While he was president the dollar fell 27 percent against the euro, and 25 percent against the British pound. Who was this president? It has to be Joe Biden, right? Figure that inflation has soared on his watch, or something like that. Back to Biden in a bit. There’s much to criticize.
For now, and since members of the Right loathe zones without spin, it’s important to address the presidency of George W. Bush. Time seems to heal all wounds, and monumental errors it seems. In Bush’s case, the dollar didn’t just fall during his presidency, it fell substantially. That was his Treasury Department’s policy. Bush’s initial Treasury secretary in Paul O’Neill questioned the worth of a “strong dollar,” and the men who followed him (John Snow, Henry Paulson) hardly improved on the matter. This was a departure not just from Republican orthodoxy (Ronald Reagan had run for president based on reviving a debased dollar), but also the policies of the Clinton administration that preceded Bush’s. While Clinton’s Treasury Secretary, Robert Rubin regularly communicated to the markets the importance of a sound currency.
That Bush reversed course on the successful dollar policies that preceded his presidency had cruel results for the typical American. Perhaps some readers are remembering the results now. Indeed, when commentators talk about gasoline prices and the record levels they’re at, it’s notable that they’re the highest they’ve been since the oilman in Bush was in the White House. To be clear, this is not a criticism of the work Bush once did. It’s more a reminder that Bush held the industry in high regard (with good reason), Biden lamely does not, but oil and gasoline were wildly expensive under Biden and Bush. In other words, the barriers to oil exploration erected by Biden, while wrongheaded, are not the source of today’s price per barrel of $113. Goodness, under Bush the price of a barrel at one point hit $150.
The simple truth is that the value of the dollar is the biggest factor when it comes to the oil price, and nothing else comes close. This is important in consideration of the popular view on the Right alluded to in the previous paragraph about Biden’s disdain for “Big Oil” being the source of expensive gasoline; the alleged reasoning being that Biden’s policies have reduced supply on the way to rising prices last seen during Bush’s presidency. Ok, so how would Biden’s critics explain how the price of a barrel hit $9 during Reagan’s presidency and $10 during Bill Clinton’s? The U.S. energy industry was largely non-existent during the presidencies of both? Any thoughts?
When Treasury policy favors a stronger dollar, oil is cheap. When it favors weakness as was the case under Bush, oil soars. It’s too often forgotten that when Bush entered office, a barrel of oil was trading at $25. And at the time the price was viewed as exorbitant given the lower prices Americans had grown used to in the 1980s and 1990s. Eventually oil as mentioned soared well past $100.
Which brings us to Karl Rove, Wall Street Journal columnist and former policy guru to George W. Bush. In his column last week, Rove inaccurately stated that “inflation’s principle cause is too much government spending,” which isn’t true. And if it had been true, his former boss in Bush would have been a master inflationist given the soaring size of government during his presidency. But that’s a digression.
In truth, inflation is a decline in the value of the dollar. Which means that even if Rove were correct about inflation’s causes, his errant column largely focused on symptoms. To blame higher prices on inflation is like saying wet sidewalks cause rain. Causation is mixed up. Higher prices are something, but not always a consequence of inflation.
Inflation is once again a devaluation of the currency, which is something Rove should know well since the dollar was so severely devalued during W.’s presidency. As mentioned previously, the euro and pound crushed the dollar, so did the Canadian dollar, Aussie dollar, Swiss franc, etc. etc. To which some will say fiat currencies without definition aren’t an accurate way of measuring a currency’s performance. It’s a useful point, and one made routinely by yours truly.
All of which calls for a look at the price of gold during Bush’s presidency. Viewed as a low-rent measure now by economists and cable TV pundits, Reagan thought it important. Very much so. He and other liberal-minded types (the good kind, the freedom-focused kind) like John Stuart Mill, David Ricardo, Joseph Schumpeter and other classical thinkers saw gold as an objective way of looking at a currency’s true direction precisely because gold has always been the commodity least affected by everything else.
Oh well, when Bush entered office gold was trading at around $260/ounce. During his presidency gold soared above $1,000 at varying points, which means the value of the dollar hit all-time lows during Bush’s presidency. All of this helps explain the nosebleed prices we paid for gasoline while Bush was in office.
Rove might respond that the CPI and other artificial government measures of inflation didn’t reflect the dollar’s decline. True enough, but so what. At least historically Republicans have preferred market signals to government measures as is, and market signals reveal Bush as quite the inflationist; thus raising the question why Rove would presume to criticize any president on the matter of inflation.
None of this excuses Biden. The dollar remains weak, gold at $1,820 a powerful market signal explaining, among other things, gasoline that’s so dear. But let’s be clear about who started this fire.
After which, let’s be real. That prices are higher today is a statement of the obvious born of lockdowns instituted when Biden was a private citizen. The miracle was the prices that prevailed before the lockdowns; those prices a consequence of remarkable symmetry among global producers. This beautiful global cooperation was eviscerated by global politicians, including a U.S. president not named Biden.
Of course, the imposition of command-and-control is not inflation despite what we’re told, and despite what Rove believes. Biden’s problem (among many others) is that he doesn’t know what Karl Rove also doesn’t.