Special report on what the Biden administration should do about inflation

Today Joe Biden began a week-long public messaging drive on the economy by meeting with Fed Chief Jerome Powell in the White House — and emphasizing that it’s the Fed’s job to slow inflation. “My plan to address inflation starts with a simple proposition: respect the Fed, respect the Fed’s independence, which I have done and will continue to do,” Biden said in the Oval Office.

But relying on the Fed to bring down prices is like treating someone’s fever by putting them in a freezer. It doesn’t treat the underlying disease, and could make things far worse.

Let’s be clear: The major drivers of price increases around the world are pent-up demand for all sorts of goods after two years of pandemic, coupled with supply shocks and shortages — made worse by Putin’s war in Ukraine and China’s shutdown of cities where COVID is again on the rise.

There’s little that the Fed’s interest-rate hikes can do about these forces. If it continues to raise interest rates to slow the U.S. economy, it will bring on a recession.

Biden should also be clear about another cause of rising prices, which he can and should do something about: Big American corporations are enjoying their highest profits in 70 years, and have been using inflation as a cover to push up prices because they can. And they can because most face very limited competition.

At the least, Biden should support a windfall profits tax — especially on oil companies — and challenge Republicans to join him.

In recent weeks, the world's largest oil companies reported first-quarter earnings. All are making record profits off of consumers who are paying record prices at the pump.

ExxonMobil reported a net profit of $5.5 billion, more than doubling its earnings from the first quarter of 2021. Shell notched its strongest quarterly profit ever, and Chevron posted its best earnings quarter in nearly a decade. In the first quarter of 2022, these companies brought in more than 300 percent more in profits than in the first quarter of 2021. That’s a total of more than $35 billion in profits in just three months.

In fact, the first-quarter profits of the five biggest oil companies are equivalent to almost 28 percent of what Americans spent to fill up their gas tanks in the same time period.

So why not a windfall profits tax on Big Oil?

Even Britain’s Conservative government announced last Thursday a 25 percent windfall tax on the profits of oil and gas firms. It will be used to support $19 billion in assistance for low-income households struggling with a sharp spike in the cost of living. If Britain’s Conservatives can do it, so can Biden and the Democrats.

PS: Here’s a background brief on the real causes of inflation: