AMAC Exclusive – By Andrew Abbott
Last week, California’s Democratic Governor Gavin Newsom announced that the state would distribute billions of dollars in “inflation relief” in the form of direct payments to residents by early next year, a plan that was quickly slammed by economists as likely only to worsen inflation. At the same time, Democrats in Washington – most notably President Joe Biden – have continued to push for even more massive government spending as a solution to the inflation crisis. With Republicans poised to retake control of Congress largely thanks to Democrat failures on the economy, it’s clear that inflation should be a top priority. So just what can a potential GOP majority do to alleviate inflationary pressures?
California’s scheme to solve the problem of too much money in circulation by putting even more money in circulation perfectly captures the problem Democrats now find themselves in, and outlines the challenge Republicans will have to solve if they indeed do take power next year. Having asserted for years that more government and more spending is the solution to every problem Americans face, Democrats now have no answers to the predictable negative consequences of massive government expansion and out-of-control spending – namely, the crushing inflation now wreaking havoc on the U.S. economy.
According to Newsom’s office, California’s plan will result in 17.5 million Californians receiving “between $200 and $1,050 by early next year.” Within hours of the announcement, multiple economists criticized the measure as a short-term solution that would have no discernable positive effects and only increase inflation in the medium-long term. As California State University economics professor Hannah Gabriel put it, “If the rebate is spent on gasoline, or other consumable goods that are experiencing high inflation driven by supply costs, then the rebates will likely increase the prices of those goods from increased demand—leading to more inflation.”
The inability of Gavin Newsom and California Democrats to grasp that these are exactly the kind of policies that led to runaway inflation in the first place mirrors the response of Congressional Democrats and President Joe Biden, who have sought to blame everyone but themselves for the crisis. Biden has asserted variously that the primary causes of inflation are “corporate greed,” Putin’s invasion of Ukraine, and the COVID-19 pandemic.
While all of these factors indeed likely have played some role in exacerbating rising inflation, any introductory-level economics student can figure out that the biggest cause of the inflation Americans now face is the unprecedented amount of money printed over the past two years. While some of this money was passed on a bipartisan basis and signed into law by President Trump to stave off the worst of the economic crisis at the height of the pandemic, Democrats rammed through $1.9 trillion of COVID “relief” money and a $1.2 trillion “infrastructure” bill almost entirely on party-line votes when signs were already emerging that inflation would soon become a major concern if they did so.
Democrats’ continued failure to do anything about inflation has many pundits predicting a “red wave” that will see the GOP retaking both the House of Representatives and the Senate. According to a June 26 poll from the Republican State Leadership Committee, 56% of voters cited “High cost of living/inflation, Economy in General, or Unemployment/jobs” as their top issues ahead of the 2022 midterms.
For Republicans, winning back control is only half the battle. Actually solving the inflation crisis will require implementing policies that Democrats have railed against for decades and, perhaps even more challengingly, convincing Joe Biden to go along with them.
Put simply, Republicans must embrace supply-side economics, or the belief that increasing the supply of goods on the market will bring down their price and expand the economy. This is done by decreasing taxes and removing business regulations, thereby incentivizing growth.
Biden, along with other Democrats, have been implementing the opposite approach. Their Keynesian (a.k.a. demand-side) economic approach has been to increase demand via heavy government spending and subsidies. This caused demand for goods to skyrocket. However, with the country still emerging from the pandemic, supply was utterly unprepared to meet demand. This led to “too many dollars chasing too few goods” and inflation skyrocketing. These principles of economics are the most basic and fundamental, yet almost no prominent economist employed by the federal government predicted the inflation spike.
While the most effective way to reduce inflation is for the Fed to increase interest rates, there are still several supply-side solutions for a potential Republican-led Congress to champion. While the GOP can’t on its own end the war in Ukraine or solve supply chain issues, they can focus their efforts on alleviating pressure on other areas of the economy, namely by cutting government spending and restricting the amount of money in circulation.
A solid first step toward this goal would be eliminating any remaining COVID-era government spending programs. This would curb the excess monetary supply by decreasing federal spending obligations. It would also incentivize unemployed Americans to rejoin the workforce, thus alleviating America’s critical labor shortage. Additionally, they can pledge not to advance any more of Biden’s spending programs, which would only worsen the inflation crisis. Even liberal economists concede that inflation rates would be far worse if the President’s signature $3.5 trillion “Build Back Better” bill were passed – something Democrats still haven’t given up on.
To encourage growth, Republicans can also reduce tax rates on industries facing critical supply shortages, eliminate onerous and unnecessary business regulations, and promote domestic oil and gas drilling. Though none of these solutions would eliminate inflation all on its own, together they would send a clear signal to the American people that they’re doing everything in their power to end the crisis, setting the stage for a much-needed change of course.
Andrew Abbott is the pen name of a writer and public affairs consultant with over a decade of experience in DC at the intersection of politics and culture.