Should the businesses that lobbied for the $1.9 trillion additional spending in COVID-19 relief that set off inflation, have any responsibility for the damage they’ve done? The total amount of spending during COVID-19 ended up close to $7.5 trillion. While former President Donald Trump authorized COVID-19 spending to aid individual Americans as well as businesses, many economists believe it was no longer necessary to continue the aid when Joe Biden took office, the economy had started robustly rebounding.
Yet over 180 CEOs signed a letter to Congress in February of last year, right after Biden took office, demanding more money from the American Rescue Plan, which Congress ended up passing. The names all appear to represent large corporations, including left-leaning Vox Media, Goldman Sachs (famous for its financial bailout in 2008), Google, Saks Fifth Avenue and Estee Lauder.
Larry Lindsay, a leading economist who served as National Economic Council Director under President George W. Bush, said the inflation is so bad we’re headed for a recession this year. During an interview on MSNBC, he said inflation took off after the ARP was passed; the Consumer Price Index shot way up to the highest in four decades.
Lindsay said the pandemic didn’t cause the inflation, since it had already been ongoing a year prior to the ARP. It is true that the pandemic created some stressors, like supply bottlenecks, but that is not the same as causing rampant inflation. The Biden administration continues to blame the pandemic, the Russia-Ukraine war, and anything other than its spending problem.
The problem is much of the money wasn’t directed at need, it was intended for stimulus to stoke demand. The legendary economist Milton Friedman once said that if you want inflation, just drop money out of helicopters.
In contrast, the bailouts in 2008 didn’t result in high inflation, nor did the 2020 COVID-19 bailouts under Trump. According to economist Larry Summers, a Democrat who served as Treasury Secretary under President Bill Clinton and director of the National Economic Council under President Barack Obama, the difference in results was due to the immense size of the ARP. Back in May 2021, he predicted inflation was going to get bad due to the ARP bailout. He said the ARP could “set off inflationary pressures of a kind we have not seen in a generation.” Sure enough, inflation is currently higher than it’s been in almost 40 years.
Even Jason Furman, who served as chairman of Obama’s Council of Economic Advisers, thought that the ARP was “too big for the moment,” stating, “I don’t know of any economist that was recommending something the size of what was done.” He contrasted the situation with Europe. “Inflation is a lot higher in the United States than it is in Europe,” he said. “Europe is going through the same supply shocks as the United States is, the same supply chain issues. But they didn’t do nearly as much stimulus.’’
They weren’t the only Obama economic officials to lash out. Steven Rattner, who served as counselor to Obama’s Treasury secretary, described the ARP as the "original sin" that contributed materially to today’s inflation. A paper from the San Francisco Federal Reserve admitted the ARP is causing inflation. And there are plenty more experts who feel the same.
John Cochrane, an economist at the Hoover Institution, said the bailouts didn’t work because people didn’t want to spend money during the lockdowns. Since they couldn’t enjoy sports, entertainment, much of dining out and were uncertain about air travel, they didn’t spend.
Another way the ARP wasted money in a reviving economy is it paid people not to work, so it was deficient in increasing jobs. Americans for Prosperity observed that the economy only “grew by just 6.1 million jobs — fewer than if Congress had rejected the proposal.” The ARP bailout went heavily to blue states, rewarding them for punishing people with the most restrictive lockdowns. Nearly $90 billion went to bail out union pension funds that were already massively underfunded before COVID-19 hit.
It rewarded corporations for irresponsible behavior, much of it unrelated to COVID-19. An article in Forbes explained, “By allowing shareholders and creditors to avoid losses they agreed to bear, these policies will induce companies to continue to take on too much debt.” Most people regretted the wasteful 2008 bailouts for this reason, and this wasn’t any different. No longer needing the extra funds, corporations are using them to implement woke programs instead.
Last year’s trillion dollar infrastructure bill, Build Back Better, piled on, said Stephen Miran, who served as a senior adviser for economic policy at the U.S. Treasury during the Trump administration. He explained how new regulations in the bill drive up costs. For example, by requiring “the Transportation Department to update the regulations covering car seats, vehicle headlights, hoods and bumpers, and to provide more-stringent enforcement of auto regulations,” it increases “the cost of producing a new car,” increasing “the cost for consumers.” Even if the regulations don’t go into effect for a year or more, the legislation will “start affecting prices immediately as manufacturers begin working on compliance and development.”
While most on the right usually follow the lead of Friedman, who once asserted that monetary policy causes inflation, not fiscal policy, perhaps Friedman never anticipated this level of reckless spending by the Biden administration. The Independent Institute observed, “Although Friedman passed away in 2006, President Biden has a weird fixation in trying to beat him in an economic argument.”
The big business bailouts are no surprise considering some of Biden’s closest advisors come from big business. Conservatives love to rail against the left for its spending problem, but often give big business a free pass. It’s time to change that. We should have learned our lesson from the irresponsible bailouts of 2008 but apparently haven’t.