Ever since inflation surged in 2022, the Biden-Harris administration has attempted to shift blame for surging inflation to anyone but themselves. The administration blamed increased energy prices on “profiteering” from energy prices while there were massive disruptions to energy supplies thanks in part to Russia’s invasion of Ukraine. Progressives again blamed higher egg prices on “greed,” when avian flu was ravaging chicken farms. The administration has done anything and everything to shift blame away from its misguided spending spree and failure to heed the laws of supply and demand that propelled price increases to 40 year highs.
Surging prices prompted the federal reserve to ratchet up interest rates to levels not seen in over 20 years. The result has been gradual, multiyear disinflation. This process appears to be in the final stretch – but is not yet complete. The Biden administration has changed gears from shifting claim to taking credit. In today’s campaign speech, Vice President Harris appears, on the other hand remains stuck in 2022, or perhaps the 1970s.
Price Control Failure
In 1971, with Congress’s assent, President Nixon imposed a series of policies nominally aimed at staving off inflation and reducing unemployment. Among the most conspicuous changes were a 90-day freeze on prices and wages and a 10 percent tariff regime. Nixon reinstituted the price controls in 1973, as consequences of past poor policy choices began to snowball. The legacy of this populism, among other factors, was stagflation, the insidious combination of high inflation and low growth. It would take three recessions, 13 years, and the Federal Reserve taking the target interest rate up to 20 percent for inflation to return to 1973 levels in 1986.
For modern candidates, the lesson that appears to have been learned was that despite the predictably disastrous effect of the price controls and other populist policies, Nixon won. The idea that a group of 22 bureaucrats led by a young Donald Rumsfeld – Nixon’s cost of living council – could centrally manage the U.S. economy had appeal to voters. That appeal is being tested again.
While details are thin, candidate Harris proposed a federal ban on “corporate price gouging” on food and groceries. For context, note that over the past year inflation for food at home has been 1 percent.
It is an irreducible fact that prices surged during a period when demand outstripped supply chains’ capacity. But in normal markets, price surges are a valuable signal to produce more. Reversing that signal, as was attempted in the 1970s would cripple functioning markets. During the 70’s in the face of price controls, farmers reduced their stocks, and consumers hoarded. One wonders why policymakers would want to relive the market disruptions of the 70’s or the pandemic era.
One template identified by the Washington Post for Harris’s price gouging proposal is a bill by Senator Warren, which would ban any “grossly excessive price” during disruptions. The legislation empowers the Federal Trade Commission to determine what those would be. In practice this would empower a partisan majority of 5 unelected bureaucrats to regulate prices. Even Nixon wanted less centralization. For context, recall that the FTC under current leadership is already running amok. It abandoned legal standards, ethical obligations, and longstanding internal policies. The agency’s leadership has become so obsessed with pursuing an agenda untethered to its traditional authority that its career staff are up and leaving at the highest rate in decades.
Reviving Rent Controls
Vice President Harris has already embraced a national rent control policy. The evidence is overwhelming that rent control policies exacerbate housing shortages and make housing less affordable. The laws of supply and demand are immutable, and past attempts at legislating them away have been demonstrable failures. A recent book, The War on Prices, well documents the deleterious effects rent control have on housing markets. Separate research examined 112 empirical reports assessing the effects of rent control. Time and again, rent controls reduce mobility, reduce housing quality, increase rent in uncontrolled markets, and generally reduce the supply of new rental housing. Other recent research by examined the Biden administration’s proposal specifically, and finds, consistent with the overwhelming evidence, would cost renters to thousands of dollars in higher housing costs. Another flaw in this policy is its premise – it is couched as targeting “corporate” landlords. This viewpoint rests upon the deeply flawed assumption that large investors are driving housing price growth. This has been reliably proven to be generally incorrect, but that has not stopped advocates from continuing to peddle the narrative.
Conclusion
That the details of the Harris price control plan are so scant may be encouraging. Perhaps the policies proposed today are just grist for an electorate presently enamored of populism. Prices are high – let’s ban them. Policymakers can win elections that way, much as Nixon did. The price paid by the electorate though, will be far more lasting than recent inflation.