As They Wholly Redefine ‘Inflation,’ Republicans Hand Dems the Tools to Shoot Down Tax Cuts

In his latest “Wonder Land” column for the Wall Street Journal, the great Daniel Henninger observed that President Biden denies “some $4 trillion in federal spending during his term has anything to do with inflation.” His argument was disappointing mainly because Henninger worked under the late Robert Bartley, and he’s surely read Bartley’s excellent The Seven Fat Years. Since he has, Henninger certainly knows that while government spending is a hideous tax on freedom and growth, it has nothing to do with inflation. Inflation is a devaluation of the currency as Bartley surely taught all those who worked for him, including Henninger.

The challenge now is that as Republicans increasingly embrace government waste as the source of inflation, they’re boxing themselves into a definition that will be hung on them the next time they’re in power, and their leaders are wasting money. And waste money they do, unless Republicans really want to believe that spending was light under Presidents Trump and Bush (W.), among other Republicans.

Worse, the GOP’s new definition of inflation will be similarly hung on them when they seek tax cuts. Which is too bad. The Washington Post’s Catherine Rampell did just this last week. While Rampell managed to tie herself up in her own errors (more on those in a bit), she made the obvious point that “Cutting taxes further is likely to make inflation worse, for the same reason that Republicans argue that increased government spending can also make inflation worse.” Rampell likely doesn’t remember the 1970s, but Henninger most definitely does. Hopefully this causes him and the excellent Wall Street Journal editorial page to back away from what’s not inflation. If not, 1970s-style arguments against tax cuts will be revived and used against the very editorial page that exposed them as nonsensical several decades ago.

Indeed, Rampell is right. She doesn’t know why she’s right, but she’s right. All demand is preceded by supply. That’s a Classical economic truth that the Wall Street Journal’s editorial page brought back into vogue during the “Fat” 1980s that Bartley was writing about. In which case there’s no “demand” of any kind without production; the question being whether government or those who produced the wealth will spend the fruits of always private production. Rampell is right simply because governments produce no “demand” on their own. They merely confiscate and redistribute the “demand.” There’s no Keynesian multiplier as the GOP’s new inflation definition imagines, and just the same there’s no new demand born of shrinking the government’s long fingers as Rampell imagines. But there’s more liberty. Tax cuts properly allow the productive to keep what they’ve produced.

Inflation is yet again a devaluation of the currency. Nothing more, nothing less. Incorrect as Rampell is about tax cuts, she’s very smart. And she has a lot of smart allies. The surely “coincidental” redefinition of “inflation” by Republicans in 2021-2022 will come back to haunt them. Bank on it.

The good news (if a lack of real competition in a war of ideas can be seen as good) for the GOP is that Rampell once again doesn’t know why she’s right. Having properly called GOP punditry out for its situational inflation hawker-y, the Post columnist then pivoted to overdone alarmism that is increasingly her calling card.

Rampell claims that the alleged GOP plan to not raise the federal debt limit next year “could easily precipitate a global financial catastrophe.” Yes it could, in the way that it could also snow in Orlando next year.

In Rampell’s defense, the GOP’s focus on debt is a total waste of time. What matters is how much government spends. That’s the true tax. Whether Congress gets the money to waste through taxes versus borrowing is to make a distinction without a difference. So in a sense, Rampell is right. All the debt-ceiling grandstanding is a load of nonsense, but as with tax cuts versus spending, Rampbell doesn’t know why she’s partially right.

Where she goes a bit bonkers herself is in claiming that “default” could “send shockwaves of panic through every other market.” Here, a history lesson is required. And it will be one that pleases the expert-reverent Rampell since it comes from Carmen Reinhart and Kenneth Rogoff. They were fairly explicit in This Time Is Different that U.S. debt defaulting began in the 1930s under FDR when he reduced the value of the dollar from 1/20.67 of a gold ounce to 1/35^th. Surely Rampell knows that Treasury income streams are just that, which is a reminder that any devaluation of the dollar is in reality a default. Without remotely defending U.S. defaults on its obligations, we’ve been defaulting for quite some time and without each one causing “a global financial catastrophe.”

Apparently not familiar with the above history, Rampell claims “we came perilously close to default” in 2011 when the U.S. “credit rating was downgraded for the first time in history.” What Rampell leaves out is that Treasury yields fell (meaning the value of U.S. debt securities rose) after this downgrade. Maybe her editors deleted this part….

What they didn’t delete was Rampell’s closing rant about a government “debt crisis” not being what “you would pursue if you cared about strengthening the economy.” You see, Rampell believes that without Treasuries as the benchmark, lenders will be blinded on how to lend. Global financial crisis!!! Don’t you know???

Actually, anything that would limit government consumption of precious wealth is rather good when it comes to “strengthening the economy.” Freedom works, or something like that. Republicans would be wise to focus on the freedom part, rather than redefining inflation in a way that will hand those who would prefer to limit freedom an argument for doing just that.