During President Biden’s speech at the start of his recent press conference, he said a number of things that were wrong and he set out policies that will not solve the problems. He tried to emphasize the positives by creating dishonest misperceptions.
Biden said he created more than 6 million new jobs in his first year in office. Since the total number of people employed is about 3.5 million fewer than before the pandemic, the 6 million jobs were people returning to work.
In other words, in total, there really were no “new” jobs created.
Then he talked about the legislation he enacted. He said the $1.9 billion stimulus package he passed brought relief to millions of Americans. The law gave up to $1,400 in free money to almost every household and added $300 a week of free money to each unemployed worker’s weekly benefit.
Given that the economy was growing at a growth rate of 6.4% at the time of signing, this stimulus package added nothing to growth but added more excess demand to the economy. As a result of spending that money, growth in the last half of 2020 slowed to around 4% and inflation soared to 7%.
Biden, however, said he has a three-point plan to reduce inflation. However, none of these points will actually reduce inflation.
The first point will be to end supply chain disruptions. He says he has already solved most of the problems by noting that last fall the shelves were 89% full. This is only a few percentage points below the 91% seen before the pandemic. Yet inflation soared in the fourth quarter of last year. Consequently, #BareShelvesBiden is trending on Twitter.
Since last July, the US economy has produced more goods and services than before the pandemic. This means that while there may be shortages in specific markets, overall supply is not the issue. The inflation problem is caused by excess demand compounded by Biden’s passage of the $1.9 trillion stimulus package and the $1.2 trillion infrastructure package.
Second point, Biden says he is reducing the cost of child care and health care. That’s not entirely accurate either. Health costs and childcare costs are not going down. His policy means that people who use child care and cannot afford health care will pay less.
Since the cost of these services increases mainly due to salary increases, the difference between the lower cost paid by the user and the actual cost of the service will be paid by the taxpayers. Most taxpayers do not use child care and most pay for their own health care.
He says that to further reduce these costs, Congress should pass its Build Back Better plan. Increasing deficit government spending when there is already excess demand in the economy will lead to more inflation, not less.
Third, Biden says he will take government action to increase competition. He says increased competition will drive prices down. And it is true that greater competition will tend to lower prices and improve product quality. This happens in all markets except mature competitive markets.
Biden cites the meatpacking industry where four companies control nearly 85% of the market. Biden says these companies have crowded out small businesses. He’s right about that, but the outcome is better for consumers.
An oligopolistic market is one where the top four firms control at least 70% of the market. If we look at these markets historically, we generally find that the market was originally purely competitive. However, over time the market matured and realized that it was better served by a few highly efficient firms rather than by a large number of relatively inefficient firms.
For example, look at the grocery retail market. In the early 1900s, most Americans bought groceries at a corner grocery store. This meant that there were thousands of small, relatively inefficient grocery stores across the country.
Birth of supermarket prices
It also meant that prices were high because merchants had to make a sufficient profit by placing high markups on the small number of goods they sold.
Then, retailers discovered that if they expanded their product line and increased their sales volume, they could make sufficient profits by charging lower prices but selling much higher quantities.
This meant that instead of a municipality having, say, 20 small grocery stores, it ended up with three large supermarkets. Today, while there are still a few small, mainly specialized grocery stores, almost every municipality has at least a few supermarkets. The result is lower prices for consumers and much more convenience for consumers. The food retail market has matured.
In the meat industry, the market has matured. A review of the big four producers would show that they are mature companies and some of their growth is the result of mergers and acquisitions, which is typical when markets mature.
Biden is dishonest when he says he created 6 million “new” jobs. He is also dishonest when he says he will reduce inflation with his three-point plan.
He needs a better set of policies if he really wants to fix the economy.
Michael Busler is a public policy analyst and professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written opinion pieces for major newspapers for over 35 years.
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