Folks may be surprised to learn that to some degree, there are economic benefits to inflation. In an article written by Sean Ross and published in June of this year by Investopedia, the author states that, “When the economy is not running at capacity, meaning there is unused labor or resources, inflation theoretically helps increase production. More dollars translates to more spending, which equates to more aggregated demand. More demand, in turn, triggers more production to meet that demand”. The author goes on to say, “For many, inflation is scary and detrimental. For others, inflation is a necessary part of growing the economy. An important consideration of inflation is the government’s response which often raises interest rates, slows the economy, and increases the risk of inflation. During inflationary periods, some parties benefit while others face greater risks.”
Voters tend to blame inflation solely on the economic policies of the sitting administration and while it’s easy to point fingers and administrative policies do play a role, the drivers of inflation are more complicated than simply blaming the current office holder. The inflation rate remains high, in part due to residual pandemic era economic dislocation. Other common inflationary drivers include increased production and labor costs related to supply chain issues and discrepancies between supply and demand for goods. Business tax increases usually increase prices which, in turn, get passed to consumers while tax cuts, which boost consumer spending, can cause demand for goods to outstrip supply, thus, increasing the price of goods.. We can also add the climate crisis as a driver. Then, there’s always the practice of market manipulation in the form of price fixing.
Corporate price fixing is when companies that produce products and services agree, either in writing or verbally, to raise, lower, or maintain prices or price levels. In the conservative Hillsdale College newsletter, Imprimis, author Henry Hazlitt recently wrote, “Price fixing destroys the signals on which this ever-changing (economic) balance depends. It always does harm. And it is never a cure for inflation. Not only is price fixing never a cure for inflation, but in the long run it prolongs and increases inflation.”
The Federal Reserve also plays a role in managing inflation. The FED is part of the Executive Branch of government but works independently of the President. The FED’s job is to find the delicate balance between many economic factors in the hope of encouraging stability and predictability in the economy. Sometimes the FED gets it right and sometimes they get it wrong. Federal Reserve Chair, Jerome Powell, a Trump appointee, has been slow to decrease interest rates in an attempt to slow inflation while avoiding recession. Threading this fine line helps to keep the labor market stable. All of this careful activity to maintain a stable economy shows that the free market by itself, does not make for a healthy economy. No economy would work if market demand, by itself, were the deciding factor. Currently, inflation is a global problem and, though we are not out of the woods, we are further along the road to recovery than any other wealthy nation.
Former President Trump has been making sweeping statements during the current campaign, saying that he will “end the inflation nightmare” and will bring prices down “very quickly”. Beyond those assertions, he has offered no substance on how he will accomplish these things. In fact, in an article published in Money Watch last month, writer Aimee Picchi points out that the key policies that make up Trump’s current economic plan focus on tariffs, tax cuts and a crackdown on immigration. Picchi writes that Trump’s approach is “likely to cause a flare-up in inflation, according to many Wall Street economists. That would be a painful outcome for consumers and businesses sapped by more than two years of surging prices. More broadly, renewed inflationary pressures would also come as inflation is finally inching closer to the FED’s goal of 2% per year”. Trump’s assertion that he would bring prices down “very quickly” would necessitate the imposition of price controls, something that no one in the business world would accept. Picchi goes on to point out that “Trump’s economic policies could cause current recovery progress to stall, and even reverse.” Regarding corporate tax cuts and cracking down on immigrants, Picchi writes,“the sharp corporate tax cuts Trump has floated would act as an inflationary fiscal stimulus. And another central plank — deporting immigrants — could force employers to pay higher wages to attract a shrinking pool of workers, also adding to pricing pressures.”
An NBC News article from January, 2021, states, “Trump Inherited A Booming Economy And Handed Biden A Nation In Shambles”. To be fair, some of the “shambles” were due to the economic damage done by the pandemic, including the fact that the country had lost 10 million jobs under Trump and the economy was on the verge of shutdown. The Biden – Harris administration addressed the crisis by enacting policies designed to move the economy forward by investing in infrastructure projects, technology, energy and jobs. These initiatives have helped move things toward a healthy economic recovery and this is why the Biden – Harris administration have been credited for much of the recovery that is happening. Vice President Harris has said that if elected, she will support policies that help to create jobs and invest in working and middle class Americans including, extending the child tax credit. She has said that she will invest in small businesses and will work to make sure corporations and the super rich pay their fair share of taxes. She will also work to limit competition killing corporate mergers by enforcing antitrust laws. Harris also has her eye on taking steps to stop corporations from stockpiling wealth through stock buybacks. An article published in the Michigan Journal of Economics outlines the impacts of stock buybacks. “Overall, the ability to use one’s own profits to buy back one’s own stock is harmful to the average American. It diverts money away from investing in workers or physical capital and disproportionately aids the wealthy. It allows for artificial inflation of a stock’s price, and it allows, in theory, a variety of ways in which companies can use stock buybacks to manipulate stock prices to their benefit.”
Food prices are still high. This is related, in part, to price fixing. Competition among the corporate food industry has been reduced through corporate mergers. This is reflected in an article published in TIME magazine in 2022. Author Claire Kalloway wrote, “Food production has consolidated dramatically since the 1970’s after changes in antitrust policy allowed more companies to buy up their competitors. Depending on who you ask, antitrust practitioners say markets are “oligopolistic” or dangerously concentrated when the top four firms control 40% to 50% of the market, or more. Higher levels of concentration give businesses more power to set prices and increase the likelihood of price-fixing or market manipulation. Today, the top four food corporations control more than 60% of the U.S. market for pork, coffee, cookies, beer and bread. In beef processing, baby food, pasta and soda, the top four companies control more than 80% of the U.S. market.”
These kinds of monopolies tend to encourage price fixing and price gouging and the folks who bear the brunt of that are regular folks like you and me. The economic playing field has been slanted toward the wealthy since the Regan administration and has led to significant economic inequalities. Reaganomics consisted of “hands off” policies that allowed corporations to create monopolies and engage in practices like price fixing. This is, in part, why we are paying more at the grocery store and at the gas pump..
There are no quick fixes for solving the inflation puzzle and this election is about more than the traditional policy approaches that either party has taken over the past decades. One candidate has a track record of policies that have been long on promise and short on delivery. The other candidate has been part of an administration that has established a track record of success in helping strengthen the economy, lower inflation and bring us back from the devastations of the pandemic. Obviously, there is more work that needs to be done.
Both Parties have published their policy platforms, including their plans for how they will deal with the economy and inflation. You can find the platforms online for free at the American Presidency Project. For your own edification, read both of them! The future is ours to decide. We need to know who and what we are voting for in November.
Sources for this article include:
Imprimis. The Dangers of Price controls.
NBC News. Trump inherited a booming economy — and handed Biden
AP: Harris will carry Biden’s economic record into the election.
CBS News: Trump says he’ll end the “inflation nightmare.”
Federation For Economic Education. The Economics of Price Fixing – FEE.org
Fortune. Corporate tax tactics supercharging inequality in U.S.
University of Michigan. How Stock Buybacks Impact the Economy Op: Ed
Investopedia. When Is Inflation Good for the Economy?
TIME Magazine. U.S. Food Prices Are Up.
