Originally Posted by
David Walser
Roger -- I mentioned a policies from the prior administration and from the current administration because I didn't want this to become a political debate -- with all the nastiness that today's political conversations too frequently generate. You can agree or disagree with the wisdom of Trump's raising tariffs. There are decent arguments on either side of the question. However, I hope no one will argue that raising tariffs tends to increase inflation.
Similarly, Biden's energy policies will, by design, lead to higher energy prices -- with the inflationary consequences described above. Again, you can agree or disagree with the wisdom of Biden's energy policies. There are decent arguments on both sides of the question. I had hoped no one would argue that Biden's energy policies were not inflationary. But, since your comment could be read as arguing that Biden's energy policies are not inflationary, please allow me to offer some additional color.
The cost of energy increased under Obama. Again, this was by design. His goal was to reduce energy consumption and thereby reduce our impact on the environment. Some argue that higher energy prices are a small price to pay for protecting the environment. Again, I'm not going argue for or against that proposition. I'm simply noting that was the position of the Obama Administration. The only reason these policies didn't result in general inflation is because of the very low growth of the economy coming out of the 2008 recession -- slow growth that lasted for the entirety of Obama's term of office. That's one way of fighting inflation -- reduce demand through anemic economic growth.
Trump's energy policies differed. He was in favor of energy exploration and development. While Obama said we could not drill our way into energy self-sufficiency, under Trump we did just that. This resulted in markedly lower energy prices, which was a boon to the economy.
Biden is returning to Obama's energy policies. The chart you posted ends in 2020. Energy prices, which are based on future expectations, started to rise immediately after the election. Today, the price as of the end of May 2021 was just over $85. Part of this price increase is our coming out of the COVID induced recession. Part is caused by Biden's energy policies and the expectation prices will return to the 'norm' during the Obama years. From an inflationary perspective, this go round, there is a lot of pent up demand. Thus, it is unlikely that the inflationary effect of increased energy prices will be swamped slow growth reducing demand. That may be the long-term result, but in the short term, sellers are feeling free to raise prices.
Will Biden's energy policies return energy prices to Obama levels? I don't know. However, I have a number of clients in the energy industry and that's the way they're betting.