There’s no such thing as an economics get-out-of-jail-free card.
There’s no such thing as an economics get-out-of-jail-free card.
T he headline for the New York Times on Wednesday read: “Biden Invokes Defense Powers in a Bid to Ease Formula Shortage.” In doing so, he “took urgent action,” the story says, in response to “a crisis that has sown fear and frustration among parents across the country and prompted Democrats and Republicans alike to demand action.”
That framing from the country’s top paper was typical of media reports on Biden’s move. The healer-in-chief invoked his special powers to soothe the fears of the people. With a few words from the president and the stroke of a pen, baby formula will be conjured into existence.
It really would be something if the president could do that. What Biden actually did was abuse the Defense Production Act in a way that will hardly be effective, while avoiding the actual economic problems at the heart of the shortage.
The Defense Production Act was passed in 1950 to give the president “a broad set of authorities to influence domestic industry in the interest of national defense,” according to the Congressional Research Service. “The authorities can be used across the federal government to shape the domestic industrial base so that, when called upon, it is capable of providing essential materials and goods needed for the national defense.”
It was inspired by the wartime economic-control measures from the First and Second World Wars, and was passed during the Korean War as fears of falling behind the Soviet Union industrially were gaining credence. Congress has expanded the definition of “national defense” over time. The DPA currently defines “national defense” as “programs for military and energy production or construction, military or critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity.”
Even with that expanded definition, where does baby formula fit in? The DPA also includes “emergency preparedness” under national defense. The CRS says that the DPA “may also be used to enhance and support domestic preparedness, response, and recovery from hazards, terrorist attacks, and other national emergencies, among other purposes.”
Maybe it’s an “other purpose,” but President Biden is really stretching the definitions here. In a country where steel tariffs and sugar subsidies are justified as “national defense,” there’s probably some legal argument that a baby-formula shortage meets the standard. But it’s clearly not what the DPA was designed for. The president’s memorandum to the secretary of Health and Human Services that delegates authority under the DPA simply states that the president has determined that the baby-formula shortage meets the national-defense criteria in the law. It makes no compelling argument as to why or how.
The memorandum indicates that Biden is using section 101 of the DPA. Section 101 allows the president to prioritize the delivery of goods to some purchasers over others. The idea is to force suppliers to provide inputs for baby-formula manufacturers before they fulfil any other contracts.
This move does not address the shortage at all. During a background call with reporters, an unnamed senior administration official was asked repeatedly which inputs to baby-formula production have been hard to find and which bottlenecks are causing production problems. The official never gave any specifics.
On the same call, the same official said that baby-formula producers are making “in some instances, 50 percent to 30 percent above their normal production levels.” That’s before the DPA was authorized. If that’s true, domestic-production bottlenecks are clearly not the problem, and the administration’s inability to name a single one further cements the impression that it’s flailing.
There aren’t any fundamental problems with producing baby formula. How do we know? Europeans, Japanese, and Australians are producing it just fine. There’s only a baby-formula shortage in the United States, and it’s because the United States government has adopted policies that allowed what should have been a relatively minor market disruption to turn into a widespread, prolonged shortage.
Instead of allowing parents to buy foreign formula as they would buy any other good, the Biden administration is making a big show of airlifting it here with specially contracted flights. The United States of America should not be dependent on airlifts for an adequate supply of baby formula. As Eric Boehm pointed out for Reason, if foreign brands of baby formula are safe to be airlifted now, they should be available for purchase all the time. It’s clear that the 98-percent-domestic baby-formula market leaves Americans vulnerable to supply shocks that the rest of the world doesn’t face. (You’ll notice that the domestic-production “resiliency” crowd is awfully quiet on this issue.)
Insofar as there’s an emergency in the baby-formula market, it’s of the government’s own making. Between the WIC program absorbing over half of the domestic market, overly stringent FDA regulations limiting the number of facilities approved to make formula, and tariffs and labeling standards that prevent imports, the baby-formula market in the United States is brittle and inflexible.
Instead of taking steps to get the government out of managing baby-formula supply, President Biden is taking measures that will get the papers to report that he “took urgent action.” He has received his reward in full, but the DPA isn’t a solution to any problem in the baby-formula market that actually exists.
President Biden is trying to use the DPA as an economics get-out-of-jail-free card. The problem for him, and for all Americans, is that there’s no such thing as an economics get-out-of-jail-free card. Democrats believe that this shortage was an unfortunate mistake that can be fixed by better government management. In reality, it’s what can happen when government thinks it knows better than markets and protects domestic producers at the expense of domestic consumers.