President Biden said Monday that “no serious economist” is worried about long-term inflation, ignoring the bipartisan warnings of economists including Democratic former Treasury Secretary Larry Summers, as the president tried to shore up his crumbling case for $4 trillion in new infrastructure spending.
The president said in a White House address that the economy is riding “ups and downs,” including price increases, supply shortages and an inflation rate that clocked in last month at a 13-year high of 5.4%. But Mr. Biden insisted the spike in inflation is temporary.
“There’s nobody expecting unchecked inflation on the way, no serious economist,” Mr. Biden said.
Among the economists in both parties who are concerned about inflation is Mr. Summers, a top economic adviser in the Obama-Biden White House, chief economist at the World Bank and president of Harvard University.
Mr. Summers said last week that recent data on prices, housing markets and labor market tightness “are all rising in a more concerning way than I worried about a few months ago.”
“This raises my degree of concern about an economic overheating scenario,” he tweeted.
Consumer prices in June also rose unexpectedly 0.9% from May, undermining the president’s argument that inflation only seems more noticeable compared with consumer prices during the depths of the COVID-19 pandemic last year.
The White House is worried that persistent inflation will undercut shaky support in Congress for the president’s two high-spending infrastructure packages.
Senate Minority Leader Mitch McConnell of Kentucky cited inflation last week when he announced that no Republicans will support the costlier of Mr. Biden’s two proposals, covering a broad range of anti-poverty programs and other social spending.
Mr. Biden said the $4 trillion in initiatives, including more affordable child care, “can be a force for lower prices for Americans looking ahead.”
“These steps will enhance our productivity, raising wages without raising prices,” Mr. Biden said. “That won’t increase inflation. It will take the pressure off of inflation [and] give a boost to our workforce, which leads to lower prices in the years ahead. So if your primary concern right now is inflation, you should be even more enthusiastic about this plan.”
He said an executive order he issued last month to encourage business competition “will drive down prices even further.”
“New businesses will get in the game, competing against those giant corporations who have been free to ramp up prices because they haven’t had any real competition,” the president said.
John Rosen, an adjunct professor of economics at the University of New Haven, said it’s “a little bit premature to be taking victory laps” on the economic recovery from the pandemic. He disputed Mr. Biden’s claim that his dual trillion-dollar spending bills will jump-start the economy and reverse inflation.
“It’s a pretty contorted logic to say that spending trillions would reduce inflation,” Mr. Rose said in an interview. “There is certainly no way in a normal economic analysis that says spending trillions reduces inflation.”
The economist said he is certain that Mr. Biden is taking steps to combat inflation because the president “has no desire to be Jimmy Carter No. 2.”
Mr. Biden did say that at a recent meeting with Federal Reserve Chairman Jerome Powell he urged the central bank to "take whatever steps it deems necessary to support a strong, durable economic recovery."
Conservatives, who call the rise in consumer prices the “Biden inflation tax,” said the president’s rationale for whipping inflation with a massive infusion of new spending is nonsensical.
“It’s impossible to make sense of that,” said Alfredo Ortiz, president of the Job Creators Network who helped to craft the Trump administration’s tax cuts in 2017. “Jimmy Carter 2.0 is here, sadly to say. His spending package has no touch of reality. This is not transitory inflation; this is structural inflation,” he said.
Economist Stephen Moore, a conservative who was an informal adviser to Mr. Trump, said he could envision an inflation rate as high as 9% if the Democrats’ spending proposals are enacted.
“I hope I’m wrong about that,” said Mr. Moore, co-founder of the conservative Committee to Unleash Prosperity. “I don’t see any scenario by which we can reduce inflation if we continue [the pace of spending]. We’re talking about levels of funding that are almost unprecedented in peacetime in America.”
House Minority Leader Kevin McCarthy, California Republican, said Monday that higher government spending by Democrats is “a key driver of these price increases and increased costs of living.”
“Inflation doesn’t seem to be lasting just a few months, as the Biden administration has tried to convince everyone,” he told Republican colleagues in a letter. “Instead, economists surveyed in July by The Wall Street Journal forecasted that higher inflation could last for years. President Biden continues to double down on trillions in government spending … over [the] $4 trillion the government spends in a normal year. Republicans have sounded the alarm on this and we will continue to hold Democrats to account for their reckless handling of the economy.”
The president pointed to job growth averaging 600,000 per month since January and the strongest economic performance in more than 40 years as proof that his spending and vaccination programs are working.
“We've brought this economy back from the brink," Mr. Biden said. "It turns out capitalism is alive and very well."
But the president said a rise in infections of the delta variant of the coronavirus could reverse economic progress. Stock markets were down sharply Monday. The Dow Jones Industrial Average plummeted more than 2%, largely on fears of the virus variant’s impact.
“We cannot afford to be complacent,” the president said. “We can’t let up, especially since and because of the delta variant, which is more transmissible and more dangerous.”
Urging more Americans to get vaccinated, he said the biggest increase in COVID-19 cases has been in four states with lower vaccination rates. Mr. Biden said the virus “doesn’t have to hold our economy back any longer.”
“Virtually all hospitalizations and deaths are occurring among unvaccinated Americans,” Mr. Biden said. “These tragedies are avoidable. The data couldn’t be clearer: If you’re fully vaccinated, you have a high degree of protection against severe illness, hospitalization and death. If you’re unvaccinated, you are not protected. So, please, please get vaccinated. It works. It’s safe. It’s free. It’s convenient.”
James Hines Jr., an economics professor at the University of Michigan, said it’s hard to know whether Mr. Biden’s rosy economic forecast is accurate. He said predicting an economic rebound is too difficult right now because of questions lingering from the pandemic.
“Because we are in uncharted territory, it’s hard to be sure of anything,” he said.
The uncertainty, he said, extends to Mr. Biden’s spending plans and the impact it could have on inflation.
“Whatever inflationary effect they might have will depend on how many of those expenditures are paid for,” Mr. Hines said. “They are still a work in progress, so it’s all conjecture.”