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Thanks for your interest in Washington, D.C. and thanks for reading This Week in Washington.
Patrick Robertson’s insightful article looks at one cause of President Biden’s slipping poll numbers. Congressman Erik Paulsen dives into the primary causes of the spike in inflation, and Ramona Lessen shares a glimpse at a hearing held this week before the Senate Banking Committee on stablecoins.
This is our last This Week of 2021, so allow me to close with a few random thoughts.
The House of Representatives has finished its work and is preparing to leave Washington. The Senate passed a debt ceiling bill, and a defense appropriations bill was a must pass – so it did. It has been clear for quite some time that the Build Back Better bill was not moving in 2021 and would be kicked into 2022, and Thursday President Biden admitted the same. A Republican Senator described to me the dilemma Democrats face moving Build Back Better when he said that “Senator Manchin doesn’t want to support a bill that has a number of short-term programs that progressives intend to extend later into long term or permanent programs, and he wants to have the program paid for with a full decade of offsets. Senator Manchin also wants the bill paid for and Democrats can’t agree on which taxes to increase.”
2021 was a year of rising expectations and sobering realities. Americans want to get beyond the COVID pandemic and get on with their lives. The vaccines surely are a light to that bright future, but we’re sobered by the reality that over 800,000 Americans have lost their lives. We are coming out of our siloed existence that we had during the worst of the pandemic and that gives us hope, but now we must contend with rising inflation and staggering shortages. Yet I believe with all my heart that the best days for all of us are still yet to come.
We’ll be back after the first of the year with the next issue of This Week. My colleagues join me in wishing you a very Merry Christmas and all best wishes for a healthy and successful New Year.
Stay safe.
Total Spectrum Managing Director
Washington Whispers
By Patrick Robertson, Total Spectrum Strategic Consultant
Expectation is one of the most dangerous concepts in politics. Over the course of our republic, some leaders have benefited from low expectations, some have suffered from high expectations, and the rare leader has met the highest of expectation of their time in public service.
In looking back at 2021, the current Democratic Congress and President Biden have managed the following:
- Passed the $1.9 trillion American Rescue Plan within two months of the inauguration, providing $350 billion in state and local aid, $242 billion in direct payments to Americans in stimulus checks and child tax credit checks, COVID vaccination and testing funding, employee retention credits, restaurant relief, rent and mortgage relief, and much more.
- Passed a $1.2 trillion infrastructure bill with 69 votes in the Senate, solving a decades-old riddle in Washington about how to get funding for roads, bridges, airports, ports, parks, water, and internet back on track.
- Fully vaccinated 60%+ of the population (as of Dec. 8). The one dose rate is over 70% when children are added to the equation.
This record is far from perfect. Some think it is too much government spending, some think it is not enough. Some think the pandemic response has been overbearing and some think it has been underwhelming.
But, if you are keeping score at home, that is more than $3.1 trillion in new government spending that includes brand new social programs, a defense budget’s worth of COVID relief, and a new infrastructure bill that has been discussed (but never enacted) for decades.
Yet somehow the public perception is that the President has failed to deliver on transformative progressive policies. Failed to get his signature legislative item done – the Build Back Better program, which seems doomed to languish beyond the New Year and remains at the whim of Senator Joe Manchin (D-WV) and his moderate politics. Failed to capture the imagination of America, and failed to end the pandemic once and for all.
It is true that Senate Majority Leader Chuck Schumer (D-NY) continues to insist that the Senate will move the Build Back Better Bill before Christmas. But let’s be honest, there is not yet a final text of the bill and Senator Manchin has been clear that he wants Democrats to narrow their wish list to a few items that would be in place for 10 years, rather than trying to implement multiple policies over a shorter time.
But the point remains, how is it possible that the President is viewed as failing when he has accomplished as much as he has? Expectations.
President Obama swept into Washington and claimed an overwhelming mandate for change.
President Biden has a Senate that is split 50-50 and a House with just a few votes more on the Democratic side of the aisle – and a very thin mandate for change. Even with a mandate, it still took President Obama more than a year to pass the Affordable Care Act, and here we are at the 11-month mark of the Biden presidency saying it has taken too long to pass his signature legislative item.
The reality in 2021 is that Democrats have slim majorities and cannot have an all-out wish list. Had President Biden set his goals at a significant COVID relief package and a transformative infrastructure bill, we would all be headed into the holiday break lauding the progress the Administration has made and talking about what is within the realm of possibility in 2022. Instead, many folks are asking what went wrong.
I hosted a dinner for Senator Manchin last week and he asked an important question: “Is Build Back Better really part of the Biden agenda or is it part of the progressive agenda in Congress?” While the question is simple, the answer is complicated.
If you ask the President if Build Back Better is part of his Administration’s agenda, the President would say yes. If you ask Senator Manchin the same question, he will say no. Progressives saved President Biden in the Democratic primary, so in a lot of ways they are one in the same. The pragmatic, compromise-driven Senator Joe Biden would have been closer to Senator Manchin than Senator Bernie Sanders (I-VT). President Biden, however, is still pushing for Build Back Better to pass and spoke with Senator Manchin by phone again this week to try to get him to move the package forward.
President Biden has been on the job for 11 months. His approval rating is dipping and he faces challenges from all corners of the country — not necessarily because he has underdelivered, but just maybe because he overpromised.
If you end up as President of the United States, or advise someone who gets the job, be careful how high you set the expectations. You may just be held to them.
Inflation: Taxation Without Representation
By Congressman Erik Paulsen, Total Spectrum Strategic Consultant
At a year-over-year rate of 6.8 percent, the consumer price index has risen to a 39-year high since the beginning of the year. The producer price index hit a record 9.6 percent year-over-year rate. At the same time, recent figures show that average hourly earnings have increased by only 4.8 percent year-over-year. Compared with inflation, real hourly wages have declined by over 2 percent. As Republican Leader of the House Ways and Means Committee Kevin Brady (R-TX) recently pointed out, “the average family has lost about $377 a month in real wages since May.”
Americans are seeing their household budgets consumed by higher prices for everything from gasoline to groceries to home heating to used cars. They are asking what caused these price increases and what can be done about them. We only need to look at our nation’s monetary and fiscal policy to identify the cause.
Historically, the money supply parallels the growth in the economy. The annual gross domestic product (GDP) decreased by an annual rate of 31.4 percent in the second quarter of 2020, a result of the COVID lockdown of the economy. The Federal Reserve correctly began to increase dramatically the supply of money. When the lockdown ended, the GDP in the third quarter of 2020 increased to an annual rate of 33.1 percent, largely due to the increased money supply. Economic growth settled down in the fourth quarter of 2020 to a more normal annual rate of 4.1 percent. Yet instead of pumping the brakes on the money supply, the Federal Reserve kept its foot on the gas. Equally important, the Federal Reserve has increased the supply of money since the beginning of the year by an annual rate of 25 percent. This increase has been followed closely by the 6 percent increase in inflation.
The Federal Reserve’s expansive monetary policy played a big part in producing our inflation, but the federal government’s fiscal policies did too.
The COVID pandemic was a once-in-a-lifetime event, and the Trump Administration worked with Congress to create a bipartisan response. Over $4.4 trillion was spent in 2020 to provide relief to both businesses and families. This money provided badly needed assistance, and loans helped companies retain employees and stimulate economic activity. This much needed legislation created the ability for our economy to rebound in 2021 – and it did.
When President Biden took office, the economy was growing at a rate of 6.4 percent. Then the Administration and Congress passed legislation that added an additional $1.9 trillion to the debt and disincentivized peoples’ return to the workforce by providing cash payments, refundable child credits, and increased and extended unemployment benefits. Congress now wants to pass additional legislation that will increase federal spending by as much as $5 trillion over the next 10 years.
Larry Summers, Secretary of the Treasury in the Obama Administration, warned the Biden Administration that their approach could cause a significant spike in inflation. He said that we could see “inflationary pressures of a kind we have not seen in a generation” but he said that this was preventable “if monetary and fiscal policy can be rapidly adjusted to address the problem.”
Secretary Summers proved to be spot-on, and inflation spiked because neither monetary nor fiscal policy was adjusted.
The Federal Reserve may have finally gotten the message with what is being called the “Powell Pivot.” Federal Reserve Chairman Jay Powell had actively encouraged deficit spending and financed it by buying the debt issued by the Treasury – which is the principal way the Federal Reserve dramatically increased the money supply, which has led to inflation. The Federal Reserve recently announced that it will begin “tapering” the amount of debt it has been buying, and that is an important first step.
The Biden Administration and Congress now must also pivot on their fiscal policy. The Build Back Better proposal would pump a lot more money into an economy that is already flush with cash and experiencing strong economic growth. The Congressional Budget Office says that the Build Back Better bill passed by the House of Representatives would increase the deficit by almost $792 billion from 2022 through 2026.
Economist Milton Friedman famously said that “inflation is the one form of taxation that can be imposed without legislation.” It’s clear that the easing of monetary policies by the Federal Reserve and the fiscally irresponsible policies of Congress and the Administration have resulted in too many dollars chasing after too few goods. The Federal Reserve is starting to adjust. Hopefully Congress and the Administration will adjust too.
Hearing Report
By Ramona Lessen, Executive Director, Total Spectrum
Senate Banking, Housing and Urban Affairs Committee hearing on Stablecoins: How do They Work, How Are They Used, and What Are Their Risks?
Tuesday, December 14, 2021; 10:15 a.m.
To view a livestream of the hearing please click here.
Senator Sherrod Brown (D-OH), Chairman
Senator Patrick J. Toomey (R-PA), Ranking Member
Witnesses
Ms. Alexis Goldstein
Director Of Financial Policy
Open Markets Institute
Ms. Jai Massari
Partner
Davis Polk & Wardwell, LLP
Mr. Dante Disparte
Chief Strategy Officer and Head Of Global Policy
Circle
Professor Hilary J. Allen
Professor
American University Washington College of Law
Congressional Calendar
Monday, Dec. 13
- 9 a.m. Senate Judiciary Committee field hearing on combating gun trafficking and reducing violence in Chicago. Everett McKinley Dirksen United States Courthouse, Ceremonial Courtroom 2525, Chicago.
- 7 p.m. House Jan. 6 select committee business meeting to consider a report recommending the House cite Mark Meadows for criminal contempt of Congress.
Tuesday, Dec. 14
- 10 a.m. Senate Banking Committee hearing on stablecoins.
- 10 a.m. Senate Foreign Relations Committee hearing on three State Department ambassador nominations.
- 10 a.m. Senate HELP Committee hearing on Robert Califf’s nomination to be commissioner of food and drugs at the Department of Health and Human Services.
- 2 p.m. House Select Coronavirus Crisis Subcommittee virtual hearing on accelerating vaccinations around the world.
- 2:30 p.m. Senate Foreign Relations Committee hearing on nominations, including Enoh Ebong’s nomination to be director of the Trade and Development Agency.
Wednesday, Dec. 15
- 10 a.m. Senate Foreign Relations Committee business meeting to consider eight nominations, including six State Department ambassador nominations.
- 10 a.m. Senate Commerce, Science, and Transportation Committee markup of four nominations and four bills, including a bill that would seek to increase foreign direct investment in semiconductor-related manufacturing and production.
- 10 a.m. Senate Banking Committee hearing on disaster recovery assistance, and specifically on the Community Development Block Grant Disaster Recovery Program.
- 10 a.m. Senate Judiciary Committee hearing on pending nominations. 226 Dirksen.
- 11:30 a.m. Senate Homeland Security and Governmental Affairs Committee markup of three nominations and a bill that would codify the Federal Risk and Authorization Management Program to help federal agencies adopt cloud-based technologies.
- 2:30 p.m. Senate Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights hearing – The Impact of Consolidation and Monopoly Power on American Innovation.
- 2:30 p.m. Senate Commerce Committee hearing on the U.S. airline industry.
- 3:30 p.m. Senate Foreign Relations Committee Business Meeting.
Thursday, Dec. 16
- 9 a.m. Senate Judiciary Committee business meeting to consider four judicial nominations.
- 10 a.m. Senate Commerce Committee hearing on three nominations, including Steven Cliff’s nomination to be National Highway Traffic Safety Administration administrator.
- 12:30 p.m. House Administration Committee virtual hearing on protecting Smithsonian facilities and collections against climate change.
Friday, Dec. 17
- 9 a.m. House Administration Elections Subcommittee virtual member day hearing.
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