A coalition of so-called New Democrats (the last New Democrat was Bill Clinton, whose administration gave us corporate buy-backs, repeal of the Glass-Steagall Act, veto of the TEAM Act allowing building-level unions, and jettisoning of the work of Barbara Jordan’s Commission on Immigration) has now proposed a 62-point plan to combat inflation.

As an exercise in missing the point, this document is impossible to improve upon. Two essential elements are missing from this anthology of K Street wish lists: meaningful reduction of future budget deficits and removal of constraints on energy production.

It is clear that there is now an inflation problem, in part fueled by rising energy prices, resulting from constraints on domestic energy production and the effect of the Ukraine war on foreign supplies. The New Democrats propose nothing to deal with this problem other than some acceleration of leasing on private lands. The recent pipeline bans, including the one protecting lizards on a minute fraction of the Appalachian Trail, remain in full force and effect, as do the delays imposed on energy projects by the National Environmental Policy Act, the failure to develop the Nevada site for high-level nuclear waste, and restrictions on fracking, hydroelectric high-tension wires, and even offshore wind turbines. Expectations of the future feed into the present, and these constraints invite OPEC and other foreign suppliers to charge what the traffic will bear without much fear of future domestic competition.

The other source of inflation is a vista of future budget deficits, unlikely to be curbed by tax increases. The burden of curbing excess demand will thus be thrust entirely on monetary policy, interest rates, and the Federal Reserve Board. We saw in the 1970s where this leads: to high interest rates and the collapse of the construction industry, real estate values, and consumer confidence; in short, to stagflation.

The Biden administration’s Build Back Better plan contains new “soak the rich” taxes, which are not as objectionable as some Republicans make them out to be. The proceeds are to be wholly devoted to socialistic schemes for elder care, day care, dental care, and electric-car subsidies, not to deficit reduction.There is a case for combining the proposed taxes with a reconciliation bill including only the two most worthy spending projects: expansion of the family tax credit (with a work requirement as proposed by Senator Mike Lee to avoid re-creation of the AFDC program) and a revived Civilian Conservation Corps with a substantial role for the military in training (to duplicate the success of the original CCC and avoid the experience of the Johnson administration Job Corps, which assembled juvenile delinquents in high-rise urban buildings). The lion’s share of new revenues should be devoted to deficit reduction, reducing pressure on monetary policy, interest rates, and the Federal Reserve Board.

The political realities are such that an early reconciliation bill before the congressional elections is the only way Congress is likely to enact tax increases. It may be possible to find two or three Republican votes for it if most of the spending programs are stripped out. If this is not done, there will be no new revenues until after the next presidential election, and therefore steadily escalating interest rates with all the consequences those entail.

Yet the New Democrats say nothing about the overhang of future budget deficits. Their proposals will not meaningfully address the country’s macroeconomic issues.

Their microeconomic proposals are similarly trivial. They propose efforts to reform local zoning by withholding federal grant funds pending the submission of state plans for its liberalization. This top-down approach is akin to attempting to put spaghetti through a keyhole, and was utterly ineffective when tried by Education Secretary Arne Duncan during the Obama administration. The logical reform here would be to provide modest tax credits for the installation of second kitchens to create accessory apartments in owner-occupied homes. The pressure to reform zoning would then come from below, not above, and would be far more effective.

In the realm of education, there are pious gestures toward more apprenticeships and vocational education. There is no attention to the more fundamental reforms instituted by Britain, Australia, and New Zealand: a requirement that there be a community board for each school; that not more than one term of education-methods courses be required as a condition of a teaching license so as not to exclude 90 percent of college graduates from the teaching force; that there be extra pay for teachers in scarce disciplines; and that the supply of high-school science and computer-science teachers be increased by special immigration provisions for Eastern European, South Asian, and Far Eastern science graduates committed to high-school teaching.

Many of the proposals are exercises in self-parody, for example, the call to manipulate shipping rates without repealing the Jones Act, which bars foreign vessels from coastal shipping and is beloved by the unions. The program as a whole is a declaration of intellectual bankruptcy. It will not, even if adopted, curb inflation so long as tax revenues and domestic energy supply are constrained. It is an exercise in evasion, the product of soft minds—or cynical ones.

George Liebmann, President of the Library Company of the Baltimore Bar, is the author of numerous works on law and public policy, most recently America’s Political Inventors: The Lost Art of Legislation (Bloomsbury).

The post How Not to Fight Inflation appeared first on The American Conservative.

Read more: https://www.theamericanconservative.com/articles/how-not-to-fight-inflation/


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