Inflation - what can government do?
Biden is criticized for high oil prices, but that price is set on the world market. He’s being criticized for using socialist measures to raise prices. But socialists would buy us the oil we need, which would ease the burden, not raise it. In other words Biden’s critics sling whatever sounds bad whether it makes sense or not.
There are steps government can consider though they involve significant trade-offs, but the president can’t do the most appropriate ones by himself; he needs statutory authority, which implies bipartisan cooperation. Remember bipartisanship?
Tax policy could make sense of this situation. People on tight budgets are being squeezed and government can and should help them deal with it – with targeted tax refunds, for example. But environmentalists have long favored higher carbon taxes to shrink the market for greenhouse gasses. So I’d do both: take some of the profits back with Excess Profits Taxes, or a carbon tax, and give a targeted tax break to those who need it.
Price controls could help counter inflation. President Nixon imposed price controls, which protect those who’ll be hurt most by inflation. The disadvantage is that international suppliers will look for countries who’ll pay more, reducing supply here, so price controls need to be short-lived.
The Fed could control inflation but only by stalling the economy. President Biden explained during his State of the Union address that stalling the economy controls inflation by putting people out of work, decreasing demand for goods and services. But it leaves people poorer, even homeless. In a slower economy, paychecks can shrink as well. Meanwhile, top executives get rewarded for cutting costs while the rest of us pay inflated prices. I don’t think Biden wants to do that and I don’t either. Federal Reserve Chairman Jerome Powell has no choice because it’s the only power he has. But the rest of us shouldn’t be stuck with that.
Some public efforts to increase supplies won’t help much. The president released fuel from the country’s national security reserves, for example. But estimates of what he can release are small.
Other public investment in things like like new port facilities, could ease supply chains and eventually bring prices down, but they take time, perhaps longer than supply issues would last.
But some public production does help control costs. Public agencies can take advantage of economies of scale to produce things much more cheaply. Examples include the postal service, water supplies, garbage collection, regulation of public utility monopolies. Years ago, New York State invested in electric power from Niagara Falls and the federal government invested in public power from the Tennessee Valley Authority and other major dams. Private business could take advantage of economies of scale to reduce their costs but we call those monopolies because they don’t reduce our costs. Capitalists prefer to make money by skinning the public, and Republicans complain that public production is socialist. But public production has reduced prices when we allow it. Government investment in new sources of electricity are already running counter to inflation although not yet as large as costs rising for other things.
Regulation could help control inflation. Biden explained that “Capitalism without competition isn't capitalism. It's exploitation.” Companies benefit without competition, charging all they want,raising prices far above rising costs. Government can respond by tightening and enforcing antitrust laws to restore competition or impose excess profits taxes to discourage price gouging – where we can identify culprits who are subject to the laws. But the rise in oil prices may be the result of international markets rather than specific corporations, so oil prices may be harder to deal with than other goods and services.
Congressional action is crucial for the most appropriate remedies. We’ve reached a point where one party is determined to protect corporate power to take advantage of us. We need to change that. Government should be of, by and for the people, not the corporations. But presidents can’t snap their fingers to make the problems go away. That’s just another reason why the midterm elections will matter.
Steve Gottlieb’s latest book is Unfit for Democracy: The Roberts Court and The Breakdown of American Politics. He is the Jay and Ruth Caplan Distinguished Professor Emeritus at Albany Law School, served on the New York Civil Liberties Union board, on the New York Advisory Committee to the U.S. Civil Rights Commission, and as a US Peace Corps Volunteer in Iran.
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