Last week, I was invited to testify before a House committee hearing titled: “How the Biden American Rescue Plan Saved the Economy and Lives.” I am not making this up. Can you imagine taking a victory lap, given our current conditions?
I told the Democrats on the committee that the idea that Congress would hold a hearing like this when the economy is coming unhinged only reinforces the suspicion held by most people that the Washington swamp is totally out of touch with the lives and hardships of everyday America.
The reality of our predicament is best summarized by JPMorgan CEO Jamie Dimon, who warned investors to “brace yourself” for what he called a fast-approaching economic “hurricane.”
To be clear, America is not yet in a recession. Still, it’s undeniable that starting around June, the economy and financial markets smashed into a brick wall. Here are the troubling indicators, all pointing in the wrong direction:
The Federal Reserve Bank of Atlanta just estimated that second quarter economic growth through the middle of June is a big fat zero. This is on top of the 1.5% decline in the economy in the first quarter. This means for the first five-and-a-half months of this year, our economy has shrunk in size relative to inflation. That result isn’t technically a recession, but it’s perilously close.
Second, the wealth losses in the greater financial market sell-off of 2022 have now exceeded $10 trillion since the start of the year. This has been one of the most significant and financially catastrophic vaporizations of wealth and savings in U.S. history. It is delusional that President Joe Biden says people have record savings. No, the reverse is true. Voters’ 401(k) plans and other retirement savings have been shredded.
It is leading to what economists call a “reverse wealth effect.” Just as people spend more when their bank accounts and stock portfolios are full of cash, they tend to become comatose when those gains turn almost overnight into losses. Adjusting for inflation, the stock market is down 15%-20% depending on the index examined. Tech stocks in the Nasdaq have been clobbered the most.
Third, consumer confidence and business confidence have each fallen fast. Only about 2 in 10 voters feel the economy is headed in the right direction. Moreover, the National Federation of Independent Business’s index of small businesses found that confidence is now at its lowest level since the pandemic hit these shores and businesses were shut down.
Fourth and most damaging, consumer and producer prices have risen to their highest levels since the early 1980s. The consumer price index hit 8.6%, and the producer price index is above 10%. Price increases aren’t “transitory” and haven’t shown any signs of peaking.
Let’s not forget that Washington’s fiscal picture is a train wreck. In two and a half years, the debt has soared by another $5 trillion thanks to the blizzard spending to “fight” COVID-19 and then for multiple economic rescue plans. As the Fed raises interest rates, the carrying cost of the $23 trillion national debt gets progressively more expensive. We will be paying taxes for years to merely to pay the interest on our enormous debt.
All of the debt spending in Washington has unleashed the inflation dragon — the cruelest tax of all on families and businesses.
During the Trump presidency, before COVID-19 hit these shores, median household income rose by $6,446. This was one of the largest three-year gains in income for middle-class families in history. The combination of output gains due to deregulation, “America first” energy and the Trump pro-growth tax cuts plus an inflation rate of less than 2% facilitated these enormous gains in family incomes for all income groups and all races and a highly prosperous period in terms of incomes and wealth creation.
Under Biden, inflation has cost the average person roughly $3,000 a year in lost real income. Based on the cascading inflation levels we have experienced over the last year, it is my prediction that virtually all of the income gains delivered under former President Donald Trump could get erased due to the surge in inflation by the end of Biden’s second year in office.
In other words, under Trump, median income gains were more than $6,000. Under Biden, median income will represent anywhere from $5,000 to $6,000 lost in average wages and salaries when adjusting for the 8.6% inflation over the last year.
Simply put, people are getting poorer month after month in part due to the inflation unleashed by the American Rescue Plan.
If any of this is a “success,” then so was the maiden voyage of the Titanic.
Stephen Moore is a senior fellow at FreedomWorks.