You don't fix inflation by giving everyone more money to spend.
Notice a pattern? The popular suggestions would make inflation worse.
Price caps ration goods. They temporarily remove a money price while they create a new, more expensive price in the form of wait times and cancellations. Net-net, they add costs. Cutting taxes on highway fuel simply backdates costs by deferring payment for the ongoing maintenance. Increasing the minimum wage and increasing welfare benefits for working people would address poverty among the working poor, but it is inflationary, not deflationary. Cutting taxes is inflationary. Reducing interest rates is twice as popular as increasing them, but it has the opposite of the desired effect. It is inflationary, not deflationary.
Politicians don't offer realistic suggestions. The problem is worldwide, so domestic solutions are inadequate, plus they are unpopular. It is politically smart just to complain.
The inflation we are seeing today is strongly affected by rising energy costs. OPEC, including Russia, just reduced oil production, which is pushing prices back up. The focus is back on American oil production.
Democrats are getting an unpleasant dose of political reality. Democratic policy discouraged domestic oil production. However, energy technology and infrastructure did not move as fast as Democratic message and policy. Electric vehicles are not yet cheaper. There are 280 million existing vehicles on the road in the U.S. that use gasoline and diesel. Those aren't worn out. Most Americans need a car to live.
The practical mechanism for conversion to green energy was price signals. Ideally, this would happen world-wide, with renewables having gotten cheap and available, with fossil fuels an expensive second choice. Ideally, too, the conversion would be fast enough that conversion would reduce carbon emissions worldwide, but slowly enough that the adjustments don't cause political or economic disaster. This is too much to ask. We see an international move toward populist nationalism and authoritarianism.
The renewed Republican message of "Drill, baby, drill," is potent political signaling. It implies that the Democrats and climate activists caused high gasoline prices and inflation. It declares that in a choice between lower gasoline prices and climate, the GOP is for lower prices. Drill, baby, drill implies that there is nothing America can do about climate that China won't cancel out, so any sacrifice is for naught. Besides, climate is long term, and high prices are now. That message has appeal to rural voters, stressed consumers, climate doubters, non-college people who resent snooty environmentalists, and Republicans. A big coalition.
Democrats are conflicted, so their message is muddled. Long term, Democrats like the market signals of high fossil fuel prices which hasten conversion to renewables. But not now. Now they want it cheap. Biden goes hat in hand to Saudi Arabia. The Democratic message lacks clarity and consistency. Democrats are ready for renewables, but renewables aren't ready for them.
The policy that works to stop inflation is raising interest rates enough to slow the economy and maybe push it into recession. It is happening and it is painful. No one like inflation. No one likes the cure. Both are bad for incumbents. Russia and Saudi Arabia are at war with Biden, and they are using the weapon they have. There is a price to pay for supporting Ukraine and Biden is paying it.
3 comments:
As Peter points out, we're part of a global economy whether we like it or not, and there’s no way to insulate the U.S. economy from what is happening in the rest of the world. Gas is even more expensive in Europe than it is here. If the ravages of climate change aren’t motivation enough to change our ways, the geo-political influences on oil prices should demonstrate the urgency of ramping up alternative energy production.
There’s no quick fix to our current crises. We need long-term strategic planning, but that would require leaders and an informed electorate capable of thinking with their brains rather than their guts. Perhaps that will be the next step in humanity’s evolution. Hopefully, it will occur before we destroy ourselves.
“If we had some ham, we could have ham and eggs, if we had some eggs.”
— from a Robert A Heinlein sci-fi novel
“You go to war with the army you have, not the army you might want or wish to have at a later time.”
— Don Rumsfeld
I agree with Mike that it would be great if we had “… an informed electorate capable of thinking with their brains rather than their guts.”
I have no idea how to get that electorate. If you look at who is having the most children, it doesn’t seem that evolution will get us there. An IQ test to qualify for voting privileges would never fly. Hope for a miracle? 🤷♂️🙏😱
A lot of (most?) environmentalists are snooty, and a number, including locally, (hi, Ashland) are wholesale frauds and hypocrites. I take our environmental situation seriously in spite of, not because of them.
I’m more convinced of the problem than the answers though.
I also predict an unprecedented level of grift on the Cylvia Hayes model. Btw, Kitzhaber’s forest policies were better than that of most so-called environmentalists.
“There is a price to pay for supporting Ukraine and Biden is paying it.” At least there’s an upside.
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