Rep. Alexandria Ocasio-Cortez (D-NY) has a degree in economics from Boston University, yet she still misunderstands the most basic of economic principles: supply and demand.
According to Ocasio-Cortez, the solution to across-the-board, runaway inflation is massive government spending.
Per a recent tweet from AOC, “If you are worried about inflation, it’s important to understand why it’s happening: supply chain, labor, and healthcare complications. We can address these issues by investing in infrastructure, wages, healthcare & benefits. AKA signing BBB/BIF into law as absolute, bare minimum.”
AOC would like for you to believe that all the economic problems that are stifling the U.S. economy can be easily solved with President Biden’s Build Back Better reconciliation bill and the bipartisan infrastructure bill.
However, that is not the case.
The cure for inflation is not government spending because when the government spends trillions of dollars it does not have, it resorts to printing money via the Federal Reserve.
And when the Federal Reserve prints money to cover new government spending, the value of each dollar in circulation decreases. That is supply and demand in a nutshell.
In other words, when more dollars are chasing goods and services, the price of said goods and services goes up. Hence, inflation.
On the other hand, when the Federal Reserve raises interest rates, which increases the value of existing dollars, the prices of goods and services remains stable.
For several years, since the 2008 economic downturn to be precise, the Federal Reserve has maintained ultra-low interest rates, which spurred massive government spending because the cost of borrowing for the government was close to $0.
Since the pandemic alone, the federal government has spent close to $5 trillion on so-called COVID-19 relief efforts. We are paying the price for this exorbitant spending with our current case of rampant inflation.
AOC also cites supply chain and labor problems as causes of inflation. That may be true, but what is causing those problems in the first place? Big government would be the culprit.
Consider. The supply chain is in crisis because of government-mandated shutdowns and the ensuing economic disruptions that the shutdowns have wrought.
The supply chain disaster has also been compounded by public policies pushed by none other than AOC.
For instance, AOC’s unwavering support for extended federal unemployment benefits, stimulus checks, and other ludicrous policies, such as a universal basic income, surely kept workers on the sidelines for months.
AOC’s favored policies of paying people not to work have also contributed to the massive labor shortage that is causing havoc throughout the nation. It turns out that when you pay people to stay home and not work for months on end, it is difficult to entice them back into the workforce promptly. AOC’s advocacy for vaccine mandates is also a burden on a resurgent labor market.
As of today, there are 11 million unfilled jobs in the United States. Paradoxically, the most recent job reports have fallen far below expectations. At the same time, the labor force participation rate remains the lowest in years. The solution is not more government benefits, as AOC believes.
Lastly, AOC claims that Biden’s Build Back Better reconciliation bill will singlehandedly address the inflation crisis. If passed, it would make things much worse.
One of the main drivers of our current inflation episode is the skyrocketing cost of energy. Not that long ago, the United States achieved energy independence. Gas prices were low. As was the cost to heat one’s home.
Yet, under AOC’s Green New Deal energy agenda, which is a large part of the Build Back Better bill, the cost of energy is through the roof. If Build Back Better passes, you can bet your bottom dollar that the cost of energy will trend skyward. Once again, that would worsen the inflation crisis because energy is the lifeblood of the U.S. economy.
One would think that after the shellacking that took place on November 2, in which Democrats were trounced across the country, those on the far left would step back and reassess their policy positions. Yet, that is not happening.
In fact, the exact opposite is taking place. They are doubling-down.
On November 2, the American people repudiated big government as well as the Build Back Better agenda.
AOC can supply tweets and talking points. But there is little demand among the Americans people for what she is selling.
Chris Talgo (ctalgo@heartland.org)is senior editor at The Heartland Institute.
Join the conversation as a VIP Member