Arguing over Why Prices Rise
Terry H. Schwadron
Jan. 14, 2022
The only thing Americans seem to agree on is that they don’t like high prices, which we now have aplenty.
Consumer prices as measured by the government rose faster in 2021 than they had in any 12-month period since 1982, according to December numbers released Wednesday reflecting a 7 percent increase or 5.5 percent when you skip gas and food.
We don’t agree either on how we got here or what to do about it. Since no single bullet will correct for rising consumer prices, you can be sure we will hear political parties using perceived dangers of inflation ad nauseum as we get into the midterm election season.
We have too many hands in shaping prices for there to be any singular control, we are seeing power struggles in many arenas about solutions and no agreement even if we’re talking about short-term fixes or long-term goals. Even as President Joe Biden talks about steady, slow underlying economic growth, varying somewhat by month, all that Americans who vote see are higher prices for gas, car, groceries and manufactured goods.
That, of course, translates into voter frustration, usually with a smack against incumbent politicians — not that political opponents would be doing better in a world still beset by Covid, greed and international nationalism.
From all I read, we can expect high prices to spread. Anything The Fed does to stem inflation likely will mean slowdowns, anything the courts do to block government Covid mandates will continue the uncertainty driving prices up, anything corporations do to bring manufacturing home to the United States will result in price hikes.
So, the search is on for whom to blame.
A Split in Approach
Inside the White House, advisers to the president apparently are split about inflation strategies, reports The Washington Post.
“Biden’s push to blame some corporations for high prices has divided the White House’s allies, with liberal economists both inside and outside the administration split over whether monopoly power accounts for the spike in inflation facing the nation, The Post reported.
The Post’s unnamed sources said that senior officials at the Treasury Department have been unsettled by the White House’s attempts to blame large corporations for inflation, skeptical of that explanation for the recent rise in prices.
And then there are the voices saying that spending too much federal money for covid aid or social services is overheating the consumer market, driving up prices, though I am hard-pressed to explain how help with the rent boosts the cost of restaurant meals or travel.
The Post’s economic columnist Cathleen Rampell says, “This “corporate greed” narrative is nonsense. Corporations are always greedy. It’s their job to make a buck. They didn’t suddenly remember to become greedy in the past year. They’re charging higher prices, and booking higher profits, because that’s what happens when demand shoots up and supply is relatively constrained. As is the case today.”
So other than the general nod to Covid for upsetting the overall global economy, for breaking manufacturing supply and distribution chains and for continuing to liberally sprinkle uncertainty on what stores, schools, plants and hospitals will be working at full strength, even our leaders don’t agree on what economically ails us.
So, when monthly job reports emerge, as happened last week, that say 199,000 took new jobs and the unemployment rate dropped below 4 percent, we’re not sure whether that is good news or disappointing news, depending on what version of the story you heard. Nor are we sure what it means that some millions of jobholders have simply declined to return under new Covid rules to their old jobs.
Moreover, we insist on looking at all news about economics — and prices in particular — as a uniquely American problem, as if Europe and Asia are also not going through exactly the same cycles. This just in: The American voter is consumed with a selfish view of whether life is better or worse for one individual, not for the world, over one year or four or eight.
Big Picture v. Daily Costs
The economists looking at the big picture, meanwhile, may not know the cost of a quart of milk. In part, the drive by political progressives to look at data in a way that says price hikes from corporate profit desires is outpacing price hikes from Covid effects alone.
Someone’s got to make up lost profit from those lockdown months.
Factor in corporate mergers and consolidations and the number of businesses that simply went out of business along with heightened consumer demand to buy things, and you have an inflationary market.
There is nothing about supply chains or inflationary trends to explain why sellers of used cars and trucks suddenly are charging double previous prices. It’s what they think the marketplace will bear, and there are no rules to stop them.
Now Biden, prompted by the progressive case, says similar things about the price of meat, where four companies control 85 percent of the market, and other finished goods. The price of lumber, which went way up for a while, calmed down as ample supplies became available again.
The Politics, As Always
Apparently, multiple Democratic pollsters have told senior White House officials that they needed to find a new approach as public frustration over price hikes grows widespread = which may help explain why Democrats see evil from corporate owners.
It’s a whole lot easier to find rhetorical villains than it is fix the problems.
Republicans always have Biden himself and tiny Democratic majorities in Congress to blame, even though little of what the government can do will affect marketplace inflation.
The Biden group could relax international tariffs on goods made in China, a policy that makes little overall sense but that has pushed prices up. But Treasury Secretary Janet Yellin says tariff changes will not stop inflation.
For the Fed to raise borrowing rates may stop inflation, but will also slow down the aspects of the economythat the very same people want to grow. No one wants an economy in recession, either, which always leads to layoffs and higher mortgage rates.
Introducing new competition to markets can help, but how effective have any government programs been in rekindling manufacturing over the last 25 or 30 years?
One source of new competition is businesses that are deciding to return jobs from overseas, a trend called “on-shoring” or even “near-shoring” to northern Mexico. The New York Times profiled an American clothing manufacturer, American Knitting, describing a nascent return to domestic jobs. But that effort will bring about goods that reflect American labor costs, good for workers, but looking a whole lot like higher prices to consumers.
American car manufacturers and computer chip makers like Micron Technology are doing the same, and we can expect fewer supply chain issues, but higher prices.
Maybe a more intelligent approach here would be to acknowledge that America will have to pay higher prices unless it changes its buying habits.