The most important thing for any president is to make a majority of voters feel good. One crucial way to do that is to create a climate of equitable prosperity. ("It's the economy, stupid!")
The stars have aligned for Joe Biden. He has played the hand dealt him well. He has largely subdued the pandemic by focusing, successfully, on getting around 120 million fully vaccinated.
The economy duly began to blossom. Humanitarian aid went forth. Yes, the Ebenezer Scrooge class gripes about throwing victuals at the Bob Cratchits and Tiny Tims. Still, most Americans, who lean toward kindness, approve.
So what's next?
Biden's grandiose "Sweet Charity" (Hey big spender… spend a little time with me) tax-and-spend plans will grind to a halt. No surprise. A month ago here I observed that Biden's phony "infrastructure" and soak-the-rich tax plans were for show, virtue signaling to pacify the Democratic Party's lunatic fringe by championing its fairy tale economic agenda.
Meanwhile, Biden can quietly count on sensible pragmatic Democrats such as Sen. Joe Manchin, D.-W.Va., and Sen. Kyrsten Sinema, D-Ariz., to stop the most pernicious of the tax increases. Bravo to them! Newsmax readers benefitted from this prescience well before the Establishment Media caught up.
Now … Ben White reports in Politico:
"Interviews with over a dozen executives, lobbyists and business group officials turned up a similar theme: While Democrats might be able to push through a slightly higher top corporate rate, when it comes to higher taxes on the rich, on capital gains, on financial transactions or private equity profits, forget it. It's not happening.
"'With business-minded and more centrist members on the Democratic side in both the House and Senate, they look at the scope and breadth of these tax increases for the infrastructure and families plans and they just find them jaw-dropping,' said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. 'You are talking about tax hikes that could hit millions of small businesses across the country and taxes that could kill investment. From a raw political perspective, it would be a really funky decision for these moderates to say they would be willing to put this much of a wet blanket on an economy that is really poised to take off.'"
Yes, we (contingently) can heave a sigh of relief that the U.S. Congress will not be saddling the American economy with killer tax hikes. However, Biden is at risk. As Hall of Famer "Wee Willie" Keeler famously said, "Hit 'em where they ain't." President Biden's popularity is at risk from out of left field.
I'm not an inflation monger. I did not subscribe to the warnings from a number of prestige conservatives contained in a 2010 open letter to Chairman Ben Bernanke warning that further quantitative easing could awaken the inflation kraken. Until fairly recently I was more concerned with the threat of a rising dollar and attendant deflation.
Then came April's report of a dramatic uptick in CPI, ex food and energy (the one that counts). Soon thereafter, Prof. Steve Hanke, Professor of Applied Economics at Johns Hopkins University and member of the Official Monetary and Financial Institutions Advisory Board, one of a small handful of truly great living monetary economists followed up the Bureau of Labor Statistics inflation report with an article for OMFIF stating:
"To get a handle on how the economy works and where it's going, one needs a model of national income determination. A monetary approach to this is what counts. Indeed, in a fundamental sense, it's a theory of everything. The close relationship between the growth rate of the money supply and nominal GDP is unambiguous and overwhelming.
"In response to the Covid-19 pandemic, the growth rate of M4 skyrocketed. By the end of 2020, it was growing at 28.9%, the highest year‐end rate since 1943. Today, it is still surging at 24%. That dramatically exceeds the golden growth rate, a growth rate that would be consistent with the Fed's inflation target.
"Armed with those numbers and the monetarist model for national income determination, it is obvious that April's year‐over‐year consumer price index inflation rate of 4.2% is simply a harbinger of more to come. This haunting spectre could spell the end of President Joe Biden's triumphal march."
Inflation was a factor in torpedoing the presidencies of Nixon, Ford and Carter. Taming, and keeping inflation tamed, was a recipe for sizzling growth and handy re-election for Reagan and Clinton.
There may still be time for President Biden to focus emphatically and heroically on monetary policy, ratchet down the coming inflation, keep the economy from going over the cliff and allow the equitable prosperity that would ensue to let him build back better.
Will he? Or will Joe Biden suffer the political fate of Jimmy Carter?
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.
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