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Changing Manchin’s Mind – WSJ


Democratic Senator from West Virginia Joe Manchin responds to a question from the news media during a press briefing on Capitol Hill in Washington on Tuesday.



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Give CNN some credit because their audience reaches beyond airport departure lounges and now may even include Sen. Joe Manchin (D., W.Va.). How else to explain his bizarre new respect for an economic forecaster he decisively defeated in the great inflation debate of 2021?

Last year Sen. Manchin wisely held out against much of the massive Biden spending agenda in large part because of his concerns about inflation resulting from Washington’s frenzy of demand-side stimulus.

On the other side of the argument stood the White House and most congressional Democrats, who would regularly appeal to the authority of forecasters like Moody’s Analytics, whose ubiquitous economist

Mark Zandi

hailed the Biden plans, minimized the inflation threat, and projected it would soon dissipate. As this column noted yesterday, Mr. Zandi sometimes went even further. A March 2021 Boston Globe report included this astounding passage:

“We’ve had undesirably low inflation for 25 years. I say bring on the inflation, please,” said Mark Zandi, chief economist at Moody’s Analytics, an economics research and consulting firm. “There might be some immediate sense of, ‘What’s this? I haven’t seen this before.’ But I think we’ll get used to it pretty fast if employers say now you’re going to get a 3 percent wage increase.”

Of course in the months since, wage increases have not nearly kept pace with surging inflation, which makes us all poorer. Americans are not saying bring on the inflation but instead praying for relief from it.

This is not a theoretical argument. The United States ran the experiment of imposing a large Biden spending increase (though not as large as he wished) plus loose money from the Federal Reserve on an economy that was in no need of a rescue. Inflation soared.

Over the last year and change, Mr. Manchin’s concerns were completely vindicated. Mr. Zandi of Moody’s was proven wrong.

It was therefore surprising to see a CNN reporter yesterday once again touting an analysis from Moody’s Analytics that once again features a sunny forecast on the alleged virtues of government spending and yet another soothing inflation prediction.

What was more than surprising was Sen. Manchin’s Tuesday appearance on the Fox News Channel. The senator began by reasonably noting that “right now inflation is the greatest threat that we have. It’s hurting every West Virginian, I can assure you—at the gas pump, at the food store and just their daily lives.”

But then he was pressed by the network’s Harris Faulkner on a report from Penn Wharton budget modelers that the so-called Inflation Reduction Act that he now supports would deliver no meaningful reduction in inflation through 2031. Specifically Penn Wharton writes: “The impact on inflation is statistically indistinguishable from zero.”

“Maybe they’re wrong,” Mr. Manchin said of the Penn Wharton economists, and then noted that Moody’s has a different view.

Yes, Moody’s has issued a more Biden-friendly take on the pending bill, but why on earth would Mr. Manchin suddenly be touting the analysis from his vanquished opponent in the great inflation debate of 2021?

If Mr. Manchin is looking for fresh analysis from economists who haven’t made significant recent forecasting blunders, perhaps he’ll review the latest report from the Tax Foundation, which ends up with an inflation conclusion similar to that offered by Penn Wharton. The Tax Foundation writes:

Last-week’s Democrat-sponsored Inflation Reduction Act (IRA), successor to the House-passed Build Back Better Act of late 2021, has been touted by President Biden to, among other things, help reduce the country’s crippling inflation. Using the Tax Foundation’s General Equilibrium Model, we estimate that the Inflation Reduction Act would reduce long-run economic output by about 0.1 percent and eliminate about 30,000 full-time equivalent jobs in the United States. It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run.

By reducing long-run economic growth, this bill may actually worsen inflation by constraining the productive capacity of the economy…

Inflation is driven by expectations regarding the likelihood that the federal government will be able to repay its debt over the long term, which is a function of the expected performance of the economy, tax collections, and spending. By reducing long-run economic growth, the bill worsens inflation by constraining the productive capacity of the economy.

To the extent the revenue raisers are seen as long-lasting sources of revenue, the bill reduces inflation, but projected revenues are not certain and may be less than we are forecasting. For example, the history of the corporate alternative minimum tax indicates the book minimum tax may be a diminishing source of revenue. By increasing spending, the bill worsens inflation, especially in the first two years, as revenue raisers take time to ramp up and the deficit increases. We find that budget deficits would increase from 2023 to 2025, potentially worsening inflation.

To the extent the tax credits and health-care subsidies are expected to be extended on a permanent basis, these policies put upward pressure on inflation.

Lastly, to the extent the durability of the bill’s provisions are in doubt—that is, due to the lack of bipartisan support—it may have little impact on expectations about the fiscal outlook and therefore inflation. On balance, the long-run impact on inflation is particularly uncertain but likely close to zero.

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James Freeman is the co-author of “The Cost: Trump, China and American Revival.”

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