Republicans, the media and even President Biden seem to be laboring under a common delusion: that presidents can control prices.
Even objective journalists have lobbed question after question to administration officials about why the president hasn’t squelched inflation already.
Let me be abundantly clear: Prices, and the pace of price increases, are driven by factors mostly outside a president’s control. Particularly right now.
Follow Catherine Rampell's opinionsFollow
The global pandemic has disrupted supply chains here and abroad, including through worker shortages in factories, transportation, warehousing and retail.
Meanwhile, Americans have accumulated a lot of savings. That’s partly because there were fewer things to spend money on while large portions of the economy were effectively shuttered last year, and partly because the government provided generous fiscal support through several rounds of stimulus payments and other measures.
This cash is burning a hole in many consumers’ pockets. They’re eager to spend. So long as in-person services such as travel or concerts remain somewhat risky, consumers are diverting more of that spending to physical goods — that is, to precisely the same stuff that’s been snarled by global supply-chain disruptions.
Higher demand + constrained supply = shortages and price spikes.
Much of the media coverage seems to assume Biden can pull some magic lever to make all these problems disappear. His inflation-fighting tools, though, are extremely limited.
He can continue some of the measures he’s already pursuing. That includes facilitating coronavirus vaccinations, both here and in poorer countries, so more people around the world can return to their normal work and purchasing behaviors. He’s also nudging ports and logistics companies to streamline operations and extend their hours.
There are other things the administration hasn’t yet tried.
It could, for example, accelerate the processing of immigrants’ visas and work permits, which are severely backlogged and contributing to worker shortages. Or Biden could release oil from the Strategic Petroleum Reserve, though that won’t affect prices much (the reserve is small, and energy is a big global market).
He could also repeal more tariffs. Biden recently ended Trump-era tariffs on European steel and aluminum, but he replaced those tariffs with a different kind of trade restriction — a quota system — so it’s not clear how much the prices U.S. manufacturers pay for metals will actually decline.
These kinds of measures would help. But they’re no silver bullet. And in any event, the institution tasked with maintaining price stability is not the White House or even Congress. It’s the politically independent Federal Reserve.
Happily, the Fed has an effective medicine it could administer to kill inflation. Unhappily, that medicine — hiking interest rates — might also kill the patient. That is, it might halt the recovery and toss us back into recession. Which is also not exactly desirable.
For months, Democrats mainly dealt with the rising economic and political risk of inflation by playing down the phenomenon. They pretended that it didn’t exist or that concerns were vastly overblown.
And to be fair: In the spring, with vaccinations picking up and people expected to return to work in higher numbers, economists were generally forecasting related supply-chain problems to unwind soon — and therefore, for inflation to fall back down to earth. The delta variant had other plans, though.
Now, realizing that high inflation may stick around, Democrats’ rhetoric is pivoting.
Instead of arguing that the inflationary threat isn’t real, or is exaggerated, Democrats now argue that sure it’s real — and that, just as Republicans have suggested all along, Biden can fix it!
The cure, Democrats argue, is passing their large safety-net-and-climate bill. Biden has repeatedly claimed that 17 economics Nobel laureates said his bill would “reduce inflation” (though the laureates themselves do not appear to agree with this characterization). Senior administration officials also made a version of this claim repeatedly on the Sunday shows.
In truth, the bill’s likely effects on inflation are probably negligible, particularly in the near term. It’s unlikely to drive prices either dramatically up (as Republicans have baselessly fearmongered) or dramatically down (as Biden now questionably promises).
The bill does lots of other good things, though, such as expanding access to health insurance coverage and investing in poor kids. Seems wiser to defend Biden’s agenda on the merits, rather than to pretend it will do something it won’t, and can’t.