Manchin is Worried About Inflation…But Not His Fellow Democrats

Jul 20

Once again, Sen. Joe Manchin (D-WV) has torpedoed the Biden Administration’s latest attempt to pass a bill fighting climate change and to raise taxes on wealthy Americans and corporations.

Sen. Manchin claims that he opposed the latest version of the bill because of his concerns about inflation. That is a bogus rationale, of course. Manchin is using “inflation” as a smokescreen; his goal is protecting the fossil fuel industry, regardless of the costs to the environment or his political party.

And by attacking the bill as “inflationary”, Manchin has also given Republicans some helpful talking points. Or is it vice versa?

In any event, the only benefit for Democrats from this debacle is that Manchin has reminded them that they must be able to defend themselves against Republican attacks that Biden’s policies have caused inflation. Otherwise, the midterm elections could be a disaster for the Democrats.

Manchin is a DINOsaur

Manchin is truly a Democratic in Name Only (DINO), and he remains closely tied to energy companies.

Manchin made his fortune in the coal industry, and he still receives $500,000 a year in dividends from his company, Enersystems, Inc., which sells scrap coal to a power plant. Manchin has also raked in huge campaign contributions from oil, gas and coal companies.

These financial ties are the real reason that Manchin has resisted virtually all proposals to facilitate a transition to alternative energy programs such as wind and solar power and electric vehicles.

Manchin also claims that he is protecting coal-mining jobs in his home state of West Virginia, but that is living in the past. Coal mining is still an important industry for the state, but the number of miners plummeted from 21,000 in 2010 to 11,500 in 2021.

That’s about a 50% drop over 10 years and a far cry from the 64,000 employed in the 1970s. Ironically, coal-mining jobs began to fall in West Virginia during Ronald Reagan’s presidency, as coal companies focused more on strip-mining in the West. The decline in jobs has steadily continued, as coal has become less attractive, on environmental grounds, and less economical than natural gas, wind and solar energy.

A Reliable Ally…for Mitch McConnell

Sen. Mitch McConnell (R-KY) must be delighted to have such a reliable ally in the Senate; it saves him so much trouble. McConnell has been able to sit back and watch the Democrats twist and turn for months, as they have tried to accommodate Manchin and his constantly shifting demands.

Tackling climate change has been one of President Biden’s top priorities and an important campaign promise. Democrats in Congress have wanted to pass a major bill before the midterms, when the Republicans might win control of the House and perhaps the Senate, too.

Instead, Biden has been humiliated. Congressional Democrats are very worried because younger voters, especially, feel betrayed by the lack of action on environmental issues. Their anger and sense of hopelessness might depress voter turnout in the midterms.

And now, McConnell and his colleagues can quote Manchin about the dangers of inflation, as they try to pin the blame for rising prices on the Biden administration.

Manchin is Wrong About Inflation

Manchin’s arguments that the latest bill would add to inflation do not hold up to scrutiny. The Senator objected to two provisions in particular:

· $300 billion of tax credits to ease the transition to alternative energy programs

· Higher tax rates on ultra high-income Americans and corporations

For example, one provision would have provided up to $7,500 in tax credits for consumers who purchase electric vehicles. The idea is to stimulate demand and help the EV industry reach economies of scale, which could lead to lower prices eventually.

Since auto emissions are one of the largest sources of pollution, it’s critical to facilitate this transition, so we can reduce the health expenditures and other external costs associated with dirty air and global warming.

More Electric Cars, Less Pressure on Gas Prices

Why does Manchin think the electric vehicle program would be inflationary?

The tax credit would not likely lead to a rise in car purchases, which could add to inflation. Instead, the tax credit would lead to a shift in demand, as more consumers opted to buy electric vehicles rather than gasoline-fueled ones.

Furthermore, by increasing the demand for EVs versus traditional cars and trucks, the program should reduce the pressure on gasoline prices, at least to some extent.

It’s also important to keep the figures in perspective. The $300 billion in tax credits would increase consumers’ buying power somewhat. But that’s not a major factor in the context of the US economy, which is forecast to be about $22 trillion in 2022.

**Raising Taxes Should Cut Inflation**

Manchin’s 180-degree turn on taxes is particularly baffling. Unlike Sen. Krysten Sinema (D-AZ), another DINO, Manchin previously supported increasing taxes, during the torturous negotiations on Biden’s Build Back Better plan. Manchin wanted to increase taxes to trim the federal deficit, which was a valid issue.

Now, Manchin has abruptly reversed course, citing his concerns about inflation .

But raising taxes is anti-inflationary. If corporations and ultra high-income Americans have to pay more taxes, they will presumably curtail their expenditures as a result. Their reduced expenditures should lower aggregate demand for some goods and services, which in turn should ease the pressure on prices to a certain extent.

Beware the Inflationary Bogeyman

It’s important to dwell on the logical flaws in Manchin’s arguments, because Republicans are using similarly misleading claims to blame the Biden Administration for inflation. They argue that inflation has surged mostly because Democrats pushed through large spending programs, notably Biden’s $1.9 trillion Covid relief bill and his $3 trillion infrastructure package.

However, Ben Bernanke, former chair of the Federal Reserve, disagrees with that view. Bernanke acknowledges that the Covid bill might have been a bit excessive, in hindsight, but he points out that without a large program the US would probably have plunged into a deep recession. Instead, Bernanke emphasizes, supply chain disruptions caused by Covid and the war in Ukraine are the main drivers of inflation in the US.

The former Fed chair has also noted that many countries are suffering from high inflation, such as the UK, France, and Canada. So this is a global trend, not a problem limited to the US.

It’s also worth bearing in mind that the safety-net payments under Biden’s Covid relief program stopped in September 2021, so they ceased to affect consumer demand over 10 months ago.

The infrastructure program’s $3 trillion will be spent over ten years, which lessens its impact on our $22 trillion economy. And with better infrastructure, the US economy will become more productive and efficient.

Biden’s Options Are Limited

The reality is that a President cannot do much to tame inflation. We have a market economy, not one controlled by the government.

If Biden eliminated Donald Trump’s tariffs on Chinese goods, that would provide some modest relief on prices. The tariffs are actually a tax on American consumers, who foot the bill. The tariffs have not worked; they have not hurt Chinese companies’ exports. But Biden seems to fear being attacked as “soft” on China.

The challenge for Biden and other Democrats is to explain how their policies have helped Americans, rather than trigger inflation. So far, the message is not getting through…and they are running out of time.

And they are certainly not getting any help from Joe Manchin.

The Wall Street Democrat

Ryan O’Connell