Republicans say President Biden’s spending plans will cause inflation to continue rising, but the White House says the proposals could actually help tame costs.
WASHINGTON — Republicans have made Americans’ concerns over rising prices their primary line of attack on President Biden’s economic agenda, seeking to derail trillions of dollars in spending programs and tax cuts by warning that they will produce rocketing 1970s-style inflation.
They have seized on the increasing costs of gasoline, used cars and other goods and services to accuse the president of stoking “Bidenflation,” first with the $1.9 trillion stimulus bill he signed in March and now with a proposed $3.5 trillion economic bill that Democrats have begun to draft in the Senate.
There are unusually large amounts of uncertainty over the path of inflation in the coming months, given the vagaries around restarting a pandemic-stricken economy. Yet even many economists who worry high prices will linger longer than analysts initially expected say there is little reason to believe the problem will worsen if Mr. Biden succeeds in his attempts to bolster child care, education, paid leave, low-emission energy and more.
“There’s been a lot of fear-mongering concerning inflation,” Joseph E. Stiglitz, a liberal economist at Columbia University, said on Tuesday during a conference call to support Mr. Biden’s economic plans. But the president’s spending proposals, he said, “are almost entirely paid for.”
“If they are passed as proposed,” he added, “there is no conceivable way that they would have any significant effect on inflation.”
The debate over the effects of the proposals “has nothing to do with the current angst over inflation,” said Mark Zandi, a Moody’s Analytics economist who has modeled Mr. Biden’s plans.
Still, rising inflation fears have forced the president and his aides to shift their economic sales pitch to voters. The officials have stressed the potential for his efforts to lower the cost of health care, housing, college and raising children, even as they insist the current bout of inflation is a temporary artifact of the pandemic recession.
The administration’s defense has at times jumbled rapid price increases with inflation-dampening efforts that could take years to bear fruit. And officials concede the president recently overstated his case on a national stage by claiming incorrectly that Mr. Zandi had found his policies would “reduce inflation.”
The economics of the inflation situation are muddled: The United States has little precedent for the crimped supply chains and padded consumer savings that have emerged from the recession and its aftermath, when large parts of the economy shut down or pulled back temporarily and the federal government sent $5 trillion to people, businesses and local governments to help weather the storm. The economy remains seven million jobs short of its prepandemic total, but employers are struggling to attract workers at the wages they are used to paying.
But the political danger for Mr. Biden, and opportunity for Republicans who have sought to derail his plans, is clear.
The price index that the Federal Reserve uses to track inflation was up nearly 4 percent in May from the previous year, its fastest increase since 2008. Republicans say it is self-evident that more spending would further inflame those increases — a new rationale for a longstanding conservative attack on the vast expansion of government programs that Mr. Biden is proposing.
Nine out of 10 respondents to a new national poll for The New York Times by the online research firm Momentive, which was previously known as SurveyMonkey, say they have noticed prices going up recently. Seven in 10 worry those increases will persist “for an extended period.” Half of respondents say that if the increases linger, they will pull back on household spending to compensate.
Administration officials acknowledge that inflation worries are softening consumer confidence, including in the University of Michigan’s survey of consumer sentiment, even as the economy rebounds from recession with its strongest annual growth rate in decades.
The issue has given Mr. Biden’s opponents their clearest and most consistent message to attack an agenda that remains popular in public opinion polls.
“There’s no question we have serious inflation right now,” Senator Patrick J. Toomey, Republican of Pennsylvania, told CNN’s “State of the Union” on Sunday. “There is a question about how long it lasts. And I’m just worried that the risk is high that this is going to be with us for a while. And the Fed has put it put itself in a position where it’s going to be behind the curve. You combine that with massively excess spending, and it is a recipe for serious problems.”
Some Republicans say a portion of Mr. Biden’s spending plans would not drive up prices — particularly, the bipartisan agreement he and senators are negotiating to invest nearly $600 billion in roads, water pipes, broadband and other physical infrastructure. But the party is unified in criticizing the rest of the president’s proposals in a way that many economists say ignores how they would actually affect the economy.
Some of the proposals would distribute money directly and quickly to American consumers and workers — by raising wages for home health care workers, for example, and continuing an expanded tax credit that effectively functions as a monthly stipend to all but the highest-earning parents. But they would also raise taxes on high earners, and much of the spending would create programs that would take time to find their way into the economy, like paid leave, universal prekindergarten and free community college.
Some conservative economists worry that the relatively small slice of immediate payments would risk further heating an already hot economy, driving up prices. The direct payments in the proposals “would exacerbate pre-existing inflationary pressures, put additional pressure on the Fed to withdrawal monetary policy support earlier than it had planned, and put at risk the longevity of the recovery,” said Michael R. Strain, an economist at the conservative American Enterprise Institute.
Other economists in and outside of the administration say those effects would be swamped by the potential of the spending programs like paid leave to reduce inflationary pressure.
“The economics of these investments strongly belies the Republican critique because these are investments that will yield faster productivity growth, greater labor supply, the expansion of the economy’s supply side — which very clearly dampens inflationary pressures, not exacerbates them,” Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers, said in an interview.
Administration officials pivoted their sales pitch on the president’s agenda last week to emphasize the potential for his plans to reduce prices.
Mr. Biden’s agenda is “about lowering costs for families across the board,” Mike Donilon, a senior adviser at the White House, told reporters. He said that officials believed they were in “a strong position” against Republican attacks on inflation, in part by citing Mr. Zandi’s recent analysis. The president also referred to that analysis last week during a CNN town hall event in Ohio, saying it had found that his proposals would “reduce inflation.”
The Moody’s analysis did not say that; instead, it found that some of Mr. Biden’s spending plans could help relieve price pressures several years from now. It specifically cited proposals to build additional affordable housing units nationwide, which could help hold down rents and housing prices and reduce the cost of prescription drugs.
White House officials concede Mr. Biden overstated the analysis but point to more measured remarks in a speech this month, when he said his plans would “enhance our productivity — raising wages without raising prices.”
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