Politics. Every child of the 1970s remembers it. Powdered milk. When added water it took on a bluish hue which was reason alone to keep it out of your morning Cheerios. It found its way to mom’s kitchen because the price of milk more recently resident inside of a cow was prohibitively expensive, especially in those days of large families and single incomes.
Inflation was not just hard on us blue milk drinkers. (For the record, I refused. Unless it was whole milk, I took a pass until school lunch when I slurped down three pints.) It redefined politics in the U.S. The free spending days of the Great Society and the Vietnam War were replaced with fiscal restraint, and new tax and trade policies over which Republicans largely laid claim.
Higher taxes and more spending were the short route to political obscurity unless, of course, you happen to be a Democratic Socialist from Vermont. So, everyone got in on the act. President Bill Clinton, a Democrat, reversed or significantly restrained social safety-net programs, liberated certain trade policies and declared an end to history.
Except for the culture warrior crowd and a brief interlude over the ACA, it was difficult to tell the difference between the two parties for almost 30 years.
House Speaker Nancy Pelosi can be forgiven, then, for her declaration this weekend at the House Democrats’ retreat in Philadelphia that government spending does not cause inflation. To acknowledge the household level impact of prolific government spending conjures up not just the voter rejection of the late 1970s but return to clear domestic political demarcations that have not been present for a very long time.
Policy. While reality may be suspended in Philadelphia this weekend, policy leaders have not taken leave of their senses entirely. To pretend half a century’s worth of fiscal stimulus delivered in 12 months had no impact on inflation is a necessity. Without such storytelling the policy priorities of the White House and Congress – the “caring economy” they call it - must be suspended because nearly all of them, absent agreed upon offsets, will require spending more money.
Agreeing upon offsets is never easy. There are only three buckets of money in the federal budget from which meaningful reductions can be found: defense, Social Security and health care. For obvious reasons, defense is off the table for the time being. Reductions in Social Security checks, because they arrive in such predictable fashion, will be noticed by over 50 million people and 20 million engaged voters.
That leaves health care.
The very thing that establishes without a shadow of a doubt that overly zealous funding leads to higher nominal prices is the only realistic source of budgetary offsets to pay for more overly zealous funding of health care.
Got that?
The other option is to continue to assert that taking money supply vertical in 2020 has no impact on inflation. Instead, some corporation that was greedy and monopolistic in 2019 and remains such today, it somehow to blame.
That is going to be a very hard sell.
Power. In Philadelphia this weekend the epitaph for the postwar generation of political leaders is being written. It will end up being something akin to “He/She read her own press clippings.”
The failure to consider new information, different perspectives and alternative possibilities seems like a natural result of aging. When you are old and in most cases, rich, the mental energy required for such an exercise seems wholly unnecessary. If you happen to govern in an era of near complete media capture and highly consolidated fundraising mechanisms, it might even be career ending.
Using the premise that you can do no wrong as a starting point, it is easy to conjure up explanations for inflation like the desperate warring of a Russian despot or the greed of monopolistic industries. It might also be tempting to ignore everything we know about macroeconomics, particularly the role played by government spending, and assign the blame for higher prices to something else. It has worked for decades in health care - assisted of course by the artifice of CPI's methodology.
But that doesn't mean you are right.
Some people will play along, repeating preposterous spin. They also know their compromise with reality will be short term. That leadership will be gone soon – either via the ballot box or as nature takes its course – and perhaps then a new set of priorities and strategies will emerge. That has certainly worked to the benefit of the minority party.
Of course, the vast majority of people will not buy it, because it isn’t true and the blue milk on the Cheerios tells them so.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
