Whatever you think of her, at least Elizabeth Warren is trying to do something about inflation, right? The Democratic senator from Massachusetts wants legislation to give the Federal Trade Commission and state governments more authority to crack down on corporations that significantly raise prices. This stands in stark contrast to the Biden administration, whose policy response consists mainly of blaming the pandemic and Russian President Vladimir Putin, railing against Republican tax proposals and otherwise denying responsibility for the fastest price increases in decades.
That being said, let me add this: President Biden’s plan is much better than Warren’s — precisely because it does effectively nothing. It’s not something politicians can go around telling voters, but sometimes “nothing” is the best policy option you have.
After 9/11, the Bush administration wanted to do something. Actually, it wanted to do a lot of somethings: prove that no attack on the United States would go unpunished, stabilize the volatile regions that had become breeding grounds for terrorism, and promote democracy and liberalism around the world. Unfortunately, there weren’t any easy ways to accomplish those things. So, instead, we blundered into Iraq.
This is the most dramatic recent version of a quite common problem. Government does many useful things, from providing police and building roads, to insuring our bank accounts and making sure disabled people get food and shelter.
Nonetheless, in big things and small, our government often does things that are worse than not acting at all. Partly this is because government is run by humans, who have imperfect knowledge and therefore sometimes make mistakes. But there is also our all-too-human bias toward doing something, to which human voters and human politicians frequently fall prey.
Possibly this was a sensible adaptation for our hunter-gatherer forebears; if there’s a saber-toothed tiger standing in front of you, almost anything you might try is potentially more useful than patiently waiting to become lunch. But this instinct ill serves us in a modern nation where not all problems have good solutions, and few politicians are willing to explain that to voters.
It’s not that we have no idea how to reduce inflation; in fact, we have a very good idea. Inflation is always and everywhere a matter of too much money chasing too few goods. So all you need to do to reduce the consumer price index is to take some of that money out of private hands. Typically, we leave this problem to the Federal Reserve to manage through monetary policy, and after a slow start it is beginning to act more aggressively. But if Biden really wanted to, the federal government could also theoretically attack inflation through fiscal policy, with some combination of tax hikes or spending cuts.
In fact, the idea of using taxes to control inflation has recently been in vogue on the left, in the form of something called modern monetary theory. Proponents of this theory argue that a government such as ours, which borrows in its own currency, can deficit-finance almost any amount of new spending, using fiscal policy to tamp down any resulting inflation. That theory remained popular right up to the point where the inflation actually materialized. Now, we can all acknowledge what should have been blindingly obvious from the start: At a time when consumers are already suffering from price hikes, politicians are not going to add insult to injury by raising taxes or cutting government benefits.
Since the thing that actually works is politically foolish, Democrats such as Warren are resorting to conspiracy theories and quack cures. The conspiracy theory is “greedflation,” which blames rising prices on corporate greed. (They’re right, of course, that corporations are greedy, but they didn’t all of a sudden get massively more greedy in January 2021.) The quack cure is simply forbidding firms to raise prices under threat of legal sanction.
This is a stealth variation on the wage-and-price controls imposed by President Richard M. Nixon in 1971, early in the country’s last great bout of inflation. Even Nixon appears to have understood that they wouldn’t work, since they didn’t actually address the underlying problem. But he was facing reelection and wanted voters to see him doing something about one of their most pressing problems. Nixon won in 1972, but his series of “temporary” freezes caused shortages and other economic distortions, without fixing the problem. In 1974, with inflation at a two-decade high, the failed controls were allowed to expire.
Nixon resigned in disgrace not long afterward. Now, I don’t suggest that the cynical economic manipulation led directly to Watergate. (Though one wonders if the economy had been in better shape, would the Nixon campaign have been tempted to burglary?) But it does go to show that there are worse things than being a one-term president. So please, Mr. President, keep right on embracing the healing power of inaction. Be the do-nothing president America needs.