Jonathan Bydlak, Director of Governance at R Street Institute, joins Cheddar Politics to give his perspective on inflation from the right side of the aisle. Bydlak breaks down his perspective on the diffuse sources of inflation. 

Cheddar Politics

Think Tank Researcher Gives Perspective on Inflation

back everyone, I'm banker Ciano, President biden has said getting inflation under control is his number one domestic priority. And the majority of americans have also named it their number one issue ahead of the midterm elections. So joining us now is Jonathan by black director of governance at the R street Institute. That is a right of center think tank on fiscal policy, Jonathan. Such a pleasure to have you here. Thanks so much for joining us. Obviously the high inflation, a major blame game right now in Washington. Is it biden's fault? Is it fed chair jerome Powell's fault? You've said there's actually a variety of causes here. So what sort of your take here? Yeah, I guess can it be, can it be everyone's fault? You know, I think there are a lot of people who want to pin it on one person or one thing. And the reality is that inflation is very complicated economic issue. And so um you know, is it supply chains? Yes. Is it actions that have been taken by President biden? Yes. Is it actions that were taken by the previous President? President trump? Yes. So is it what's happening in Ukraine? And and and you know, in europe? Yes, so, so a lot of these factors are kind of coming together to create a perfect storm. Uh and so, you know, we can talk about any of those individual items, but I think that, you know, one of the things that makes this issue so difficult to talk about is that it's not just as simple as point the finger at one person or one thing. And you know, and and and and go from there, you've had billionaires like Jeff Bezos who have tweeted the amount of money that the government has spent. You know, potentially on the the infrastructure bill, the human infrastructure bill that joe biden wanted to get past would have actually made inflation even worse. How much do you think the amount of federal spending is making inflation a problem here? Yeah, it's a huge factor and I think that's one of those issues where there's there's plenty of blame to go around. I mean you know the biggest problem I think with the biden administration actions was the american rescue plan that was passed, you know a little over a year ago now um This the stage of the pandemic that we were in at that point in time was very different than any early days of the pandemic. And so You know, early on in 2020 we basically said look you know there's a lot of uncertainty. The federal government needs to spend money to go and make up for some of this lack of demand. Um the that was that was great early on. But the problem was that then you had you had president biden come into office and they basically said look we need to do this all over again and even bigger than President Trump did. And so you have all of this cash, all of if you get savings for example increased among among americans during the pandemic, even though there was obviously a lot of hardship during that time. And so um but you had people who weren't actually spending until we started having vaccines and and sort of people became more comfortable engaging in traditional economic activity. And so you sort of had this perfect storm where you have people sitting on more cash in aggregate than they had before. You had the supply chain disruptions that were crimping supply. Um and now you had everyone basically, you know, wanting to have this pent up demand, wanting to go and spend a whole bunch and get, you know, go to stores, go to restaurants and the like. And so what we've been seeing has been the unwinding of policies, spending policies that were implemented by both presidents, you know, to a significant degree in response to the pandemic. Um as far as infrastructure or some of these other things are concerned, these are definitely factors, but they're actually not as important to the picture because a lot of that spending the infrastructure or even the things that were being proposed as part of build back better would have taken place off in the future. And so the real question is, where is the spending coming from that we're seeing right now? And the biggest chunk of that is from the american rescue plan, which was passed by by congress again last year, Jonathan. The other sort of argument here is were there warning signs that the by administration maybe missed? I mean, I'm old enough to remember. Lawrence Summers was writing Washington post op ed at the beginning of the biden administration warning that inflation was getting hot already. But then you had Janet Yellen and other officials basically saying that it was only gonna be transitory. So if there were already warning signs already, what did the biden administration miss? Because you have Janet Yellen apologizing for this? You're 100% right. And and frankly it's not just the biden administration. I mean, remember there's fiscal policy, but there's also monetary policy as you, as you point out. So, you know, the Federal Reserve, I think has been behind behind the curve from day one. I mean, again, this shouldn't be that surprising. We were spending a ton of money. The Fed had very accommodative monetary policy and we had all of these supply chain issues. That was a perfect storm for inflation. I think that there are many policymakers both in Congress and the administration and the Federal Reserve who really haven't, um, they haven't lived in a time or, or you know, been making policy decisions in a time where Inflation was a factor. I mean, if you think about it, we haven't really had substantial inflation since the early 1980s and you know, maybe a little bit of a hiccup in the early 1990s. And so I think that a lot of policymakers operated under the assumption that inflation was not an issue that they really needed to care about, that, it was, you know, an issue of the past. And so, you know, I would argue that I think the federal reserve made the biggest mistake. I mean if you look at the taylor rule, which is sort of, this is commonly accepted guideline for where the Federal Reserve should be setting interest rates based on levels of inflation and and and and growth. The taylor rule suggests we should have interest rates right now at 10%. So, you know, we look at those increases yesterday and we say 75 basis points, but we're still only at an interest rate of 1.75% which is very low historically. So, you know, I think that this combination of the by administration and the trump administration previously spending like crazy, combined with the fact that the Federal Reserve really hasn't taken very aggressive actions, has put us in a situation where prices have been allowed to get to basically be unchecked. And the next debate is, how much longer does it sustain? Does it stay at this level, Jonathan, but lack the governance director over at the R Street Institute. Such a pleasure to have you here, Jonathan, thanks so much for your perspective