OPINION:
Some politicians make history. But by caving so quickly to President Biden, Republican House Speaker Kevin McCarthy has chosen to be a footnote.
Historians will mark Mr. McCarthy’s Memorial Day weekend surrender not as an important, courageous and prescient turning point but as one more political misstep toward a prolonged war with stagflation — simultaneous slow growth or recession plus inflation. Just like in the 1970s, the stagflation we are now witnessing has both “demand-pull” and “cost-push” components.
Demand-pull inflation results when too much money chases too few goods. This is exactly what happens when you add mega-trillions in government spending to an economy already straining at the inflationary seams. Mr. Biden and a Democratic majority in Congress did this with the passage of a trio of spending bills — the last a $1.7 trillion inflationary coup de grace passed in a lame-duck session with the shameful assistance of Sen. Mitch McConnell’s RINO wing of the Senate.
Mr. McCarthy boldly entered the debt limit fray with a beautiful plan designed by former Office and Management and Budget Director Russ Vought that would have shaved trillions from the debt. Instead of holding fast as he had promised his troops he would do, Mr. McCarthy took the first possible offramp.
Now, like methamphetamine coursing through the veins of a tweaker, the Biden spending orgy with its demand-pull inflationary pressures will endure for years to come. Yet the role of Mr. Biden’s cost-push inflation may turn out to be far worse.
Cost-push inflation, aka supply-side inflation, results from shocks to an economic system like soaring energy and food prices. When you graph that out in an Econ 101 course, this looks like an inward shift of the economy’s supply curve, which reflects not just higher prices but also reduced production and growth. This is the very definition of stagflation.
Upon taking office, Mr. Biden and the Democrats immediately declared war on America’s oil and gas production, thereby triggering a major energy price shock. As pipelines were canceled and oil leasing was suspended, oil prices began to rise, production fell, and America quickly lost the strategic energy dominance the Trump administration had worked so hard to achieve.
Today, a strange bedfellow combination of Saudi Arabia and Russia rather than the United States controls oil prices. With the Saudis needing $80 a barrel of oil to pay for social welfare programs, the pampered monarchs need to pacify their restive population, and Russia needing $100 a barrel of oil to pay for President Vladimir Putin’s war, oil prices have spiked far above those of the Trump years. As energy prices have soared, so, too, have food prices — petroleum is the single most important ingredient of fertilizer.
In his surrender to Mr. Biden, Kevin Owen McCarthy lost a golden opportunity to reassert the primacy and strategic importance of America’s fossil fuels and thereby drive a stake through the heart of cost-push inflation. Instead of standing up for measures that would have resuscitated our oil and gas sector, Mr. McCarthy let Mr. Biden and his green-eyed progressives take any such measures off the table.
The tragedy here is that Mr. McCarthy was holding all of the negotiating cards. The only reason Mr. Biden and the Democrats were able to pass their spending bills to begin with was that before the 2022 elections, the Democrats controlled both chambers of Congress. Ergo, they brooked no quarter during negotiations over these spending bills when Mr. McCarthy was House minority leader. Indeed, like the sadistic Nazi in “Saving Private Ryan,” the Dems slowly and methodically stuck long knives into Mr. McCarthy and his Republican brethren.
Flip that around with House Republicans now in charge, and there was no reason for Mr. McCarthy to compromise — much less cave in so thoroughly as this Uniparty footnote to history has now done.
OK, there is at least some red meat for conservatives. Mr. McCarthy got his phased-in expansion of work requirements for food stamps. He got small tweaks to streamline environmental reviews and put very modest brakes on the spending train. He also got a pathetically small cut in the Democrats’ spending plan that will still nearly double the size of the IRS.
Yet Mr. McCarthy also agreed to kick the next debt limit can down the road past the 2024 election into 2025 for a new Congress and new president to deal with. Politically, this Vichy move was the stupidest — and most selfish — concession Mr. McCarthy made.
It was stupid because this delay will allow Mr. Biden and the Democrats to run in the 2024 cycle without having to seriously defend their profligate spending. It was selfish because Mr. McCarthy feared another such crisis in 2024 might threaten his leadership. Never mind that Mr. McCarthy had a golden opportunity to turn the stagflation ship around and make all Americans better off under Republican leadership. Footnotes are as footnotes do.
• Peter Navarro served as assistant to the president and Donald Trump’s manufacturing czar. Follow him at http://peternavarro.substack.com, where this article originally appeared.
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