Bad Policy Creates Inflation and Opens the Door to Even Worse IdeasWhen politicians break the economy, they hurt us in the short term but also create future opportunities to do harm in the name of undoing the damage they inflicted.
J.D. TUCCILLE
5.16.2022
It's no surprise to anybody who regularly buys groceries or puts gas in a car that prices are going up. Inflation is running at the hottest rate in 40 years, nibbling away at savings, making a mockery of budgets, and fueling fears about people's ability to make ends meet. What's infuriating is that those rising prices are largely the result of foolish policy choices and that there's actually a constituency for doubling down on political interference in the economy to further crimp our liberty and prosperity.
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Analysts hope that inflation has peaked and is headed for an annual rate of 4 percent, which is still above the Federal Reserve's target of 2 percent. But the Producer Price Index, considered a leading indicator for prices paid by consumers, stands at 11 percent, suggesting that we're in for a bit more pain before enjoying even modest relief. Maddeningly, these soaring prices are at least partly the result of government officials attempting to "help" us through the disruptions of the pandemic and mandated lockdowns.
"Since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries," Òscar Jordà, Celeste Liu, Fernanda Nechio, and Fabián Rivera-Reyes wrote in a March analysis for the Federal Reserve Bank of San Francisco. "Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic's economic effect may have contributed to this divergence by raising inflation about 3 percentage points by the end of 2021."
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"As U.S. prices continue to rise by rates not seen in decades, it's become clear that the stimulus came at a significant, unintended cost: inflation," agreed Santul Nerkar and Amelia Thomson-DeVeaux for FiveThirtyEight. "It's unclear whether inflation has reached its peak, but the situation is now economically and politically toxic, and it has left many of the same policymakers, advocates and economists now asking whether the stimulus checks were a mistake."
The situation is not only economically and politically toxic, it also didn't need to happen and "wasn't backed by evidence or economic calculations. It was shaped by politics."
The FiveThirtyEight writers pointed out that Democrats pushed for larger stimulus checks as part of their effort to win the Georgia Senate run-offs. Giving people free money was a seemingly promising way to buy ongoing support. As of February 2021, 78 percent of Democrats and 64 percent of Republicans strongly supported the idea of receiving fat checks. But vast infusions of new money into an economy erode purchasing power.
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Unfortunately, earlier political tinkering in an economy opens the door to later political tinkering as the situation deteriorates in ways that the public doesn't always understand. It offers an opportunity to be exploited by authoritarians who want greater government control of production, buying, and selling.
"The prices Americans are paying for groceries and other essentials are at all-time highs," Senator Elizabeth Warren (D–Mass.) huffed last week. "One of the reasons? Giant corporations are price gouging & reaping record profits. We need to put a stop to corporate gouging that drives up prices for families."
That's BS, as economists point out. But it's a way for Warren and her ideological allies to pass blame for the government's failures to the private sector. They propose to penalize businesses for responding to the dollar's declining purchasing power with "unconscionably excessive price increases," a term "which is disturbingly defined nowhere in the legislation," noted Reason's Liz Wolfe.
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Source:
https://reason.com/2022/05/16/bad-policy-creates-inflation-and-opens-the-door-to-even-worse-ideas/
