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Democrats lack the tools they need to fight inflation

The author is a senior fellow at Brown University and a global chief economist at Kroll

Democrats in America have a problem. They are facing mid-term elections in November with inflation exceeding wage growth, which means living standards are declining. But there is very little any president or political party can do about it.

Inflation is impossible for voters to miss, with consumer prices rising by 9.1% in June last year. According to a Morning Consult surveyMore than half of voters blame the policies of President Joe Biden, who has made tackling inflation his own Top economic priority.

Other Morning Consult survey Shows that a larger percentage of voters think the president has a lot of control over inflation; More than the Federal Reserve (whose official mandate includes price stability), Congress or large corporations.

No wonder the president has declared inflation “The disgrace of our existenceThere are some fiscal policies that the government can implement to cool inflation, but they will only cause marginal prices – more of a purple signal than an actual impact.

The claim that Biden’s fiscal incentive for 2021 has overheated the economy and raised prices is incorrect. A study by the San Francisco Fed found that about half of the inflationary rise came from supply factors: supply chain problems, cobid locks in China, and Russia’s war on Ukraine. Only about a third came from increased demand. Even if the incentive provoked inflation, it is canceled this year. The US is passing the The second largest fiscal reduction In its history, what has cooled demand.

But with US fuel pump prices Over 40 percent In the last year and food prices More than 10 percent, Voters have not yet noticed. Energy prices are about responsible Half of the rise in US inflation, And yet no president had the tools to overthrow them until election day. The White House in April Message that It will release over a million barrels of oil a day from the strategic oil reserves that have stabilized for some time. But the International Energy Agency Estimates Which replaces only about a third of the supplies lost in the Ukraine war.

The administration also calls on other manufacturers to increase supply. Biden has sent senior officials to criticize Venezuelan leader Nicolas Maduro, who is reportedly considering easing sanctions on the country in exchange for oil. Biden then traveled to Saudi Arabia for Discussions With Regent Muhammad bin Salman, the daily ruler of the kingdom. He left without a public Saudi commitment to increase production.

So far, the world has not signed the proposed price ceiling of the US administration on Russian oil. While this may help reduce oil prices, it will no doubt be leaking. India and China may buy oil at prices just above the ceiling, and Opec + will resent the price cuts.

More oil should lower prices. U.S. producers are beginning to step up drilling, but Democrats’ desire to increase alternative energy sources is limiting incentives to invest in carbon assets. One problem with all of these efforts is that oil is being sold in a global market. That oil prices will be higher for years, not months.Also, many refineries were knocked down when demand fell during the Cubid lockdown.The lack of capacity means that fuel prices will remain high even when oil prices fall.

Congress can vote to raise income tax, beat demand, but it’s not a political start. Instead, it is considering suspending the federal tax on fuel – it’s about 18 cents a gallon, not much compared to the average gallon price of about $ 4.50. Drivers will not receive all the benefits, as energy companies pay part of the tax. Reducing fuel taxes also produces higher demandPushes prices up.

Biden waived environmental rules, which made it possible to add ethanol to gasoline during the summer driving season. But only 2,300 gas stations across the country carry this mix. Agricultural analysts fear that the increased demand for corn for ethanol production could push farmers to shift wheat production, and stimulate food inflation.

Beyond oil and gas, the Biden administration wants to crack down on price reductions by companies in uncompetitive industries. White House analysis, For example, it has been found that a high concentration in the meat packaging industry raises prices. A referendum This year has shown that more than half of voters blame inflation for the lack of competition between companies, but about Two-thirds of economists disagree. Market concentration has increased in a number of industries in the US over the years without triggering an acceleration in inflation.

Biden can cut rates. According to a Research by the Peterson InstituteThe removal of Trump’s $ 360 billion tariffs on Chinese imports could lower consumer price inflation by one percentage point. It may not be worth giving up leverage to China in trade negotiations. A wider point of 2 percent A reduction equivalent to the tariff Can reduce the consumer price index by 1.3 percentage points. Still, the effect will be mainly on goods, not where inflation hits hardest – fuel, food and housing.

That makes Biden’s first point his own Inflation Prevention Program The most effective move for Democrats: Leave the Fed in the fight to fight inflation. This will take time and there is a risk that the Fed will provoke a vote-killing recession. However, if reducing inflation is a priority, it is guaranteed to work.

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