The Competitive Enterprise Institute's Ryan Young is here to talk about the lie from Biden on how inflation is his top priority.
President Biden gave remarks on Tuesday declaring inflation his top domestic priority. Like many people, he seems not to understand that inflation is a monetary issue. Biden’s proposals for price caps on insulin, antitrust actions against the meat industry, and increased spending on renewable energy, all have their pros and cons. But they have almost nothing to do with inflation because they don’t have anything to do with the money supply. In that sense, his speech wasn’t really about inflation, despite the headlines.
Inflation is happening because the money supply is growing faster than real economic output. The Fed engaged in runaway money creation during the pandemic, and the result is today’s inflation. It will go back down once the Fed draws back. That increase begins matching the money supply’s growth to the real economy’s growth. The goal is to get them to grow in sync. That responsibility lies with the Federal Reserve, not Congress or the White House.
Biden does deserve some credit for the brief time he did discuss monetary policy. The Federal Reserve runs monetary policy in the U.S., not the political branches. President Biden’s promise to “never interfere with the Fed’s judgment or tell them what to do” is a welcome change from his predecessor’s frequent public threats to Fed officials—assuming Biden keeps this promise. Some of his ideologically charged Fed nominees call his commitment to the Fed’s independence into question.
President Biden instead argued that inflation has two non-monetary causes: the pandemic, and Putin’s war on Ukraine. Neither of these has anything to do with inflation, because neither of them affect the money supply. They have almost nothing to do with inflation.
Biden then contrasted two policy proposals, his own plan, and Sen. Rick Scott’s (R-FL) Republican plan. This plan also doesn’t have anything to do with inflation, because it doesn’t have anything to do with the money supply. A text search of the plan’s website for “Federal Reserve” turned up zero hits.
You can see why many economists find today’s speech a little frustrating. It wasn’t actually about the issue it was supposed to be about.
Still, President Biden did focus on faster-than-inflation price increases in gas, food, and other goods that almost everyone uses. Again, the faster-than-inflation component of those price increases are not inflation. That doesn’t mean that those price increases aren’t real, or that they aren’t causing real difficulties for families. They deserve policy action. But they are separate from inflation, and should be treated as such. As I’ve written before and will write again, supply and demand changes are not inflation.
One of President Biden’s energy proposals is to increase biofuels production—basically, make more ethanol. This will reduce the need for imported oil. One problem with this proposal is that it would increase food prices. Farmers can only grow only a certain amount of corn. Diverting more to ethanol production leaves less left over for livestock feed and food production. The increased ethanol might shave a penny or two off of gas prices, based on the amounts involved. The tradeoff is higher prices for meat, and for any food made from corn, such as chips, tortillas, and many cereals and sweets.
The trouble is that many food prices are also growing faster than inflation due to supply and demand issues. Biden’s response should involve trade liberalization. Removing friction from supply networks means that food can go where demand is highest, which tends to smooth out price spikes. While Biden did point out the importance of ports and trucks, he offered no concrete proposals. Labor unions have long resisted automation, around-the-clock operations, and other improvements ports in most other countries made years ago. Convincing them to join the current century would be a good start.
Biden would like more truckers on the job; good ideas there include lowering the federal age requirement for truckers down to 18, giving truckers more control over their own hours, and getting rid of the 220 percent tariff on truck chassis, which forces small owner-operators to pay more than triple the world price for one of their truck’s most important components. Biden did not mention these ideas, but they would help ease prices on many goods (though again, separately from inflation, because these don’t affect the money supply).
To fight rising food prices, and presumably to counteract the effects of his ethanol proposal, Biden proposed an antitrust investigation against meat producers. Antitrust cases tend to take years, so any price relief from this proposal would be years away.