The probable election of a Republican majority in the House is good for the economy, good for Republicans, and good for President Biden, too.
Inflation cooled last month but remains at 7.7% over the past year and 14% in the 20 months since President Biden took office. Real wages fell by about 4%. And the stock market, even with a strong week, is still down 16% for the year.
The Federal Reserve is doing the heavy lifting on inflation and has already raised the federal funds rate from near zero to nearly 4%. That pushed mortgage rates from 2.6% to 7.1%, and combined with rising home prices, doubled the monthly mortgage on a new home at the median price, from $1,148 to $2,445.
Rather than forcing the Federal Reserve to put a full brake on the economy in recession, Congress and the White House must implement policies to help reduce inflation in a growth-friendly way.
Yes, much of the inflation reflects an economic hangover from the pandemic. Yet President Biden and the Democrats have actively raised prices through energy regulation, tariffs, Buy America rules, tougher ethanol mandates, Davis-Bacon rules that drive up construction costs, and restrictions on new buildings.
Most destructive of all was the president’s historic spending spree, which added $4.8 trillion to the decade-long budget deficit. The Federal Reserve calculates that the president’s $1.9 trillion US bailout was a major contributor to inflation. The bailout of student loans, if it survives the legal challenges, will push inflation even higher. This will force the Federal Reserve to hike rates further for the economy into a probable recession, with significant job losses.
In addition to being economically damaging, forcing the Federal Reserve to raise interest rates also costs taxpayers larger budget deficits. Each time the interest rate paid by the government increases by 1%, it adds $2.6 trillion to the federal budget’s interest costs over the decade. That’s as much as the US bailout and the student loan bailout combined.
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And that’s why it was so important for voters to stage a speech and pick up President Biden’s credit card on Tuesday. While the results fell short of expectations, the current vote count shows that a majority of voters have chosen a Republican house, with inflation and the economy their primary concerns.
Republicans may not have produced a comprehensive anti-inflation agenda, but their most valuable weapon will be stalemate. Though Biden has already surpassed $4.8 trillion in new spending, he had proposed a staggering $11 trillion during his 2020 campaign. thoroughly the gap between deficit and inflation – she almost certainly died with a GOP house.
Ironically, this may be President Biden’s best outcome yet. The past two years of partisan excesses by Democrats have dropped the president’s approval rating to one of the lowest postwar presidents. Perhaps the president will become whoever moderate Americans thought they elected, rather than the Elizabeth Warren clone they got instead.
We’ve seen this story before. President Obama spent his first two years working with a Democratic Congress to enact a trillion-dollar stimulus bill and ObamaCare. Then the 2010 “gin” brought a GOP house that clipped Obama’s more liberal wings and ultimately helped him win re-election. Prior to this, President Clinton and his Democratic Congress pushed the envelope on government spending and health care, until a GOP congressional election in 1994 brought back the success of the “New Democrats” that voters they always wanted.
President Biden may or may not run for re-election in two years. However, with inflation still high, interest rates soaring, and budget deficits likely to hit $3 trillion within a decade (yes, you read that right), he and other politicians will have to give up on lazy Santa politics. Even “free groceries” come with a painful cost.
Brian Riedl is a senior research scientist at the Manhattan Institute. Follow him on Twitter @Brian_Riedl.
