the causes are more complex than those he can influence. It is not the main driver of inflation.
Conventional wisdom suffers from such short-sightedness. As a result, we cannot easily see the light at the end of the tunnel.
This “wisdom” may prevail when people vote, but inflation and other economic challenges cannot be contained simply by the outcome of the November election.
Gordon L. Weil has previously written for the Washington Post and other newspapers, served on US Senate and EU staff, headed Maine state agencies, and served as an adviser to Harpswell.