The Biden-Harris inflation plan is more rhetorical than real

Since the latest inflation news has been dire and because the polls are making it clear that Americans worry about inflation above all else, the White House Biden, in addition to its latest hijackings, has hatched a plan that it says will will fix the problem. It is far from being an encouraging document. Except for its commitment to offload most of the effort onto the Federal Reserve (Fed), it offers little that will help except in the very long term. There’s nothing in there to promise immediate relief from the rising cost of groceries or filling a car’s gas tank or even charging families’ exorbitant electric vehicles.

Fed primacy is the right answer. Inflation is always and always a monetary problem. The Fed has begun an anti-inflationary effort, but because it must now reverse the effects of years in which accommodative monetary policies effectively financed huge budget deficits – a classic prescription for inflation – it still has a long way to go. The best the White House can do is encourage Fed policymakers in their efforts, which the plan fortunately appears to do.

It would of course help if the president had proposed measures to reduce budget deficits. The plan claims to do so through tax hikes on corporations and wealthy Americans. Some economists might argue whether tax hikes are the best way to reduce deficits, but that debate aside, the rest of the plan would offset any fiscal relief from such tax hikes by offering a raft of grants, credits tax and infrastructure spending initiatives, for example, on wind and solar, on electric cars, for charging stations, for affordable housing, and to encourage people to become truck drivers , presumably to address supply chain issues. Overall, then, the White House offers nothing on the fiscal front.

The plan’s documentation justifies all of this otherwise deficit-digging spending by claiming that it will partly ease pressures on oil prices by replacing fossil fuels with alternatives, what they call “true energy independence.” “. That might be a laudable goal, and in time it might even do what the White House claims it will, but even the most optimistic estimates indicate that this type of substitution would take years, if not decades, to complete. an effect. The same goes for the plan’s proposal to reduce oil dependence by imposing new, tougher mileage requirements on new cars and trucks. The past has shown that such measures can reduce oil consumption and likely ease price pressures, but this history also shows that these effects only play out over years. The small immediate help on fuel prices in the plan comes from the release of oil from the Strategic Petroleum Reserve, which is too small to have any substantial effect. It would also try to increase supply by penalizing companies that refuse to develop the leases they have, even when that lack of development is due to Washington’s denial of permits.

The proposals say they would ease house prices with tax subsidies to encourage low-cost housing construction. It might help at the margin. The only other real estate proposal would encourage local governments to change zoning rules and other regulations that create barriers to building homes. This has theoretical merit but is politically impractical. Such barriers almost always have the backing of powerful local interests that mayors and city councilors won’t breach simply because the White House thinks it’s a good idea.

Two other areas receive the attention of the White House: food and pharmaceuticals. On food, the Biden-Harris plan seeks to break the power of big wholesalers. There may be antitrust reasons to attack these companies, but there is little evidence that they caused the recent rise in food prices. After all, they had market power during times when food prices were much lower. As for the proposal to help American farmers, it’s hard to imagine a world in which Washington could support American farmers any more than it already does.

Giving Medicare the power to negotiate lower drug prices, the White House says, will reduce inflation. This idea, floated many times in the past, is hotly debated in economic and political circles. Whatever its potential merits, it offers little in the fight against current inflation. Drug prices over the past year and a half have actually had a moderating influence on inflation. According to the Labor Department’s Consumer Price Index, prescription drug prices have risen only 2.5% over the past year, compared to 9.1% for prices in general.

With the exception of the welcome commitment to the Fed, this plan offers more rhetoric than practical means to alleviate the immediate inflationary pressures plaguing Americans. Parties that offer practical help would only do so over very long time horizons, too long to do much for those who are suffering today.

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