Federal spending needs to be brought back to 2019 levels, and excessive deficit spending needs to be halted

Editor’s Note: The Ideas Lab asked the Democrat and Republican candidates for the U.S. Senate to submit 1,000 word essays on how they would tackle inflation, the issue Wisconsinites surveyed as part of the Main Street Agenda project said is the most significant problem they face heading into the Nov. 5 election.

Inflation has crushed Wisconsin families, driving up prices and making it harder than ever to get by. To fix this problem, you have to elect folks who understand the root causes and how to address them in a lasting way.

Inflation is always a monetary event. It is caused by the excessive spending and printing of money. The definition of inflation is too much money chasing a fixed amount of goods and services. The spike in inflation was a result of the excessive spending by the federal government that began during the COVID-19 lockdowns. The government increased federal spending by 40% in 2020 as it was providing stimulus checks to individuals and businesses to keep the economy from collapsing. The contraction in economic activity that occurred by shutting down our economy was offset by the temporary spike in government spending and transfer payments. 

The problem of inflation began when the economy reopened at the end of 2020 and the Biden-Harris administration, which took over in January of 2021, continued to spend money at the same rate even though the economy was roaring back as businesses were reopening and employees were being rehired. Through a series of legislation like the Inflation Reduction Act, Biden, Harris, and Congress have added $4.1 trillion in federal spending on top of normal appropriations acts that were already causing deficit spending. They added more debt in the last 3.5 years than during our country’s first 230-year history. 

Tammy Baldwin: ‘Greedflation’ is driving prices higher. I wrote a bill to stop gouging.

You heard from the candidates. We want to hear from you. Rate their inflation essays.

Due to this excessive spending, the Federal Reserve (the government’s bank) was required to absorb that spending by purchasing $5.7 Trillion in Treasuries and mortgage-backed securities through a process called Quantitative Easing. As a result, money supply increased significantly. The most important measurement of money supply is M2, which increased by over 39%. 

Because of this money printing, inflation was ignited, first in the price of assets (i.e. stocks, bonds, real estate), then to the price of goods, followed by the price of services. Inflation over the past three years increased by over 22%, and if we measured inflation like we did in the 1980’s prior to President Clinton’s changes in the measurement of CPI, inflation would have increased closer to 40%, almost equal to the increase in money supply. 

Impact of inflation on Wisconsin families has been horrible

The impact of inflation on Wisconsin families has been horrible. It has driven up the price of their groceries, gas and heating, housing, healthcare, and insurance. It has also caused real wages to actually decline over the last three years. We have rarely had American wages dip over a three year period. 

Sen. Tammy Baldwin and Vice President Kamala Harris claim inflation is a result of corporate greed. However, if this were the case, why weren’t corporations being greedy for the 40 years prior? Further, why does inflation track with the federal increase in spending and money supply? Lastly, does Baldwin also claim that farmers were being greedy because they were passing on higher prices? Or small businesses that were passing on higher prices because their costs were rising? It is a silly argument and a deflection from their role in creating this horrible outcome for Wisconsin families. 

How do we tackle this problem? 

The Federal Reserve has already started that process by slowly contracting the money supply and increasing interest rates to slow the economy. However, because of our now $35 trillion in debt and the continued federal spending, exceeding 50% of the level prior to COVID, inflation will unfortunately resume unless difficult decisions are made immediately. 

The first thing that needs to happen is federal spending needs to be brought back to 2019 levels, and excessive deficit spending needs to be halted. To prevent an economic contraction as spending declines, pro-growth policies need to be implemented, like deregulation. President Reagan deregulated the economy in the 1980’s while he was addressing the inflation problem of the 1970’s, and this helped create the economic boom that followed. Unfortunately, the regulatory state has grown far more dramatically than it was even in 1980. Any business owner or farmer will tell you they are choking on excessive regulations. 

Further, mandates that the Biden administration has put on numerous industries need to be removed, such as on automakers for EV cars or energy companies with green energy initiatives that are not economically viable. All those mandates do is drive up the costs of cars and energy. What we need is to get the economy more in alignment, by reducing unnecessary costs of producing goods and services while creating strong economic growth to get wages increasing. This is what will improve financial outcomes for Wisconsinites.  

Contrast my real world experience with that of career politician

I have spent my life in the real world and understand how our global and financialized economy works. I have a deep understanding of how the banking system, our capital markets, and the Federal Reserve function. Having spent my career building and turning around companies, primarily community banks, and having operated in multiple different industries, including my real estate development company in Madison, I have unique insights into all aspects of our economy. 

Unfortunately, today, we have career politicians like Baldwin who are making impactful decisions on our economy who simply do not understand how our economy functions, because they have never operated in it and have no experience. 

Disappearing farms: We feared for dad’s life after selling our cows. Finding hope while friends faced loss.

A primary reason I entered the race for the U.S. Senate is because I have watched these horrible economic policies being implemented that are hurting the middle- and working-class and having a devastating impact on the elderly that live on fixed incomes. We are also jeopardizing our children’s future by leaving them $35 trillion in debt, with another $1 trillion being added every 4.5 months. 

If we don’t address our debt and deficit spending, the U.S. economy will collapse into a debt crisis that is not too far off. Amongst all the problems our country is currently facing, it may be the biggest concern. It will require smart economic policy and cooperation by both parties to get this problem fixed! The people of Wisconsin should know I will do everything within my power to improve their wellbeing. 

Eric Hovde is the Republican candidate for the U.S. Senate in Wisconsin. He is the CEO of Hovde Properties, a Madison-based real estate development company.