Chairman Smith

I'm looking at this article, dated 15 June 2023: "Chairman Smith: Biden’s Failed Economic Policies Forcing Fed to Choose Between Chronic Inflation or Risk of Recession"

Chairman Smith is Jason Smith, Chair of the House Ways and Means Committee. The Committee "shapes fiscal legislation". Here are the opening sentences of the article:

WASHINGTON, D.C. – Despite prices continuing to rise and inflation having increased 15.5 percent since President Biden took office, the Federal Reserve has been backed into a corner by the Biden Administration’s failed economic policies and forced to choose between pausing interest rate hikes or moving forward with another increase, which would further squeeze our weakened economy and risk recession.

Chairman Smith released the following statement in response to the Federal Reserve’s decision to pause interest rate hikes:

“President Biden’s reckless actions have put the Federal Reserve between a rock and hard place. The Fed is having to choose between hiking interest rates to combat the inflation crisis caused by reckless Democrat spending, risking the health of our overall economy, or pausing those rate hikes and hoping prices do not continue to spiral out of control...

That last paragraph pretty well describes what people seem to feel about the inflation of recent years: caused by reckless Democrat spending. Even Democrats feel that way, if we judge by the way the Dems on TV have failed to offer an equally strong alternative cause of what is commonly called "the Biden inflation".

I want to point out that Chairman Smith's phrase "caused by reckless Democrat spending" is an assumption. It seems strong because people accept that explanation. But the Chairman sticks the phrase into that sentence with no examination of relevant facts.

I want to point out also that failing to examine the relevant facts very often leads to misunderstanding the cause of the problem being examined. And misunderstanding the cause of the problem very often leads to solutions that do not work. 

Federal deficits are a case in point. Everyone thinks the federal deficits are caused by excessive government spending, and that this spending and those deficits are the reason our economy is in such bad shape. But federal spending and deficits are the result of our long economic decline, not the cause of it.

We have been struggling to overcome the federal deficits now for 50 years or more, with very little success. The reason for our lack of success is that we misunderstand the problem. It is not federal debt that slows the economy, but excessive private debt. Yet not once in 50 years have we tried to reduce private debt. Oh, sure, Biden has tried to forgive student debt, while Congress and the Court have undermined his efforts. But Biden's efforts address such a small part of private debt that even if he succeeded there would be no noticeable improvement in our economy. Anyway, Biden's plan for debt forgiveness is offered as a way to help people out, not as a way to improve the economy by reducing excessive private debt. Biden misses the point entirely.

Biden's plan for debt forgiveness is a way to help people cope with a bad economy. It isn't a plan to fix the economy. This tells me that Biden and his advisers misunderstand the economic problem. They fail to see that it is not government debt, but private debt that holds our economy down.

It was the same with Bill Clinton. Clinton spent the 1990s reducing federal deficits and finally, it is said, balanced the budget. Household debt picked up the slack, increasing more rapidly in the 1990s than before, and more rapidly yet in the 2000s -- until the 2008 financial crisis brought that all to a sudden halt.

That sudden halt was evidence of misunderstanding.

Before we decide to blame Democrats in general, along with Biden and Clinton, let us pause to remember that Bill Clinton and Newt Gingrich worked together to come up with the plan to balance the federal budget. The Democrats, under Clinton, adopted the Republican strategy. Unfortunately, the Republican strategy is based on a misunderstanding of the economic problem.

Democrats don't have a clue about the economy. Democratic policy is always and everywhere a way to help people cope with a bad economy. Coping is not the same as fixing.

Republicans do have a clue about the economy. They seem to want to return to the policies of the 1800s. Unfortunately, those policies no longer work. The economy changes. The economy evolves. Economic thought must evolve with it, or it is Fall-of-Rome for us.

This little piggy has bad policy.
That little piggy has none.