Catherine Rampell uses her Washington Post column to tell us that politicians are acting like politicians:
PITTSFIELD, Mass. — There’s not a ton that most politicians can do to push inflation down. The few, limited tools they have available might carry some political risk. So maybe it’s unreasonable to expect them to try, and perhaps pundits like me should stop fussing.
But can we at least agree that politicians shouldn’t do things that will make inflation worse?
So far that reminds me of an anecdote I’ve mentioned before. Back when I took Econ 101 the professor sadly declaimed that we don’t know how to produce prosperity but we do know how to create shortages. Not a great deal has changed since then.
Some of what Ms. Rampell says in her column is a consequence of confusing price increases with inflation (they aren’t the same thing) but, since today we have both price increases and inflation, a consequence of political malpractice, perhaps I should cut her some slack.
And we shouldn’t be surprised at the political malpractice, either. Not only are they falling victim to the politician’s fallacy when you’ve spent 50 years calling the benefits paid out by the government either “stimulus” or “investment” when by and large they’re neither we should not be at all surprised that they keep doing what they’ve done for those 50 years.
Instead of stewing about that let’s consider how politicians could avoid making things worse. Here are my suggestions:
- Don’t pay out any additional benefits that aren’t offset by additional revenue. Hypothetical and unlikely revenue doesn’t count. Real benefits should be balanced in the near term by real revenue.
- Stop creating uncertainty. Stop talking about tax increases, reducing our production of oil and gas, and anything else that you know you’re not going to follow through with.
- Limit the asylum-seekers we accept to those we’ve invited in rather than accepting anyone who shows up at our southern border as an asylum-seeker. We already have at least 1% more people in the country than otherwise have been the case. That means increased demand which, in the absence of increased production, means higher prices.
Does anyone have any other suggestions?
Yglesias has had some reasonable suggestions, though mostly I think its a lot of small things that might have cumulative effects. Below is one of his articles:
https://www.slowboring.com/p/america-needs-supply-side-reform
I’m more pro-tariff than I think economic analysis will support, but one of the main problems with them is that over time their rationale diminishes, and/or they exist only as hand-outs to the politically favored businesses.
Jones Act reform.
Regulatory reform. He mentions going back to the 2009 standard for an airline pilot’s license as an example. A lot of regulation is based upon cost-benefit analysis that may not be justified under current conditions. Federal regulators should all be looking for temporary suspension of regulations that don’t meet the original analysis.
Elsewhere he’s identified portions of Build Back Better that would provide supply side reform.
I don’t see anything in his post that I disagree with. I also agree with a point made in the first comment: there’s private sector institutional inertia against capital investment and in favor of keeping wages low. That mostly pertains to large companies.
The federal government + federal reserve created the current inflation by dumping trillions of dollars into the economy and stock market. They won’t ‘fess up to that, and they’ll do it again.
Dave is right. The economic policy of our Ruling Caste has been to keep wages down by exporting our industry.
We really need a Putin.
“…there’s private sector institutional inertia against capital investment and in favor of keeping wages low.”
And to the degree large corporate has outsourced to China, or given the wink and nod to immigration for cheap labor, they are just as bad as the Democrat Party, and the Chamber of Commerce faction of the Republican Party. Shame on you, McConnell.
If you read M Friedman’s writings or listen to his lectures you know he produces graphs of the general price level vs money divided by a measure of output. He has them for multiple periods of time, and multiple countries. Naturally they all rise. All of them.
The more interesting point is that the research indicates that the power of increasing output is 1/30th of the power of excess money. I can’t vouch for the methodology, but Friedman was not known for sloppy analysis. Whether 5/1, 10/1 or 30/1, the point is that money is the dominating variable. We should always look at minimizing regulatory issues to improve productivity. But monetizing government’s profligate spending will always dominate.