Contrary to claims from the White House, economists at the Federal Reserve Bank of San Francisco say President Joe Biden's stimulus package contributed significantly to inflation.
The White House maintains the nearly $2 trillion American Rescue Plan that Biden signed into law in March 2021 did not have any effect on skyrocketing inflation, which now sits at just under 8 percent. And for months, Biden dismissed claims that the extraordinary stimulus spending raised consumer prices. Now, economists are blaming the president for raising the nation's inflation rate by roughly 3 percentage points during his first year in office.
The Bay Area economists found that from the beginning of 2021, the core Consumer Price Index in the United States "grew from below 2 percent to above 4 percent and stayed elevated throughout 2021." The core Consumer Price Index accounts for the cost of all goods and services with the exception of energy and food prices, which tend to be more volatile. The rate of U.S. inflation also outpaced other developed countries, including Canada, Germany, and the United Kingdom. Since the start of the pandemic, those nations' inflation has increased at a more gradual rate from 1 percent to 2.5 percent by the end of last year.
"Though many of the pandemic distortions are common to other countries, we show that U.S. inflation has risen more quickly and increasingly diverged from inflation in other OECD (Organisation for Economic Co-operation and Development) countries," the economists wrote. Their paper also provides models showing that "throughout 2020 and 2021, U.S. households experienced significantly higher increases in their disposable income relative to their OECD peers," which contributed to higher demand.
Critics, including liberal economists and former Obama administration advisers Jason Furman and Larry Summers, had noted beforehand the dangers of high deficit spending. In a February 2021 Washington Post op-ed, Summers said the American Rescue Plan carried "big risks." He has since blamed the bill for higher consumer prices.
Despite bipartisan criticism, Biden and his staff have insisted nothing his administration has done has contributed to inflation. During remarks given in January, the president said "inflation has everything to do with the supply chain."
"The leading financial firm on Wall Street, Moody's, estimates that because of the Rescue Plan, 4 million more jobs were created, unemployment is 2 percent lower than it would have been had we failed to act," Biden said in March. "And it didn't cause the inflation."
Democrats have proposed even more spending to supposedly counteract inflation with their $2 trillion "Build Back Better" plan. A January report from the Senate Joint Economic Committee, which is led by Democrats, states that "underinvestment in America's public infrastructure helped create the conditions for the inflation—or higher prices for the same goods, economywide—that the U.S. is currently experiencing."
Although the White House has since shifted its messaging on "Build Back Better," White House press secretary Jen Psaki promised in November the bill would not worsen inflation.
"No economist out there is projecting that [the Build Back Better bill] will have a negative impact on inflation," Psaki said.