Fact Checker Shoots Down Psaki's Claim That Economists Not Predicting Inflation If 'Build Back Better' Passes
Politifact rated White House Press Secretary Jen Psaki’s assertion that “no economist” is predicting Build Back Better will have an inflationary impact as “false.”
At a news conference last week, a reporter, noting that inflation is at a 31-year high, asked Psaki, “Why should Americans not be concerned that injecting another $1.75 trillion or more would further raise inflation?”
“Because no economist out there is projecting that this will have a negative impact on inflation,” she answered.
“And actually, what it will help do is it will help increase economic productivity,” Psaki continued. “It’s — it will help economic growth in this country. That and the Build Back Better Agenda will help reduce inflation, will help cut costs for the American people over the long term.”
In its first fact check of Biden’s press secretary, Politifact ruled the claim, “false.”
The reviewer cited multiple economists who believe Build Back Better, which would launch multiple new entitlement programs, will cause inflation.
“I’m an economist, and I disagree,” president of the center-right American Action Forum Douglas Holtz-Eakin told PolitiFact.
“We know there’s lots of spending in the bill, and that it’s front-loaded” into the earlier years, he said. “If you cut taxes and increase spending, financed by debt, that will put upward pressure on inflation.”
Ethan Harris, head of global economics research at Bank of America, concurred, telling the fact checker, “You should wind up with primarily a deficit-financed spending bill that is going to be rolled out in an economy near full employment … It will make the labor market even hotter and create even more price pressure.’’
Michael Feroli, chief U.S. economist for JPMorgan Chase, said pumping more money into the economy right now is “not advisable.”
“The economy seems to be operating pretty close to its capacity constraints,” Feroli said.
Others like Jason Furman, who chaired the Council of Economic Advisers under President Barack Obama, told The New York Times that the inflationary pressure will show up in 2022, but will be “small.”
John Leahy, a professor of macroeconomics and public policy at the University of Michigan, explained to Politifact why Build Back Better would be inflationary.
“Inflation is the result of too much demand chasing too little supply,” Leahy said.
“An increase in government spending should increase demand and thereby increase inflation,” he continued.
“This will happen even if the spending is fully paid for through taxes, since the government spending increases demand one for one and the taxes reduce demand only to the extent that firms or consumers reduce their spending as a result, and this reduction is typically less than one for one.”
Politifact concluded that Psaki is “wrong to say that no economist foresees inflation as a result of the bill’s passage. Numerous economists, including some allies of the White House, have gone on the record saying there probably will be inflationary effects, especially in the near term, if the bill is passed.”
However, the fact checker stated the general consensus is that Build Back Better would result in “modest and brief” inflation.
The U.S. is currently experiencing a 6.8 percent annual inflation rate, which is the highest since 1990 — at that time it was at 5.4 percent.
The present spike came following passage of the $1.9 trillion American Rescue Plan in March and Biden’s moves that curtailed domestic oil production.