The Morning Dispatch: Rising Inflation Puts Build Back Better at Risk

Happy Monday. Our hearts go out to the dozens who were killed by the tornadoes that touched down this weekend, and the thousands whose communities have been affected. WLKY in Louisville has compiled a list of ways to help those affected by the storms.

Quick Hits: Today’s Top Stories

• A series of tornadoes touched down in Kentucky, Tennessee, Arkansas, Mississippi, Missouri, and Illinois over the weekend, leaving at least 80 dead, according to officials—and likely more. Declaring it “one of the largest tornado outbreaks in our history,” President Joe Biden approved Kentucky’s emergency declaration on Saturday and said FEMA is on the ground in the affected states. More than 50,000 households in Kentucky remained without power as of Sunday evening.

• The Supreme Court on Friday allowed Texas’ recently enacted abortion law—S.B. 8, which allows private individuals to bring lawsuits against anyone who helps perform an abortion after six weeks of gestation—to remain in place, arguing abortion providers cannot sue Texas state officials to stop that portion of the law from going into effect because Texas state officials have no role in enforcing it. The Court, however, allowed the lawsuit against state medical licensing board officials—which is limited to whether those officials have any role under the law in pulling abortion provider licenses—to continue.

• At least 55 people died and more than 100 others were hospitalized when a truck carrying more than 160 Central American migrants to the U.S.-Mexico border tipped over and crashed into a bridge in southern Mexico on Thursday. The United Nations’ International Organization for Migration said Friday that about 650 people have died attempting to cross the U.S.-Mexico border this year, the largest number since 2014.

• Nicaraguan Foreign Minister Denis Moncada announced Thursday the country is severing diplomatic ties with Taiwan in favor of Beijing, bringing the number of countries that maintain full diplomatic relations with Taiwan down to 14, including the Vatican.

• President Moon Jae-in said Monday South Korea does not plan to join the United States-led diplomatic boycott of next year’s Winter Olympics in Beijing.

• The Treasury Department announced Friday it had sanctioned two people—Shohrat Zakir and Erken Tuniyaz—and Chinese firm SenseTime Group for their involvement in the human rights abuses being perpetrated against Uyghur Muslims in China’s Xinjiang province. SenseTime has “developed facial recognition programs that can determine a target’s ethnicity, with a particular focus on identifying ethnic Uyghurs,” the Treasury said.

• The January 6 Select Committee on Friday issued six additional subpoenas targeting individuals connected to the rallies held in the lead up to the Capitol riot, including Brian Jack, former President Trump’s director of political affairs, and Max Miller, a former special assistant to Trump who is currently running for Congress in Ohio.

• Chris Wallace, longtime host of “Fox News Sunday,” announced yesterday he is leaving Fox News effective immediately and joining CNN’s upcoming digital streaming service to host a weekday show.

Inflation—and the Congressional Budget Office—Further Imperil Build Back Better

Treasury Secretary Janet Yellen knew that Friday was going to throw a wrench in the Biden administration’s economic agenda. “The Build Back Better Act is fully paid for this decade,” she wrote in a memorandum sent to U.S. senators—and reported by Politico—on Thursday night. “The Act’s outlays are spread over the decade and will be made on the cusp of a historically negative fiscal impulse—suggesting it will not be inflationary in the near-term.”

Aimed primarily at Democratic Sens. Joe Manchin and Kyrsten Sinema, the memo was written as a prebuttal to two government reports—the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI) and the Congressional Budget Office’s (CBO) second analysis of Build Back Better (BBB)—set to be released Friday and likely to deliver bad news.

They did. According to the BLS, consumer prices in November (as measured by the CPI) were up a whopping 6.8 percent from the year before, and the CBO found that BBB—if its programs were made permanent, rather than allowed to sunset after a few years—would add $3 trillion to the federal deficit between 2022 and 2031.

Inflation Hits 39-Year High

The 6.8 percent figure represented the fastest annual rate of inflation in nearly 40 years, since June 1982. Gas costs an average of 58 percent more than it did last year (and 27.5 percent more than it did two years ago, pre-pandemic), and new and used car prices are up 11 and 31 percent over the same time period, respectively. But unlike some CPI reports earlier this year, the price increases cannot solely—or even primarily—be explained by base effects or supply-chain issues. The cost of domestic services rose 10.2 percent since November, and even rent—which in May and June registered annual price increases under 2 percent—is now up 3 percent year-over-year.

“The inflation report was distressing because it is broad-based, it’s worsening, and it’s not based only on supply-chain issues,” Brian Riedl—Manhattan Institute senior fellow and former chief economist to Sen. Rob Portman—told The Dispatch. “The fact that housing prices and rents are becoming a big part of inflation shows this is not simply supply chains from China driving in inflation. This is driven mostly by monetary and fiscal policy, rather than supply-chain bottlenecks that might improve in the next few months.”

But it wasn’t just conservative economists expressing concern. Jason Furman—who chaired former President Barack Obama’s Council of Economic Advisers from 2013 to 2017—had a similar reaction. “Friday was a red-hot inflation report coming on the heels of two other very high inflation reports,” he told The Dispatch, noting he hoped the figures would serve as a “wake up call” to the Federal Reserve. “Partly it was weird, idiosyncratic factors like cars and gasoline that may be in the rearview mirror. But it was broad, in almost every category, and the other shoe is yet to drop, where inflation is going to go up, for example, in the shelter category.”

President Biden told reporters Friday he believes we’re at the “peak of the [inflation] crisis” and that it will dissipate “quicker than” most people expect. But Federal Reserve Chairman Jerome Powell—whom President Biden announced last month would be renominated for a second term—has signaled in recent weeks the central bank is no longer treating the phenomenon as “transitory,” and that it could accelerate the taper of its asset purchases by a “few months” to combat rising prices.

Riedl agrees with the approach. “I think the Federal Reserve has already signaled that they’re going to get tough on inflation, which by itself can reduce inflation expectations and help a little bit, even before the actual tapering ends and interest rates rise,” he said. “They’ve come to the realization that this is not merely a supply chain issue. If supply chains were driving inflation, you would not want to raise interest rates—that wouldn’t address the problem. But to the extent that it’s literally too much money chasing too few goods, turning off the money spigot, tapering, and eventually raising rates is the right move.”

Will the Real BBB Cost Please Stand Up?

Late last month, the CBO—a nonpartisan federal agency that analyzes the effects of pending legislation—issued its grade of Democrats’ Build Back Better Act, finding it would add roughly $160 billion to the deficit over the next decade. Treasury Secretary Janet Yellen issued her own assessment showing the bill was fully paid for, helping secure the votes of all but one of the remaining Democratic holdouts in the House, which passed the legislation 220-213.

But as we wrote at the time, Democrats and Republicans do not agree on how much BBB costs—or how it should be scored. The lawmakers who crafted the legislation included a series of expiration dates and sunset clauses—the bill’s child tax credit boost lapses after just one year, for example—that serve to reduce the topline cost of the package. Republicans—channeling their inner Milton Friedman—expect those programs to become permanent.

“These permanent programs are typically done in two steps. First, you pass the temporary bill, and then later you get often a bipartisan vote to extend the programs without pay-fors, because nobody wants to be accused of taking away an existing benefit,” Riedl said. “Nobody believes that Congress would let the Child Tax Credit expire after one year, or let brand new entitlements expire after three or four years.”

Operating under that set of assumptions, Sen. Lindsey Graham and Rep. Jason Smith sent a letter to the CBO requesting a supplemental cost estimate over the next decade if BBB’s spending provisions were made permanent. The agency obliged, finding, unsurprisingly, that the cost of the bill was much greater under those circumstances. 

“A version of the bill modified as you have specified would increase the deficit by $3.0 trillion over the 2022–2031 period,” CBO Director Phillip Swagel wrote to the lawmakers. “[In comparison], the version of H.R. 5376 that was passed by the House of Representatives would increase the deficit by $0.2 trillion over the 2022–2031 period.”

The White House tried to downplay the findings. “This is a fake CBO score,” press secretary Jen Psaki claimed in Friday’s press briefing. “It’s not about the existing bill anybody is debating or voting on. This is about proposing the extension of programs that has not been agreed to without the commitment of the President—which he’s made repeatedly, publicly, that he would never support extending these programs if they weren’t paid for, period.”

But Graham and Smith didn’t request the re-score to persuade Jen Psaki; they did so with Sen. Joe Manchin in mind. “What I think will happen is that Joe will take these numbers and he will start making decisions about what comes next,” Graham said Friday. “My hope is that Sen. Manchin will say, ‘Stop, shelve Build Back Better until we find better answers to where inflation is headed.’” 

“I talked to him this morning,” Graham added. “He was stunned. I think he felt vindicated and that his concerns were legitimate.”

Because the structure of BBB relies on some upfront deficit spending, Furman envisions the legislation having a “small, positive impact on inflation” over the next year or two, but not enough to make or break the bill on its own. “The magnitude of that inflation would be sort of a rounding error compared to everything else going on,” he said. “I respect arguments for and against Build Back Better based on, is this a good use of resources? I just don’t think its impact on inflation is large enough.”

But he added that Friday’s reassessment could serve as a preview of future legislative fights. “In some ways, the CBO score shows just how hard it’s going to be to ultimately make everything in the legislation permanent,” he told The Dispatch. “It’s either going to push Democrats to bigger tax increases or to let some of this lapse. Obviously, it’s possible there could be higher deficits, and if that happens, let’s talk about it then.”

Global Democracies Regroup

Freedom House, the D.C.-based think tank, published a disconcerting report in March, finding civil liberties and political rights had declined globally for the 15th consecutive year in 2020 as various countries around the world descended into authoritarianism. As 2021 comes to a close, a 16th consecutive year seems likely. The Taliban’s takeover of Afghanistan; recent coups in Sudan, Tunisia, and Burma; and Russian and Chinese aggression targeting internal dissenters and neighboring democracies all portend a backslide in freedom across the globe.

It was against this backdrop that President Biden held the first-ever Summit for Democracy last week, virtually convening more than 100 global leaders to promote transparent governance and human rights.

“This gathering has been on my mind for a long time for a simple reason: In the face of sustained and alarming challenges to democracy, universal human rights, and—all around the world, democracy needs champions,” the president said in his opening remarks. “Democracy doesn’t happen by accident. We have to renew it with each generation. And this is an urgent matter on all our parts, in my view. Because the data we’re seeing is largely pointing in the wrong direction.”

Ahead of the summit, the U.S. Treasury rolled out sanctions targeting human rights abusers in Syria, Uganda, and Iran and additional measures targeting organized crime groups and international criminals in Kosovo and El Salvador. And during the virtual gathering, the U.S. and other participants laid out a series of commitments and initiatives aimed at preserving democracy at home and abroad.

“The president has long recognized that democracy is in trouble. He said it during the campaign, and it’s a key point he’s been making as president, beginning with his inauguration,” Mike Abramowitz, president of Freedom House, told The Dispatch. “The goal of the summit was really to try to rally like-minded countries and the world’s democracies to work harder to counter authoritarian influences.”

China—which, unlike Taiwan, was notably absent from the roster of invitees—accused the U.S. of wielding the language of democracy as a geopolitical weapon. Chinese Foreign Ministry spokesman Wang Wenbin told reporters on Thursday that the conference had “nothing to do with international justice or democracy,” but rather furthered the U.S.’ “own selfish gains and maintaining its hegemony.” Numerous Chinese government officials, journalists, and think tanks parroted similar claims in a media blitz leading up to the summit, defending the Chinese Communist Party’s rule as a “people’s democratic dictatorship.” 

“It’s interesting that even China recognizes the power of the word democracy,” Abramowitz said. “I think the fact that China was so vociferous in its complaints about the summit really says to me that they were unhappy about being left out—and properly so.”

Another controversial—albeit unsurprising—exclusion from the summit was Russia, whose leadership accused Washington of drawing unfounded distinctions between democracies and alleged autocracies. “Even U.S. media outlets, which provided extensive coverage to the upcoming event, admit that the term ‘democracy’ is being used as a code word, as a way to distinguish ‘friends’ from ‘foes’ within the framework of the United States’ rivalry with Russia and China and attempts to contain them,” Russian foreign ministry spokeswoman Maria Zakharova said during a Thursday press briefing.

The Biden administration, for its part, has maintained that the conference’s purpose was not to accost any particular nation, but media commentators and foreign governments alike have been critical of the guest list. The 110 invited nations included Pakistan, Angola, and the Philippines, which in recent years have backslid into semi-autocratic leadership, and excluded countries like Singapore and Sri Lanka, both of which tout many of the hallmarks of democratic governance.

Marti Flacks, director of the Center for Strategic and International Studies’ Human Rights Initiative, understood the approach. “The United States has strategic interests in having relationships with countries that are not democracies at the moment, and so it is inevitable that geopolitics would creep into a convening like this to some extent,” she noted. “That said, the hope is that by bringing fragile or quasi-democracies to the table, the Summit process can help nudge them in the right direction.”

Gary Schmitt, a senior fellow at the American Enterprise Institute (AEI), argued the White House’s lack of a coherent message on who was included detracted from the summit’s overall effectiveness. “Those disputes could have been overcome if the administration and allies had a forceful PR plan in advance over what it wanted to accomplish, but it didn’t,” he told The Dispatch. “They’ve let the noise over who was and who wasn’t invited be too much of the story.”

As Schmitt noted, the actual programming of the conference—which consisted primarily of keynote speeches and panel discussions—has generated little media coverage relative to the backlash over its participant list. But Biden hopes the two-day virtual event will nonetheless harness the collective efforts of government officials, civil society organizations, and the private sector to serve as the “kickoff” to a year of global democracy promotion. The president opened the summit by announcing an up-to-$424 million project called the “Presidential Initiative for Democratic Renewal,” which aims to bolster election processes, instill democratic values, protect media freedom, and counter corruption globally.

But while last week’s summit marks the administration’s latest effort to lead with American values, some experts are concerned that the Biden presidency—which in its first year bore witness to the fall of Afghanistan, ramped up Chinese military aggression in the Indo-Pacific, Iranian sanctions evasions and uranium enrichment, and Moscow’s mass mobilization of troops near Ukraine’s border—has relied too heavily on aspirational rhetoric in the absence of a substantive plan to counter the world’s bad actors.

“The understanding of the importance of democratic values is not a substitute for strategy and a willingness to actually confront authoritarians,” AEI’s Dalibor Rohac, author of In Defense of Globalism, told The Dispatch. “This is not a struggle between democracy and authoritarianism in some abstract, cosmic sense, or in a political science department’s seminar room. This is a very concrete fight over influence and power against our adversaries such as China and Russia, in specific parts of the world. And I’m sorry to say America—and by extension democracy—is not winning at the moment.”

Worth Your Time

• In light of President Biden’s summit last week, The Washington Free Beacon’s Matthew Continetti shared his thoughts on how democracies perish. “What happened in Afghanistan, and what might happen to Ukraine and Taiwan, is a reminder that democracies do not vanish because of a failure to pass a partisan agenda or win an election,” he writes. “They die when the rule of law collapses. And that can happen in two ways. A polity can descend into anarchy. Or an adversarial force can replace a democratic state’s monopoly on violence with its own.”

Presented Without Comment

Toeing the Company Line

• Georgia Secretary of State Brad Raffensperger joined Sarah and Steve on Friday’s Dispatch Podcast for a conversation about former President Trump’s efforts to overturn the 2020 election, Georgia’s new voting law, and the Republican gubernatorial primary between Gov. Brian Kemp and David Perdue.

• In last week’s Vital Interests (🔒), Thomas Joscelyn argues the United States government does an “exceptionally poor job” of explaining al-Qaeda to the public.

• David’s Sunday French Press focuses on what happens when Evangelicalism and the GOP come into conflict. “I now see that when theology and culture collide—or when theology and partisanship collide—a disturbing number of white Evangelicals will choose culture,” he writes. “But they’ll still believe they’re choosing faith, and that profound misunderstanding is contributing to a dynamic that is tearing this nation apart.”

Let Us Know

When you vote, are you generally thinking of more high-minded ideas—democracy, the rule of law, national purpose—or are kitchen table issues—the job market, healthcare costs, public safety—top of mind? Have your priorities shifted over time?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@lawsonreports), Audrey Fahlberg (@AudreyFahlberg), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).