Biden 'inflation tax' erases gains in workers' pay, as Democrats' own economists admit fears
From Joe Manchin to Obama's top economic adviser, warnings grow that everyday workers are falling further behind after gains under Trump.
One promise from the U.S. economy emerging from the pandemic was that American workers would benefit from a tight labor pool driving up salary and pay. And while that happened, the benefits have all been erased by the sudden surge of inflation on President Biden's watch.
That means workers aren't running in place, they are actually falling behind as rising prices force middle- and working-class families to make hard choices, like whether to fill the gas tank or the refrigerator.
Inflation topped out at 5.4% in July, the government reported Wednesday, the third straight month above 5%. When President Trump left office in January, inflation was in check at just 1.4%.
Economists fear the multitrillion dollar spending that Biden and the Democrats launched in Washington — $4.5 trillion more was added by the Senate in a 24-hour period on Tuesday — is fueling the disadvantage.
"I support heating the economy one log at a time, not throwing them all on the fire at once," Harvard economist Jason Furhman, one of President Obama's top economic advisers, tweeted on Wednesday. "To the degree the [latter] leads to prices rising more than wages it won't leave workers better off."
Furhman should know. He created an analysis two weeks ago showing the wage-to-price ratio fell in the 2nd quarter of 2021, meaning workers lost buying power.
"Paychecks aren't going as far as they used to," he wrote. "Price increases have outpaced compensation growth in 2021, causing real compensation to fall. In June 2021, real compensation was 0.7 percent below December 2019 levels, and 2 percent below its pre-pandemic trend."
The debate has some partisan shapes. Some Democrats argue the inflation surge is temporary and can't all be blamed on Biden. Conservatives see the closure of a U.S. pipeline, paying workers to stay home with extra jobless benefits, and trillions in new federal deficit spending launched since Biden's inauguration as the perfect storm.
What isn't in dispute is that Biden was forewarned, by a Democrat no less.
Former Clinton Treasury Secretary Lawrence Summers issued multiple warnings in publications like the Washington Post that the Biden/Democratic agenda risked a punishing inflation surge that would hurt the very working- and middle-class voters who had just put them in office.
"The inflation risk is real," Summers wrote back in May, battling with fellow liberals who cast aside his first red flags.
Summers said he saw signs that some inflationary pressures were longer term and might force the Federal Reserve to raise interest rates.
"Not everything we are seeing is likely to be temporary," Summers wrote in May. "A variety of factors suggests that inflation may yet accelerate — including further price pressures as demand growth outstrips supply growth; rising materials costs and diminished inventories; higher home prices that have so far not been reflected at all in official price indexes; and the impact of inflation expectations on purchasing behavior."
The liberal agenda, he noted, had some downside if applied too quickly. "Higher minimum wages, strengthened unions, increased employee benefits and strengthened regulation are all desirable, but they, too, all push up business costs and prices," he said.
Steve Moore, a former top economic adviser to President Trump, said Wednesday the $1.2 trillion infrastructure bill and $3.5 trillion spending plan that Senate Democrats passed this week threaten to pour kerosene on a raging fire.
The new spending contains "fiscal and policy atrocities" that will cause the national debt to "triple from 100% of GDP today to 300% of GDP by 2050 — which are banana republic levels of debt," Moore warned.
Moore found an unlikely ally when Democratic Sen. Joe Manchin of West Virginia issued a similar warning Wednesday about the spending.
"I have serious concerns about the grave consequences facing West Virginians and every American family if Congress decides to spend another $3.5 trillion," Manchin said. "Over the last year Congress has injected more than $5 trillion of stimulus into the American economy — more than any time since World War II — to respond to the pandemic.
"The challenge we now face is different: millions of jobs remain unfilled across the country and rising inflation rates are now an unavoidable tax on the wages and income of every American," he said.
Mayra Joli, an immigration lawyer now running for mayor of Miami, said the inflation is visibly impacting families in need, and Washington is completely disconnected from that reality.
"I can see it first-hand with the families that I have to help navigate the legal immigration system," she told Just the News recently, noting rising prices are forcing tough decisions at the gas station and grocery store. "Many people, even within my own family, cannot make it because of this skyrocketing inflation, and we're not seeing any signs of it ending."
The Facts Inside Our Reporter's Notebook
- Inflation topped out at 5.4% in July
- Trump left office in January, inflation was in check at just 1.4%
- Harvard economist Jason Furhman tweeted
- Analysis showing wage-to-price ratio fell in 2nd quarter of 2021
- Lawrence Summers issued multiple warnings
- Summers wrote in May
- Joe Manchin of West Virginia issued similar warning Wednesday