Recession or no recession: Who’s a voter to believe?

Just months ago, President Joe Biden boldly asserted that inflation was going to be ‘transitory’

Voters thought they were electing a president who could guide the country through rough waters, but what they got was an old-school Keynesian, writes Winston. (Drew Angerer/Getty Images)
Voters thought they were electing a president who could guide the country through rough waters, but what they got was an old-school Keynesian, writes Winston. (Drew Angerer/Getty Images)
Posted June 23, 2022 at 6:00am

Joe Biden and his team spent much of last weekend telling us that a recession isn’t inevitable. Larry Summers, the former Clinton Treasury secretary and Obama economics adviser, says otherwise, telling Chuck Todd on NBC's “Meet the Press” that “the dominant probability would be that by the end of next year we would be seeing a recession in the American economy.”

So, who are you going to believe? 

Not Janet Yellen, who claimed on ABC’s “This Week” that “it’s a medium-term matter. The way in which we can ensure reasonable energy expenses for households is to move to renewables to address climate change as a medium-term matter," and offered up that the administration’s policies are not “responsible for what’s happening in the oil market.”

Not Brian Deese, Biden’s director of the National Economic Council, who appeared Sunday on CBS’ “Face the Nation.” When anchor Margaret Brennan pushed him for solutions to the inflation crisis, Deese said, “Lowering prescription drug costs is one piece. Lowering utility costs by providing tax incentives for energy is another piece, but equally important, lowering the federal deficit by enacting long overdue tax reform. If we can do a package like that, we can move forward in the near future.”

Brennan shot back, “Hiking taxes isn’t going to change the price of milk.” Ouch. 

Biden and his team seem at a loss to address the kitchen table economics driving his negative poll numbers, leaving people to wonder at his tone deafness when it comes to the causes and cures for rising inflation. People haven’t forgotten that it was this same president who just months ago boldly asserted that inflation was going to be “transitory.”

Like every administration before theirs, Biden and his team have two basic economic policies to fight inflation. They can focus on reducing demand and/or creating a dynamic growth environment that will deliver a greater supply of goods and services. 

Biden and company appear to have opted only for the former, to lessen demand, by tossing the ball to the Federal Reserve, knowing that means higher interest rates, tighter money and less capital investment, which will inevitably slow the economy and increase unemployment. 

Even Summers now predicts that higher unemployment will be needed to bring inflation down. In a speech in London last week, Summers said, “We need five years of unemployment above 5 percent to contain inflation. In other words, we need two years of 7.5 percent unemployment or five years of 6 percent unemployment or one year of 10 percent unemployment.” Tough medicine.

I remember well the last time unemployment hit 10 percent just before a congressional midterm election and what it meant for the party in power. It was 1982, and fair or not, Republicans lost 26 seats in the House that year.

The fact is that President Ronald Reagan had inherited a terrible economy in 1981 with interest rates having reached a staggering 21.5 percent the month before he took office. Most people today have never experienced interest rates even half that level. 

As interest rates spiked and unemployment did the same in the late ’70s, the country slipped into a “malaise” or “crisis of confidence,” as President Jimmy Carter put it, with people worried for the first time since the end of World War II about the country’s future as the global superpower it had become. 

When faced with an economy in deep trouble, Reagan took a new and uncharted path. He decided to embrace supply side economics and welcomed the thinking of what was a group of revolutionary economists, like Robert Mundell and Art Laffer, and innovative political leaders, like Jack Kemp and Bill Steiger, and others who had been pushing for a new economic approach to deal with the stagflation plaguing the country at the time. 

What they argued, and what appealed to Reagan, was their theory that government was the problem and that lower taxes and less regulation would free up the private sector to do what it does best — produce the supply of goods and services to meet and create new demand that would keep prices lower. 

They understood what Biden and his party still do not — that a less encumbered private sector, not government, can deliver a robust economy without high unemployment. Even a cursory look at GDP and employment numbers from 1983 to 2019 shows what business can achieve when left to innovate without government interference. 

Brian Domitrovic, in his book “Econoclasts,” put it this way: “Supply-siders did not start the businesses, introduce the technologies, or develop the markets that impelled the post-1982 boom. What they did do, however, was to instruct the government precisely how to get out of the way of an economy full of potential.” Reagan’s economic and regulatory policies gave the Microsofts and Apples and other innovative companies the space to grow and kick off one of the longest economic booms in history. 

But Biden has always viewed the federal government as the preferred remedy for every challenge, from unemployment to inflation and beyond. We all remember his previous venture leading an economic rescue effort — the Obama administration’s Recovery Act, signed in early 2009. 

That plan, based on Keynesian economic theory, banked on a $787 billion government stimulus effort to bring the country out of recession, rather than Reagan’s successful lower tax-less regulation approach. 

Instead, starting in April 2009, there were 30 consecutive months of 9 percent or greater unemployment, after the country was promised that it would not go above 8 percent if the stimulus package was passed. By the fall of 2010, people had had enough. Democrats lost 63 seats and their majority in the House. 

The fact that Biden apparently learned nothing from the Obama Recovery Act’s agonizingly slow job creation and growth is a damning indictment of his unwillingness to reflect on past failures or consider alternatives. 

Twelve years after the summer of recovery, Biden’s solution is to blame everyone else for inflation and turn the problem over to the Fed, which is likely to impose what Laffer once called “deep root canal economics” to rein in inflation, with higher unemployment to follow. 

In the last election, voters thought they were electing a president with 50 years of experience in government who could guide the country through whatever rough waters were ahead. What they got was an old-school Keynesian whose administration has lurched from one crisis to another employing discredited policies of the past. 

Time for Biden to rethink the problem. 

David Winston is the president of The Winston Group and a longtime adviser to congressional Republicans. He previously served as the director of planning for Speaker Newt Gingrich. He advises Fortune 100 companies, foundations, and nonprofit organizations on strategic planning and public policy issues, as well as serving as an election analyst for CBS News.