Politico has decided to make a big deal out of Treasury Secretary Janet Yellen’s supposedly embarrassing admission that:
“There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t — at the time — didn’t fully understand, but we recognize that now.”
While Politico’s implication from this “admission” is that the $1.9 trillion American Recovery Plan Biden was a mistake, this is not what Yellen said. She said that she did not anticipate large shocks to the economy. Obviously, she is referring to the delta and omicron rounds of the pandemic, as well as the war in Ukraine.
These subsequent rounds of the pandemic both disrupted production in the United States and elsewhere, and prevented a more rapid return to normal consumption patterns. The ongoing disruption of production, due to the pandemic, prevented supply chains from returning to normal through the fall and winter, and even now, as China’s exports continue to face disruptions.
The subsequent waves of Covid also prevented people from returning to normal consumption patterns. This meant that consumers continued to spend less than normal amounts on services involving exposure to other people (restaurants, movies, gyms) and larger than normal amounts of money on things (televisions, cars, clothes). This continued shift to goods consumption aggravated supply chain problems.
The war in Ukraine has sent the world price of oil and natural gas soaring. This has pushed gas prices to near record levels in real terms. The war has also raised the price of wheat and other agricultural commodities, as both Russia and Ukraine are major grain exporters.
It’s good that Yellen admitted her failure to see these shocks, although it’s not clear what different policy the administration should have pursued if she had seen them coming. The world price of oil, and therefore the price of gas, would be just as high today if the Biden administration had not passed its recovery plan.
There is a point here on which the Biden administration certainly can be criticized, although not one mentioned by Politico. If the Biden administration had made vaccinating the world a top priority, it is likely that we would not have seen the development of the omicron variant and quite possibly also have prevented the delta variant.
The number of mutations of a virus will depends on the extent of its spread. If we had worked aggressively with other countries to produce and distribute as many doses of the vaccine as quickly as possible, overriding patent monopolies and other protections, we could have prevented hundreds of millions of cases, along with the resulting sicknesses and death.
The Biden administration ostensibly supported a limited waiver of patent protection for vaccines, but this support was at best half-hearted. It really should have been the top priority of the Biden administration, from day one, to spread the vaccines, as well as tests and treatments, as widely as possible as quickly as possible. Clearly this was not the case, and for that it deserves considerable blame. (Of course, it would have been even better if we embarked on this path back in March of 2020, but we know Donald Trump doesn’t care about stopping deadly pandemics.)
Anyhow, there was a very serious mistake, for which the Biden administration deserves to be taken to task big time. Unfortunately, it is not a mistake that Politico is interested in talking about.
This first appeared on Dean Baker’s Beat the Press blog.