Blame Congress, Not Businesses, For Soaring Inflation

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Observers had mixed reactions to yesterday’s news that inflation rose 7 percent last year. It all depended on where they stood on the ideological spectrum.

President Joe Biden tried to spin the report, saying gas and fuel price growth was starting to slow down, while acknowledging that there was still work to be done. Hed had previously blamed the rise in inflation on used car prices and supply chain issues, swearing that the increase in government spending had nothing to do with it. The White House also compared the US Consumer Price Index report to indices of other countries, calling inflation a global phenomenon.

Other Democrats blamed big business for the jump in inflation. In the long term, we want to better control these prices, we need competitive markets, Senator Elizabeth Warren told Chris Hayes of MSNBC. And that means enforcing our antitrust laws, enforcing the laws that promote competition in this country and that help small businesses be competitive. This will help us not only in the short term, but also in the long term.

This isn’t the first time Warren has made this suggestion. She previously claimed that grocery store giants like Kroger were pushing up prices. Data from New York University shows the opposite, with grocery stores reporting a low net profit margin of 1.11%.

I doubt that shell publicly thanks [grocery stores] for lowering prices at the start of the COVID-19 pandemic, the Cato Norbert Michel institutes mocked in an email. I wouldn’t be surprised if many members of Congress try to use trust (and price controls) to at least call attention to how much they are “fighting for the little guy.”

Antitrust as a solution to inflation has become a common trope in Congress. Vermont Senator Bernie Sanders and California Congresswoman Barbara Lee tweeted their disapproval of corporate earnings in response to inflation numbers. The Senate Judiciary Committee is currently reviewing a bill that would prevent companies like Amazon from suggesting that customers buy private label items over other products.

People don’t like big corporations and you might as well put the blame on it, American Action Forum president and former CBO director Dr. Douglas Holtz-Eakin told me in an email. The real blame is on the administration, on Congress. The American rescue plan which was 1.9T dollars stimulus in an economy which was growing at a rate of 6.5%. Now is the wrong time to make a stimulus. It’s way too big. It was producing a lot of inflation and they preferred not to discuss it.

Price controls are also back in fashion. Isabella Weber, an assistant professor of economics at the University of Massachusetts at Amherst, lobbied for a strategic type of price control last month in The Guardian, suggesting they would buy time to deal with bottlenecks which will persist as long as the pandemic prevails. Eric Levitz of New York Magazine called the argument woefully incomplete. He suggested a variety of government measures, including antitrust action and more government spending as well as price controls.

I was on staff for the Council on Wage and Price Stability in 1976-77, the Washington agency responsible for monitoring price increases, said Dr Bruce Yandle, Distinguished Fellow of the Mercatus Institute, via email.

Yandle pointed out that price controls led to increased costs and prices. In the days of price controls, Girl Scouts faced a crisis, ”he wrote. “The cost of the ingredients for their cookies skyrocketed and they had to increase the price of their cookies. This required a meeting of the Wage and Price Stability Board, which included the Secretary of the Treasury, the Secretary of Labor and other senior officials. They examined, studied the data, listened to the petitions and ultimately granted a price increase. I think you have some idea of ​​the difficulty of controlling prices and wages in an economy as large and complex as that of the United States.

It appears the White House is considering relying on the Federal Reserve to solve long-term inflation. Fed Chairman Jerome Powell told a Senate committee on Tuesday that the central bank would raise interest rates if the inflation rate continued to rise. He also supported reducing bond purchases and possibly asset sales to reduce the money supply. Bidens Fed vice-presidential candidate Dr Lael Brainard also appeared to support the move during his testimony before a Senate committee.

The solution seems to be twofold. The Fed will have to reduce, if not eliminate, its bond buying practices so that the money supply decreases. And intrusions by Congress and the White House into the market will need to be curbed. If they are not, our economic woes will only continue.

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