Welcome to the Georgia edition of This Week in Washington. Thank you for your interest in politics and policy from the Peach State to the Potomac.

Patrick Robertson’s Washington Whispers looks at one of the causes of President Biden’s slipping poll numbers. Congressman Erik Paulsen dives into causes of the spike in inflation, and Ramona Lessen shares a glimpse at a hearing held this week before the Senate Banking Committee on stablecoins. As always, be sure to check out the Infographs for an in-depth look at current hot topics.

This is our last This Week in Washington of 2021, so allow us to close with a few random thoughts.

We’ll be back after the first of the year with the next issue of This Week in Washington and the Gold Dome Report. We at Total Spectrum wish you a very Merry Christmas and all best wishes for a healthy and successful New Year.

Jesse Weathington

By Patrick Robertson, Total Spectrum Strategic Consultant

Expectation is one of the most dangerous concepts in politics. Over the course of our republic, some leaders have benefited from low expectations, some have suffered from high expectations, and the rare leader has met the highest of expectation of their time in public service.

 

In looking back at 2021, the current Democratic Congress and President Biden have managed the following:

 

This record is far from perfect. Some think it is too much government spending, some think it is not enough. Some think the pandemic response has been overbearing and some think it has been underwhelming.

 

But, if you are keeping score at home, that is more than $3.1 trillion in new government spending that includes brand new social programs, a defense budget’s worth of COVID relief, and a new infrastructure bill that has been discussed (but never enacted) for decades.

 

Yet somehow the public perception is that the President has failed to deliver on transformative progressive policies. Failed to get his signature legislative item done – the Build Back Better program, which seems doomed to languish beyond the New Year and remains at the whim of Senator Joe Manchin (D-WV) and his moderate politics. Failed to capture the imagination of America, and failed to end the pandemic once and for all.

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It is true that Senate Majority Leader Chuck Schumer (D-NY) continues to insist that the Senate will move the Build Back Better Bill before Christmas. But let’s be honest, there is not yet a final text of the bill and Senator Manchin has been clear that he wants Democrats to narrow their wish list to a few items that would be in place for 10 years, rather than trying to implement multiple policies over a shorter time.

 

But the point remains, how is it possible that the President is viewed as failing when he has accomplished as much as he has? Expectations.

 

President Obama swept into Washington and claimed an overwhelming mandate for change.

 

President Biden has a Senate that is split 50-50 and a House with just a few votes more on the Democratic side of the aisle – and a very thin mandate for change. Even with a mandate, it still took President Obama more than a year to pass the Affordable Care Act, and here we are at the 11-month mark of the Biden presidency saying it has taken too long to pass his signature legislative item.

 

The reality in 2021 is that Democrats have slim majorities and cannot have an all-out wish list. Had President Biden set his goals at a significant COVID relief package and a transformative infrastructure bill, we would all be headed into the holiday break lauding the progress the Administration has made and talking about what is within the realm of possibility in 2022. Instead, many folks are asking what went wrong.

 

I hosted a dinner for Senator Manchin last week and he asked an important question: “Is Build Back Better really part of the Biden agenda or is it part of the progressive agenda in Congress?” While the question is simple, the answer is complicated.

 

If you ask the President if Build Back Better is part of his Administration’s agenda, the President would say yes. If you ask Senator Manchin the same question, he will say no. Progressives saved President Biden in the Democratic primary, so in a lot of ways they are one in the same. The pragmatic, compromise-driven Senator Joe Biden would have been closer to Senator Manchin than Senator Bernie Sanders (I-VT). President Biden, however, is still pushing for Build Back Better to pass and spoke with Senator Manchin by phone again this week to try to get him to move the package forward.

 

President Biden has been on the job for 11 months. His approval rating is dipping and he faces challenges from all corners of the country -- not necessarily because he has underdelivered, but just maybe because he overpromised.

 

If you end up as President of the United States, or advise someone who gets the job, be careful how high you set the expectations. You may just be held to them.

By Congressman Erik Paulsen, Total Spectrum Strategic Consultant

At a year-over-year rate of 6.8 percent, the consumer price index has now risen to a 39-year high since the beginning of the year. The producer price index has just hit a record 9.6 percent year-over-year rate. At the same time, recent figures show that average hourly earnings have increased by only 4.8 percent year-over-year. Compared with inflation, real hourly wages have declined by over 2 percent. As the Republican Leader of the House Ways and Means Committee, Rep. Kevin Brady (R-TX), recently pointed out: “[T]he average family has lost about $377 a month in real wages since May.”

Americans are seeing their household budgets consumed by higher prices for everything from gasoline to groceries to home heating to used cars. They are asking what caused these price increases and what can be done about them. Let’s look at what has been going on with our Nation’s monetary policy and fiscal policy to identify the cause.

Historically, the money supply parallels the growth in the economy. The annual gross domestic product (GDP) decreased by an annual rate of 31.4 percent in the second quarter of 2020, a result of the COVID lockdown of the economy. The Federal Reserve correctly began to increase dramatically the supply of money. When the lockdown ended, the GDP in the third quarter of 2020 increased to an annual rate of 33.1 percent, largely due to the increased money supply. Economic growth settled down in the fourth quarter of 2020 to a very good but more normal rate of 4.1 percent annually. Yet instead of pumping the breaks on the money supply, the Federal Reserve kept its foot on the gas. Equally important, the Federal Reserve has increased the supply of money since the beginning of the year by an annual rate of 25 percent. This increase has been followed closely by the 6 percent increase in inflation.

The Federal Reserve’s expansive monetary policy played a big part in producing our inflation, but the federal government’s fiscal policies did too.

The COVID pandemic was a once-in-a-lifetime event, and the Trump Administration worked with Congress to create a bipartisan response. Over $4.4 trillion was spent to provide relief to both businesses and families. This money provided badly needed assistance, and loans helped companies to retain employees and stimulate economic activity. This much needed legislation created the ability for our economy to rebound in 2021 – and it did.

When President Biden took office, the economy was growing at a rate of 6.4 percent. Then the Administration and Congress passed legislation that added an additional $1.9 trillion to the debt and disincentivized peoples’ return to the workforce by providing cash payments, refundable child credits, and increased and extended unemployment benefits. Now, Congress is planning to pass additional partisan legislation that will increase federal spending by as much as $5 trillion over the next 10 years.

Larry Summers, Secretary of the Treasury in the Obama Administration, warned the Biden Administration that their approach could cause a significant spike in inflation. He said that we could see “inflationary pressures of a kind we have not seen in a generation” but he said that this was preventable “if monetary and fiscal policy can be rapidly adjusted to address the problem.”

Secretary Summers proved to be spot-on, and inflation spiked because neither monetary nor fiscal policy was adjusted.

The Federal Reserve may have finally gotten the message with what is being called the “Powell Pivot.” Federal Reserve Chairman Jay Powell had actively encouraged deficit spending and financed it by buying the debt issued by the Treasury – which is the principal way the Federal Reserve dramatically increased the money supply, which has led to inflation. The Federal Reserve recently announced that it will begin “tapering” the amount of debt it has been buying, and that is an important first step.

The Biden Administration and Congress also must pivot on their fiscal policy. The Build Back Better proposal would pump more money into an economy that is already flush with cash and experiencing strong economic growth. The Congressional Budget Office says that the Build Back Better bill passed by the House of Representatives would increase the deficit by almost $792 billion from 2022 through 2026.

Economist Milton Friedman famously said that “[i]nflation is the one form of taxation that can be imposed without legislation.” It’s clear that the easing of monetary policies by the Federal Reserve and the fiscally irresponsible policies of Congress and the Administration have resulted in too many dollars chasing after too few goods. The Federal Reserve is starting to adjust. Hopefully Congress and the Administration will too.

By Ramona Lessen, Executive Director, Total Spectrum

To view a livestream of the hearing please click here.