Stephen Moore on Inflation and America’s Ailing Economy

Breaking News

Everyday Americans are feeling the wallop on their wallets from unchecked inflation. From gas prices to food prices, the country is experiencing unprecedented levels of economic woes.

But who is to blame for this disaster?

“I think that there are two co-conspirators in this economic crime. And one is the Biden administration, for spending so much money,” says economist Stephen Moore, a visiting fellow at The Heritage Foundation. “And then the second would be the Fed for being so late to the game in recognizing that this inflation was real and not transitory, and taking steps to combat it.”

Although the government could take steps to address inflation and dodge a recession, Moore says, it’s unlikely that the Biden administration will act properly.

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“I think, actually, that if you had the right set of policies put in place, we could avert a recession. We could get back on a good path,” Moore explains. “I think what worries me, and also worries the financial markets, is there’s not a hint out of this White House that they’re going to change strategies. None.”

Moore joins “The Daily Signal Podcast” from Heritage’s recent Resource Bank conference to discuss America’s economy and how we can get back on track.

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Listen to the podcast or read the lightly edited transcript below.

Richard Reinsch: Hello, I’m Richard Reinsch, senior fellow at The Heritage Foundation. Today I’m talking with Stephen Moore at Heritage’s Resource Bank conference in Nashville, Tennessee. Stephen Moore, welcome to “The Daily Signal Podcast.”

Stephen Moore: Hi, Richard. Great to be with you in the great city of Nashville, Tennessee.

Reinsch: I should mention that Stephen Moore is an economist and a visiting fellow at The Heritage Foundation. He is the author of “Govzilla” and “Trumponomics” and a former journalist with The Wall Street Journal.

Stephen Moore, as we think about the current economic situation, perhaps we’re already in a recession. We’re also told, perhaps, we’ll be thrown into a recession by Federal Reserve raising interest rates to deal with the inflation caused by rather insane monetary fiscal policy. Is the best solution to the problems we’re in now the Federal Reserve raising interest rates? Or are there other better policy solutions that we should arrive at to deal with this crisis?

Moore: Well, that’s a wide-ranging question. Let me start by saying that I do think it’s pretty clear, and we’ve been saying this at Heritage for the last year, and I’ve certainly been saying it in all my interviews, that the match that really lit this forest fire of higher inflation was the out-of-control spending.

People forget we spent a couple trillion dollars on COVID under [President Donald] Trump, and then [President Joe] Biden came in and spent $3 trillion more. You just flooded the zone with all these dollars, almost like dumping dollar bills out of helicopters. Well, it’s obvious as the sun rising in the east and setting in the west that that’s going to cause inflation. And so it was pretty self-evident that that was going to happen, except nobody in the White House thought it would.

And so we have an inflation crisis. It is really damaging the finances, especially of middle- and lower-income families, when you have $5 to $6 gallon gasoline, when you’ve got six to $7 for a gallon of milk, when you see the cost of transportation rising so quickly.

And incidentally, I should say, because I do travel around all over the country and people come up to me and they’ll recognize me from Fox or CNN, and they’ll say, “You’re that economist?” And they’ll say, “Why do you keep saying inflation’s only 8%, 8.5%?” If you say, “Well, I’m paying 70% more for gas. I’m paying 30% more for food. I’m paying 25% more for rent,” my inflation rate is a lot more than 8%.

People are feeling squeezed by this. And I think that there are two co-conspirators in this economic crime. And one is the Biden administration for spending so much money. And then the second would be the Fed for being so late to the game in recognizing that this inflation was real and not transitory, and taking steps to combat it.

Reinsch: Yeah. I was going to ask you, I think maybe you’ve answered this question, why is inflation so dug in? And I think your response is because we increased the money supply so dramatically.

Moore: You mean, why is it happening?

Reinsch: Well, why is it so dug in? I mean, it seems to be, it’s just getting worse. It’s ongoing. It’s not working itself out. We were told it was going to be transitory, and yet it continues.

Moore: Yeah. And I don’t see any real end in sight. I do think that inflation may come down a little bit from 8.5% to maybe 6%, which will be an improvement, but that’s still a lousy number.

I mean, for the last 30 years, we’ve had inflation in the 2% to 3% to 4% range, which is where you want it. And a stable dollar, as Steve Forbes and Larry Kudlow and Art Laffer have taught us—why do you have a currency? You want a currency because it retains its value and it’s stable in value, and it can be used as a means of exchange.

And so when the dollar weakens … Inflation is essentially a form of devaluation. It devalues your currency. Well, somebody showed me anywhere in the world where devaluation has led to happy results. All I see is devastation from devaluation.

Now, it’s not just the Fed that needs to act here. Certainly they do, and they’ve been behind the curve. They have to raise rates a lot more than they have. But we also, remember, the reason they call us supply siders is because we believe in the supply side of the economy, that is the production of goods and services. So that’s why we want to cut taxes, reduce regulations, get government off the back of businesses, so they can produce more output. And when you get, as Art Laffer would say, if the economy produces more apples, then the price of apples goes down, it doesn’t go up.

That’s the part of the equation I don’t think the Biden administration people get. In fact, they’re talking about higher taxes. Well, how in the world are you going to get businesses to produce more goods and services if you’re raising taxes on them? That’s going to actually make the inflation problem worse.

They’re also talking about price controls on energy companies, on pharmaceutical companies, on the meat producers, on the poultry producers. Well, we know from the 1970s that when you impose price controls, all that does is cause shortages of goods and services.

That’s why in the old Soviet Union you could go to the grocery store, but you’d not find anything on the shelves. And we already have those shortages happening here in the United States. So price controls would make that worse.

Yeah. So not heating the fundamental signal that prices send, and also the prices themselves distorted by what the government’s done, intervening in the market. Not to go back to the Fed. It does seem also, we’ve got a fundamental problem in the Federal Reserve, nearly two decades of emergency policy from the Fed in terms of trying to hold rates down and allow capital to move freely to purportedly uphold the economy.

Reinsch: How do we get the Fed disciplined again and acting in a regular manner and not like its own independent part of government? Which it is, but it’s now doing things that are really wrecking the economy at large.

Moore: Well, this is also a wide-ranging question. We could talk for about a half an hour on that. But I’ll say this, that, as you know, I was nominated by Donald Trump to be on the Federal Reserve Board and I didn’t make it on the board, but if I had, I’d be raising holy hell over there right now. Maybe that’s why they didn’t want me on the board, because they all drink the same Kool-Aid over there.

And so they really do think things like government spending stimulates the economy. We know at Heritage, and I think most of the people listening to this show know, that government spending is bad for the economy, not good for the economy. … As Milton Friedman [would] say, government can only spend a dollar by taking a dollar away from you.

… Look, Jerome Powell just got reappointed to the Fed, and I think the vote was like 80 to 20 in the Senate. What? We’re rewarding him for a pretty dismal record? That’s like rehiring a coach that loses 15 out of 16 football games. And so I think that basically Congress deserves some of the blame here, too, and for not holding the Fed accountable.

I’m with Steve Forbes more and more often, and I think we should move toward a rules-based monetary system … . What’s happening now, it’s the Fed just makes up the rules is they go along. Well, Steve Forbes says, “Why don’t we have a gold standard?”

Now, I don’t know if the gold standard is the right way. Would certainly be better than what we have right now. But I’d like a commodity standard. Let’s look at a market basket of what’s happening with wheat, what’s happening with corn, what’s happening with coal … and seeing what’s happening to those prices. If those prices are rising, then that means you’ve got to pull back on the money.

And this isn’t really that complicated. And the Fed makes it too complicated because they think they’re the wizard behind the curtain in “Wizard of Oz.”

Reinsch: What about something like a monetary standard, à la Milton Friedman, even John Taylor, the Taylor rule, in terms of control and the discretion of Federal Reserve?

Moore: I’m a rules-based guy. I’m not sure that rule, the Taylor rule … By the way, if we had the Taylor rule, you’d be raising rates by not 50 basis points, but by 500 basis points. That’s how out of skew our monetary policy is right now.

Now look, I don’t want to sound too draconian here. I think, actually, that if you had the right set of policies put in place, we could avert a recession. We could get back on a good path. I think what worries me and also worries the financial markets is there’s not a hint out of this White House that they’re going to change strategies. None.

Reinsch: And I want to ask you that also. I mean, unleash energy production. Unleash, to the extent the federal government can, all sorts of goods and services coming into the economy. Instead we find, as you say, price controls ostensibly, because they say corporations are milking this situation, we’re in for profits, which I find laughable. And there is not a whiff, not a hint even, as you say, of moving in that direction. Have you been surprised at the intransigence of this administration on unleashing supply and production?

Moore: This is an administration that is really, unfortunately, run by left-wing ideologues who don’t know anything about the economy, but they have an agenda. And they’re full speed ahead with this agenda to move toward a more progressive policy set with much bigger government, more federal government control of our lives in every way. And they haven’t gotten off that.

I lived through the Clinton years, I was here in Washington. And Bill Clinton’s first two years in office, very much like Biden’s, were a disaster. And then the Republicans swept into office and to his credit, Bill Clinton moved to the middle and we actually had a booming economy after that. We actually balanced the budget, we did capital gains tax cuts, we did welfare reform. I don’t see any inclination of Joe Biden being capable of doing that. And that’s, I think, what’s really spooking … The stock market’s lost $8 trillion in the last four months. I mean, the negative wealth effect of that has been enormous.

The good news is Republicans, obviously, will take control of the House and very, very likely take control of the Senate. And so you’ll have a regime change, but you need the president to be on board. And I’m really worried, when Biden loses control of Congress, he’s going to try to govern them through these regulatory agencies. And look at the people he’s put in place in the Securities and Exchange Commission, the [Federal Trade Commission], all of these people are pretty radical leftists.

And so it pains me to say this—and I worked for Trump as an economic adviser so I’m biased, I’ll admit that. But I really do believe that if Trump were still president and we’d stuck with his policies, the economy would be booming right now.

And that’s what’s so tragic about this. If there’s any lesson that we’ve learned from Joe Biden’s first, what, 15, 16 months in office, it’s that policy really does matter. It’s amazing how quickly Biden and these progressive policies have screwed things up.

When Trump left office, the inflation rate was 1.5%. How do you go from 1.5% to 8.5% in 14 months? How do you do that? You mentioned energy. That’s the issue I worked on with Trump, as well as tax policy. We were actually exporting our oil and gas because we were producing so much. Now we’re producing less oil and gas, even though the price has doubled.

His is a result of really bad policies. And if anything good can come out of this, hopefully Americans will see the lesson that big government liberalism and progressive policies don’t work.

Reinsch: You used the term “from the old days,” so maybe the old is new. You’ve said a supply-side revolution. Talk about that. Obviously, the Republican Party, if it wins in November, it faces President Biden, faces the administrative agencies. What should their message to voters be and what should their policies be? …

Moore: Well, let me step back a minute and say this. I can’t tell you how many times people come up to me, and not conservatives, just average Americans, working people who just aren’t really even that involved in policy and politics, will say to me, “I didn’t really like Donald Trump very much. I didn’t like his annex. I didn’t like some of the things he said and the way he acted, but I really liked his policies.”

And I think people are starting to see that. There’s Trump, the person. And then there’s Trump, the policies. Well, let’s put aside how you feel about Trump, the person, his policies were incredibly effective. Secure the border, American energy security, cut taxes, reduced regulations, put America first. Those policies were quite effective.

What I want to see Republicans do is continue to talk about pursuing those policies. I would just add a couple of things that I think should be high priorities right now. Obviously, cutting government spending is the single most important thing right now. I mean, we’re not going to get control of inflation until we bring this massive debt finance spending down. And I got to tell you, I’m not sure Republicans are going to do that.

I mean, Republicans voted for, not all, but some of Biden’s thing. We just had a $40 billion Ukraine relief bill. Now, would I have voted for that? Probably. We’re all for the Ukrainian freedom fighters. But my good friend [Sen.] Rand Paul had an amendment in the Senate saying, “OK, let’s pay for this. Let’s take $40 billion for … .” Even the Republicans wouldn’t vote for that. I hate to tell folks this, but to think that Republicans are going to be our salvation, well, maybe they will, but sometimes they’re not much better than the Democrats.

Reinsch: A final question, labor supply. How does one incentivize that? I mean, it’s really been an incredible experience for many Americans to go to their stores, favorite places to eat, and to wait because there aren’t staff. And many other businesses—airlines, if you fly. It’s across the board. That’s also unanticipated, I think, and also an effect of government intervention.

Moore: Yeah. I mean, it’s a good news, bad news story. The good news is we have 10 million open jobs, so that means there are a lot of jobs out there. The bad news is the businesses can’t fill the jobs. I mean, I’d rather have 10 million open jobs than 10 million unemployed people.

But nonetheless, then the question is, why aren’t Americans taking these jobs? And I think it’s just basic … Supply side economics is all based on economics, is all about incentives. And we expanded the welfare benefits and we got rid of work requirements, something Robert Rector at Heritage worked on and was a pioneer on. And the welfare reforms of the ’90s had a profoundly positive effect. And I don’t think a lot of people realize, both [President Barack] Obama and Biden just eviscerated all of those. They got rid of all that.

And by the way, that was a Democratic president, Bill Clinton, who signed that into law.

So … we all want a social safety net. We’re a rich country. We don’t want people to go hungry. We don’t want people to go homeless. But you can do it in a way that’s structured toward getting people back into the workforce. So we’re not doing that right now.

Reinsch: Stephen Moore, thank you so much for joining us on this edition of “The Daily Signal Podcast.”

Moore: Thank you very much.

Have an opinion about this article? To sound off, please email letters@DailySignal.com and we’ll consider publishing your edited remarks in our regular “We Hear You” feature. Remember to include the url or headline of the article plus your name and town and/or state.

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