How Biden Can Quickly Reduce Inflation Without Causing a Recession
The current inflation spike is mainly due to Covid supply-chain disruptions and the recent jump in oil prices caused by Russia’s invasion of Ukraine, not to the Biden Covid fiscal stimulus of early 2021 or to the Federal Reserve’s monetary policy. That stimulus was absolutely necessary to help the economy quickly emerge from the deep Covid recession. It is no coincidence that the big increase in inflation did not happen subsequent to the Covid stimulus, but a year later immediately following Russia’s invasion of Ukraine in February 2022, due to the West’s sanctions against Russia resulting in a sharp rise of oil prices, and due to the reduction in Ukrainian exports of wheat caused by Russia. Significantly, the current inflation spike is worldwide, not just domestic, proof that Biden and the Fed are not responsible for it. The rise in domestic inflation is also marginally due to the substantial increase in the minimum wage around the country over the past 12 months, both legislated and voluntary, which has raised production costs.
While Biden is being unfairly criticized for causing the current inflation surge, he must now act immediately and decisively to quickly reduce inflation in a sustainable, free market way. That is not only in the interest of our domestic economy, but also for crucially important geopolitical reasons, including our national security. The key is reducing the price of oil, both in the immediate term and in the intermediate/long term. Meanwhile, the Fed must not tighten and risk causing a recession with rising unemployment, a bad trade-off for trying to reduce inflation, which would also greatly increase the budget deficit. We must realize we are in a very serious national emergency, and successfully dealing with it must be the priority. The focus must be on oil.
Reducing the price of oil in the immediate term requires Biden to go with policies to quickly and greatly increase our domestic production of oil and gas, to increase oil and gas pipeline capacity, and to increase oil and gas export terminal capacity. In particular, we need legislation guaranteeing a minimum price for newly produced oil and gas, otherwise investment in new wells will be restrained, given the history of large swings, up and down, of oil and gas prices. There should be no demagogic talk of oil price controls or government commandeering of oil production, as both measures would be counterproductive.
Since the national government protects farmers by guaranteeing them a minimum price for wheat, corn, and soybeans, there is no reason why it shouldn’t also protect our oil and gas producers by guaranteeing a minimum price for oil and gas produced from new wells, given the current national emergency. Sure, oil and gas producers would benefit when oil and gas prices fall and government minimum price subsidies for new production offset the lower market prices, but those profits would be taxed just like all profits are, while profits from legacy production would decline. Most importantly, there is no way for a “warp speed” production increase and consequent lower retail oil and gas prices without such minimum price guarantees.
The current market price of oil is around $100 per barrel, up from $50 last year, while the current price of gas is around $9 per million BTU’s compared with $4 a year ago. Those should be the minimum prices guaranteed by the government for oil and gas produced from new wells. We cannot continue to be hostage to Russian and OPEC oil and gas.
“Green” policies must not be an obstacle to an immediate increase in American fossil fuel production, though they must be pursued with urgency in order to greatly reduce oil and gas dependency in the intermediate and long term. Solar and wind production of electricity must be stimulated through significant tax incentives. Modular nuclear power with strict safety requirements should also be part of the long-term solution. Everyone must recognize and accept the reality of fossil fuels being the unavoidable bridge to a “green” future.
Just as important as greatly reducing American dependency on Russian and OPEC oil and gas, is greatly reducing American dependency on electronics and related raw materials produced abroad in democratic nations whose sovereignty is at risk, due to hostility from dictatorial nations.
Unfortunately, our governments since 1992 have underestimated the grave risk posed by dictatorial nations. The result has been complacency resulting in insufficient defense spending and deficient geopolitical strategies. What explains the severe foreign policy shortcomings of our governments? The unvarnished reason is that practically all our presidents, senators, and representatives have been objectively unqualified, leading to incompetent policies. Not one of them would have been capable of listing the major mistakes in foreign policy over the past 100 years and of knowledgeably discussing which would have been the correct policies.
For some strange reason, we do not require our political candidates to be highly qualified as a condition for running for high office. The price for that is extremely high, not only in foreign policy and military matters, but also in economic and social policy matters, where our results have been very disappointing. Over the past 50 years have had repeated, needless recessions and high unemployment. There has been no progress on reducing poverty, homelessness, addiction, crime, incarceration, and violence of all sorts, including gun violence. Nor has there been progress on reducing the number of unwanted pregnancies or of the mentally disturbed.
It should be clear that we should require all our political candidates to obtain, before running for office, a very advanced graduate degree specially designed for those in government, so that they can list off the top of their head all the major mistakes in economic, social, and foreign policy over the past 100 years and knowledgeably discuss which would have been the correct policies. Furthermore, for a prosperous nation, we need all our citizens to be well educated. That requires a big upgrade in our public schools and their curriculum, so that all our citizens -including those who do not go on to university- have a broad educational base with a solid grasp of crucially important topics.
Arguably, the curriculum of all our public high schools should include four years of the following courses: 1) psychology (taught in conjunction with group therapy and good parenting workshops); 2) detailed, analytic 20th Century history; 3) economics/finance/investing; 4) history of art/architecture/design; 5) history of music; 6) the United Nations’ Charter and its Universal Declaration of Human Rights; 7) the world history of human rights violations; 8) comparative religion studied through direct readings of the holy books; 9) logic and critical thinking; 10) ethics and empathy; 11) foreign languages and cultures; 12) introductory and Constitutional law; 13) the major mistakes in economic, social, and foreign policy of the past 100 years. Of great importance, individual attention should be given to all students having academic or psychological difficulties, to prevent them from dropping out and becoming unproductive citizens.
A well-educated citizenry does not fall for disinformation and misinformation, does not fall for demagogues and con men, knows which political candidates are truly qualified and honest, and knows which policies are logical and well-informed. Such a citizenry is essential not just for our economic and social prosperity, but also for our national security. A big public school upgrade is crucially important and should not be delayed. But our immediate emergency is getting oil prices down and greatly reducing our dependency on Russian and OPEC oil and gas. That requires policies which greatly and quickly increase domestic oil and gas production (with minimum price guarantees for new well production) as well as electricity produced by solar and wind.
© Edward Sonnino 2022
June 11, 2022#
