Count Bill Clinton’s Treasury Secretary and Barack Obama’s top economics adviser among the unimpressed with Joe Biden’s same-old same-old in last night’s State of the Union on inflation. Lawrence Summers got ridiculed by Biden’s White House for his prescient warning about the inflationary risks of Biden’s proposed stimulus bill a year ago. Before Biden spoke, Summers told Bloomberg News that Biden would need an FDR-like pivot from his previous policies to get a second chance at fixing what Biden broke:
Former Treasury Secretary Lawrence Summers urged President Joe Biden to ditch the “usual laundry list of policy proposals” in his State of the Union speech, in favor of a pivot toward grappling with a global environment dramatically altered by Russia’s invasion of Ukraine and its tightening links with China.
In the same way that President Franklin D. Roosevelt pivoted from battling the Great Depression to winning World War II, Biden “needs to shift from being the ‘protect the middle class from the pandemic’ president to being ‘prepare America for the struggle ahead’ president,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin on Friday. He said he was hoping for a “real change in tone.”
As David Axelrod lamented in real time last night, Biden opted for the laundry list instead. Even at that, Biden’s laundry list sounded too familiar and too incompetent for Summers’ taste. In a lengthy Twitter thread, Summers explained all the reasons why Biden’s inflation policies not only won’t work but will actively compound the problems:
Shifting demand to American producers with ‘Buy America’ polices that stop firms and consumers from buying at the lowest cost, no matter how politically attractive, are inflationary. This is something all economists should agree on, right @paulkrugman?
— Lawrence H. Summers (@LHSummers) March 2, 2022
Biden’s emphasis on corporate greed in the middle of a pep talk promising greater production and more stable supply lines also caught Summers’ attention. He called that rhetoric “diversionary,” a distraction from what Biden should be doing to incentivize domestic production. Chief among those steps, Summers emphasizes, is deregulating production of fossil fuels and their distribution:
The best micro-policies involve reducing tariffs, the Jones Act repeal (allowing foreign entry into shipping), reducing regulation of fossil fuels and focusing government procurement on buying fast and cheap.
— Lawrence H. Summers (@LHSummers) March 2, 2022
All of that job growth Biden promises won’t materialize, Summers warns, unless the Biden administration can break the wage-price spiral that has already begun. The Federal Reserve had better get bold in its approach or risk extending the crisis longer than necessary, Summers warned this morning:
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There is much more risk of too little monetary tightening than too much, especially if the Administration and its Fed appointees do not focus on price stability as a necessary precondition for strong employment performance.
— Lawrence H. Summers (@LHSummers) March 2, 2022
In fact, Biden spent most of his speech offering a brand-free retread of Build Back Better rather than any pivot on inflation, or anything else. Summers credits Biden with a “powerful” speech on Ukraine and freedom, which he insists will be remembered “much longer than anything about the Fed’s fund rate.” Perhaps, but Americans don’t live every day getting impacted by the Ukraine war. They live every day with the impacts of inflation at 40-year highs, of wage increases that fail to keep up with food and fuel prices, and with the buying power of savings and retirements evaporating before their eyes.
That’s precisely why Iowa governor Kim Reynolds focused on inflation in the GOP’s formal SOTU response speech:
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Gov. Kim Reynolds of Iowa delivered a scathing Republican rebuke of President Biden’s State of the Union address on Tuesday, casting his presidency as an unwanted remake of “That ‘70s Show,” complete with “runaway inflation,” rampant crime and a rampaging “Soviet army.”
Ms. Reynolds, who was chosen by Republican Senate leadership to deliver the party’s official response, portrayed the populist revolt against mask mandates and remote learning as a “pro-parent, pro-family revolution,” hoping to harness the backlash ahead of this year’s midterm elections. …
Ms. Reynolds hammered the Biden administration’s response to the rise in inflation, accusing the White House of elitism for initially downplaying the issue.
“The Biden Administration believes inflation is ‘a high-class problem,’” she said. “I can tell you it’s an everybody problem.”
Reynolds spoke out on a wide range of issues, but inflation was a particular focus. Given the lack of any innovation from Biden in his SOTU, inflation is a clear weakness for Democrats — as Summers has tried warning almost ever since Biden took office.
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