Will Biden Keep Inflation from Destroying Capitalism?

As I recently wrote here, the greatest threat to American prosperity, thus to the success of the Biden presidency, will be a resurgence of inflation.

Biden, as a junior U.S. senator, saw up close the economic and political carnage which inflation wrought in the 1970s. He watched President Carter stumble cluelessly about inflation’s cause and cure.

Carter, in a national address, on October 24, 1978: “Inflation is obviously a serious problem. What is the solution? I do not have all the answers. Nobody does. Perhaps there is no complete and adequate answer.”

Balderdash. Top economists like Friedman and Mundell knew precisely what causes inflation. We then knew and still know the solution.

Biden surely will remember how catastrophic inflation was. And Biden had a front row seat on how Reagan, through Fed Chairman Paul Volcker, ended inflation. Ending inflation along with the deep income tax rate cuts for which Sen. Biden voted produced a massive wave of equitable prosperity. And a landslide reelection for Reagan.

That said, most of Biden’s White House economic policy team were kids when all that happened. The distinguished Brian Deese, director of the National Economic Council, born in 1978, was age 2 at the tail end of Carter’s floundering, in grammar school when President Reagan and Chairman Volcker put an end to inflation.

The eminent Cecilia Rouse, chairing the White House Council of Economic Advisers, born in 1963, was a high school student at the height of inflation’s virulence, a collegian when Reagan and Volcker slew the inflation kraken.

Next door, at Treasury, find the distinguished Janet Yellen. She did a great job chairing the Fed. Her counsel is likely to be sage. That said, she did not have to confront an inflationary burst. And Treasury leans fiscal policy.

Monetary policy direction originates at the White House. With no disrespect for their formidable intellects and extraordinary record of public service, both senior White House economic advisers bear the scars of the intramural battles between the Democratic party’s free-market Clinton neoliberals and the good-of-the-whole Obama social democrats (very different from “Democratic Socialists”). Both are good capitalists yet neither possess battle scars from fighting inflation.

Mr. President, let your street smarts trump your advisers’ book smarts. As Yogi Berra, America’s own Yoda, once said, “In theory there is no difference between theory and practice but in practice there is.” No matter what your advisers advise you will benefit most by telling Fed Chair Powell to stop the money printer go brrr.

Biden will remember how, during the ’80’s economic malaise, Jack Kemp got the tax-rate-cut ball rolling. Then credit properly belongs to Democratic Congressman Dan Rostenkowski, D-Ill., for cutting the top rate from 70% to 50%, Sen. Joe Biden voting aye. Then credit where due, Rep. Dick Gephardt, D-Mo., and Sen. Bill Bradley, D-N.J., cut the top tax rate to 28% by a 97-3 margin in the US Senate, Sen. Joe Biden voting aye.

And then, with inflation quelled through good monetary policy, the ensuing economic rising tide lifted all the boats in a big way. Popular approval of Reagan soared.

I am a Republican who sincerely wishes Biden success in fostering equitable prosperity. Despite being vocally sideways with him on his tax hikes I have publicly applauded Biden’s signature theme of equity.

Mr. President? To help guide you here’s something center left totem (and conservative bête noir) John Maynard Keynes wrote in his breakthrough classic, The Economic Consequences of the Peace:

“Lenin is said to have declared that the best way to destroy the Capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. …

“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

When inflation again, too soon, presents as a clear and present danger to your political future and, indeed, to America’s future, it will fall to you, President Biden, and to you alone, to direct your Fed chair to take the necessary steps to quell it. As did President Reagan. That moment will not be about the merry feuding between your intra party factions. It will be about fostering confidence in equity and preventing the destruction of the Capitalist system.

Godspeed, Mr. President.

Ralph Benko, co-author of "The Capitalist Manifesto" and chairman and co-founder of "The Capitalist League," is the founder of The Prosperity Caucus and is an original Kemp-era member of the Supply Side revolution that propelled the Dow from 814 to its current heights and world GDP from $11T to $88T. Read Ralph Benko's reports — More Here.