Inflation and the Political Price of Hot Air
The public’s frustration about the economy is centered on high prices for food, fuel and housing.
In simple terms, we understand inflated prices to be the result of the effects of Covid on supply lines and manufacturing; of the direct worsening effects of conflicts, tariffs and war in Europe; and of at least some instances of corporations taking advantage.
The Federal Reserve took action this week to do what it has done traditionally in times of too-high inflation. The central bankers are raising the main borrowing rates a half percentage point, with promises of more increases, to raise the cost of borrowed money. Simultaneously, the Fed is backing out of its support for government bonds. Those are considered aggressive moves.
The idea is to slow a consumer-based economy from a too-hot increase in prices that leave wage-earners behind.
I don’t think America First is supposed to mean that the other guy should starve. But you wouldn’t know from reading through all the Republican talking points, which stress populism and anti-elitism, but then do absolutely nothing to bring down actual consumer prices.
Still, the problem is that these actions will also result in yet higher prices for many consumers. Housing costs and the interest on car loans will increase.
We can hope that these balancing moves may well even out wages and prices and provide a new level of business stability in the long run. But none of it will make it easier to keep your gas tank filled or lower supermarket prices.
Indeed, the economists disagree. Will raising borrowing rates too quickly will result in too much of a slowdown – or a statistical recession? All of this is happening as more people than ever are leaving their jobs in hopes of a better situation.
If a slowdown gets bad enough, we will see job reductions and delayed growth. That’s why the stock market is reacting with volatility this week. It’s why while the political air is filled with blame. The reality is that we’re in for a longer haul than any immediate fix can address.
Apparently, we have not raised the price of political hot air.
Surprisingly Little Action
Almost none of this involves the White House, other than serving as the traditional target for public anger. Despite opposition criticism, the president of the moment has surprisingly little control over prices in our capitalist market system.
At least, we have seen President Joe Biden tweaking the cost of gas by releasing strategic oil reserves and re-opening some federal lands to more oil drilling. But those are unlikely to have more than a few cents worth of effect on the total price at the pump, and more drilling would take years to kick in.
A New York Times analysis suggests the era of low-cost goods from international manufacturing is slouching toward a decades-long end.
Some states are suspending gas taxes to appear to be doing something about prices.
There is a New York candidate for governor airing television ads pushing for gas-tax holidays as a solution to inflation. It is nothing of the sort, just a temporary way to make things look as if the immediate price has come down.
Companies, including oil producers, are still reporting record profits while the rest of us keep saying even the raise we got this year lags the increase in the cost of milk.
Voters expecting to cast ballots to express their anger over high prices should think twice. The Republican opposition is no better placed than Democrats to bring consumer prices down.
What Republicans can and likely will do is to end investment programs in American social services, education and climate – basically all non-defense or border wall projects. Rather, from all the political talk about helping those left behind, Republican plans call for lots more defense spending and more enforcement of immigration rules.
How doing so can positively affect the price of meat in the market is questionable at best.
What’s the Plan?
We’re pumping billions of dollars into weaponry toward the defense of Ukraine because of unnecessary aggression by Russia. It’s a necessity to do so, no doubt, in defense of democracy and world order over national bullyism.
But we have yet to determine what the long-term cost will be of rebuilding a country that is being razed or for providing for food for hundreds of millions globally who will suffer because Ukrainian wheat and corn cannot be planted.
We’re paying through the nose for damage by increasingly severe weather effects of climate, and we’re going broke just trying to keep up with medical costs that Congress pretty much refuses to address with competitive thinking. Our immigration systems are being pushed beyond their financial limits because our split government has failed consistently to look at the problems comprehensively.
We’re watching our farms go under while people are going hungry. We argue about whether to forgive student debt while we keep expecting that innovation is suddenly going to supercharge our economy.
We think 6 or 8 percent inflation in the United States is horrible but worse figures for the rest of the world is somehow to our advantage. I don’t think America First is supposed to mean that the other guy should starve. But you wouldn’t know from reading through all the Republican talking points, which stress populism and anti-elitism, but then do absolutely nothing to bring down actual consumer prices.
Would we rather spend time fighting culture wars than figuring out how to stabilize and untangle our markets and supply lines?
And now, we’re going to slow the economy and raise prices to eventually help tamp down the too-fast rise of exactly those prices. It is quite a bizarre fix.