“After years of hypocrisy and bungled forecasts of doom, the budget deficit no longer provokes panic,” economist Max Sawicky recently wrote in In These Times. “The elites need a new bogeyman, otherwise Congress might actually spend us into happiness. Now, the new monster in the closet is Inflation.” With all eyes on President Joe Biden’s Build Back Better plan, which would entail massive and sorely needed social investments in education, healthcare, childcare, clean energy, and more, a familiar chorus of budgetary hand wringers has emerged to argue that such social spending is the cause of increased inflation. As Sawicky argues, that’s nonsense.
In this segment of The Marc Steiner Show, now available in video form, Marc and Sawicky break down the current levels of inflation and discuss the political motivations behind the moral panic over inflation, which is essentially a new form of old-school deficit hawkery. Max Sawicky is an economist, writer, and senior research fellow at the Center for Economic and Policy Research; he has worked at the Advisory Commission on Intergovernmental Relations, the Economic Policy Institute, and the Government Accountability Office.
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Pre-Production/Studio/Post-Production: Stephen Frank, Dwayne Gladden
Marc Steiner: Welcome to The Marc Steiner Show here on The Real News. I’m Marc Steiner and it’s great to have you all with us. Why is everyone getting so hyped up about this word inflation? Many pundits and politicians clearly are. They’re just freaking out over government spending to get our country back on its feet, saying Build Back Better and the infrastructure bill which are hanging in the balance, or, as our guest wrote in the article for In These Times, he said, “Calling the budget bill inflationary is like criticizing a fire company for using water instead of gasoline.” Max Sawicky is our guest. He was senior research fellow at the Center for Economic and Policy Research. He’s worked at the Economic Policy Institute and the Government Accountability Office and has written numerous articles for progressive outlets across the country. And Max, welcome. Good to have you with us.
Max Sawicky:Thank you.
Marc Steiner: So Max, I really want to walk through some definitions here just for the sake of folks watching and listening. So when we look at inflation, inflation is always seen as this horrendous thing where we cannot afford the things we want to buy, and that’s a word we keep hearing over and over again. So talk about what inflation really is first.
Max Sawicky: Well, the standard definition is a continuous increase in the price level, which means prices more or less across the board, not a particular sector. It’s possible that, of course, the average gets pulled up because a particular narrow sector price increases. And that’s what’s happened to an important extent because a lot of the increase in the overall average was due to the increase in oil and gas prices. That’s been attenuated somewhat. But since I wrote that article, actually, the numbers are a little bit worse. I mean, inflation has gone up a bit more.
And so it is not an irrelevant concern. The reason it’s been invoked is totally political. It’s because the screaming about deficits has lost its energy in the public mind because there’s been just so much nonsense about it. So instead of trying to prevent a spending bill by yelling about deficits, which Republicans are especially ill situated to do, they’re now invoking this other thing: inflation.
Marc Steiner: So let’s talk about what it does and doesn’t have to do with this. I mean, whether you watch CNN and some of the major news outlets or whether you’re hearing from Manchin or Sinema and some of the what people call centrist Democrats in Congress, they’re all saying that if this multi-trillion dollar package is passed for Build Back Better and the infrastructure it will be the cause of inflation. Let’s start there.
Max Sawicky: Well, there’s really two separate issues here. One is the extent of inflation and whether that’s a problem. And the other is the impact on inflation from the budget. Now, the infrastructure bill was already passed. That’s already in the can, so. And it’s funny, because that was almost entirely a net spending increase. And there were no complaints from Manchin et cetera when that passed. Now, we have the Build Back Better which is larger but is almost completely offset with tax increases. And which, in principle, shouldn’t affect inflation at all. I mean zero. So invoking inflation now with respect to the Build Back Better is especially illogical from any basic economic standpoint.
Marc Steiner: So, well, let’s just answer that and then push that a bit further. I mean, so if you, on the other side of the argument, how do you convince people that Build Back Better is actually anti-inflationary and not inflationary? I mean, because I think that’s part of the problem, is that the message clearly is not getting through.
Max Sawicky: Well, I don’t know what to say about messaging. It’s very straightforward that since Build Back Better is almost completely offset by tax increases and other measures to increase revenue, especially IRS money to improve enforcement of the tax code, there’s really no argument that Build Back Better can make inflation any worse than it is and than it’s going to be. If there was any impact, it’s from bills that have already been enacted and whose spending has already gone out the door. So there’s nothing, there’s no help for that, except measures that would contract the economy across the board which could easily end up being worse than the problem.
Marc Steiner: What do you mean?
Max Sawicky: I mean to my way of thinking, right now the latest numbers are around 4% annual. 4% is not something to get excited about especially when you take away the more volatile components, food and fuel, and get to what economists call core inflation. Which, again, is a little bit higher than it was. But it’s not really grounds for panic. And there’s really no argument at all to hold back Build Back Better for the sake of inflation because the two are completely unrelated. I wouldn’t try to make an argument that Build Back Better reduces inflation. I think that gets very far into the weeds and politically doesn’t really pan out. But it’s very simple to show that because the tax is almost completely offset to spending, there’s really no case for Build Back Better having any adverse effect on inflation.
Marc Steiner: And you think it could have the opposite effect.
Max Sawicky: It’s possible, but I wouldn’t try to make that argument. How to deal with inflation is a separate issue. And it’s something that is mostly the province of the Fed. If we’re talking about policies aimed at particular sectors of the economy that the White House might try to engage in, and that gets very far into the weeds. And it’s also doubtful that the Republicans would let them do anything about it so it’s kind of a non-starter, I would say at this point. The main danger is the Fed panicking and reversing the recovery that we are in and that has been continuing. And I don’t think there’s too much danger of that. But the inflation scare is amping up the political pressure on them to do things we’d rather not see them do.
Marc Steiner: So let me talk about a bit of a contradiction here. People hear different messaging. And I’m talking about something that came out of your article and in something that I just read out of Bloomberg about this. And in Bloomberg, they talk about how hourly earnings broadly kept up with the first rising cost of living. And in some low paying industries like leisure and hospitality, they comfortably outpaced it. And basically saying the workers’ wages were going up as well. But you quote in here, “Median housing rents since 2010 have gone up by 36%, cost of family health insurance by 47%, and while wages only went up 11%.” So I know that you wrote about a long-term, over the last 12 years, 11 years. They were talking about immediately since COVID and what happened with costs. So within that, what is the reality? I mean, can you parse that out for us?
Max Sawicky: Well, the thing I thought was worth pointing out to you is that the prices of very important things like housing and healthcare have gone up precipitously for quite some time. And there wasn’t anywhere near the political reaction to it that we’ve seen from much shorter term increases in the prices of things like gasoline and milk. Now, of course, ordinary folks need to buy gasoline and milk constantly. But there shouldn’t be much doubt that the longer-term adverse changes in something like healthcare have a much deeper impact on daily life than a transitory increase in the price of milk or gas.
And by the way, when we see such and such a price went up the news media’s incentive is to dramatize outliers. So you’ll see signs about gas costing $4 and something a gallon. That’s in California. Where I live in Virginia it’s under $4. Well under $4. And of course the news media’s incentive is not to tell you the averages because that’s less exciting. So they’re going to find the biggest extreme case they can and make a big deal about that. And that, of course, affects the political climate but it’s not a faithful reflection of the reality of the data.
Marc Steiner: So what is then the same response when people like Manchin and others kind of equate inflation with out of control, as they would put it, government spending? So scale back all these programs because that’s what’s going to cause inflation. Because most people hear that and they go, oh, that’s right! And this is what’s going to happen.
Max Sawicky: Well, they hear that. They see what happened to the price of milk and gas. And they gloss over what’s been happening for a decade or more to healthcare. And they say, well, there must be some connection to this legislation. But there isn’t any connection. I was sort of amazed by Manchin because this is the first time I ever remember him invoking inflation. What they’re looking for is just grasping for another reason to throw sand in the gears of this legislation. They have an excuse to not vote for it even though the benefits for his own constituents are really very starkly documented.
Marc Steiner: So when you’re trying to reach a large mass of people about this issue and people see it, as we’ve talked about earlier, as you kind of pointed to in your article, as a monster looming if these bills are passed. I know that your job, you’re an economist, and you’re not a person who’s out there trying to figure out what the message should be to get people to understand this. But to break this down in simple terms for people to really get and understand, because most people don’t think about what inflation really means. That usually means for them, it means that more money’s coming out of your pocket to buy stuff that you need. And that these bills are government spending, which means my taxes are going up.
If anything that I’ve seen in this battle around these bills and about what next steps should be made, what next steps should be, is that they’ve done a really inadequate job of explaining what all this means and how this fits together.
Max Sawicky: Well, I would start by pointing to the largely untold story of this recovery. There has been significant growth in income and wages now. That’s averages. There’s always exceptions. And there’s always somebody that’s going to put a comment on the web saying, well, my wages didn’t go up, God damn it. And I got to pay more for this and that. Well, what’s true on average is not going to be true for everybody by a long shot. But the fact is that the programs of the administration and the anti-pandemic measures of it last year have had a very significant positive effect on the income of average, of ordinary folks. So you have to put that against these increases in some prices that, as far as we know, are transitory at the moment. So that’s point one.
Point two, again, the Build Back Better is going to further increase income significantly. And the impact on inflation is arguably nil. So there’s really no reason to invoke inflation as any kind of obstacle to continuing the progress of the recovery which will be augmented by Build Back Better. I mean, Build Back Better might not reduce inflation but it is going to increase income. And as the economy expands there is upward pressure on the price level. But the point is that the increase on the income side will outstrip any increase in the price level at least for the immediate future. There’s no case that the price level is just going to continue to blow up indefinitely. That’s what inflation really means. It’s a continuous increase. It’s not a one shot increase. There’s no argument that it’s going to just keep going up, and up, and up. That would be bad. But there’s no reason to believe that’s going to happen.
In fact, as I mentioned in the article, and there’s some additional evidence now, financial markets don’t believe there’s going to be inflation. The people that are paid very well to anticipate this are willing to pay about one and a half percent to buy a 10-year treasury bond, which is one of the most secure investments around. Now, with a return of one and a half percent and an inflation rate of 4% basically you’re paying the government, if you buy that bond, to lend you money. So looking at the financial markets there’s another important reason I would say to discount any anticipations of continuous significant inflation. Again, there’s been an uptick and that’s worth some attention. But it’s not by any means intolerable. And secondly, it has nothing at all to do in a negative way with the Build Back Better legislation.
Marc Steiner: So all the stuff that we’re seeing from Manchin and others is… I mean, if these people who are in Congress, in the Senate, if they have been working on and voting on economic issues for all these years, how could they get it so wrong about what inflation really means and what causes it?
Max Sawicky: Well, it’s not a question of knowledge. It’s a question of political motive. They want to deny another victory to Biden. And the Build Back Better is the thing that’s looming now. And they’re just picking up whatever rock they can find to throw at it. And it happens to be inflation because there has been some slight increase in the rate that I mentioned. Which again is not something to ignore, but the connection between that and the pending legislation is simply not, does not exist. There is none.
Marc Steiner: And that, to me, is the critical point. And I deeply appreciate your writing and how you put that out there for people to really begin to understand that these bills that are before Congress at the moment, which have been vastly watered down, would not be the cause of inflation, are not the cause of your paying more money at the gas pumps, are not the cause of your paying more money for milk, or the cost of your healthcare rising.
Max Sawicky: Well, the price of gas depends on the machinations of an international cartel which is dominated by our friends in Saudi Arabia and Russia. So the connection between that and our gas price is more relevant than anything Biden has done. By the way, there’s been increases in inflation in European countries, which didn’t have any of Biden’s policies.
Marc Steiner: So one last thought for you, Max. If you were called upon to come in and create the policy that would work, what would it be?
Max Sawicky: To deal with inflation?
Marc Steiner: Yeah. For all this. Yeah.
Max Sawicky: Off the top of my head, I really couldn’t tell you right now because it would require focusing on particular sectors. And what I certainly wouldn’t do is hold back any of this legislation. In fact, we could go forward even further because the economy still has significant slack, by which I mean people that would be willing to work if jobs were available and paid competitive wages. So right now I would rather see more Build Back Better rather than less. And I don’t have a fix for the sectoral increases in prices in my back pocket. So that’s the most I can tell you right now.
Marc Steiner: That’s fine. We’ll come back if [inaudible] long conversation. Max Sawicky, thank you so much for your writing and being available to us here at The Real News. And have a wonderful day and thanks so much for being with us.
Max Sawicky: Thank you.
Marc Steiner: Thank you all for joining us today. And please, let me know what you think about what you’ve heard today, what you’d like us to cover. Just write to me at firstname.lastname@example.org and I promise I’ll get right back to you. And if you’ve not joined us yet, please go to www.TheRealNews.com/support. Become a monthly donor and become part of the future with us. So for Stephen Frank and the crew here at The Real News, I’m Marc Steiner. Stay involved, keep listening, and take care.