From ancient Rome to Richard Nixon, anti-inflation nostrums are proven quackery.
From ancient Rome to Richard Nixon, anti-inflation nostrums are proven quackery.
O ne of the funniest of the Internet memes currently circulating shows a picture of President Joe Biden flanked by Democratic congressional leaders who’ve gathered to introduce a new Inflation Reduction Act to bring down the inflation caused by the Inflation Reduction Act passed in August.
It’s funny, not because it’s true, but because it illuminates the complete economic ignorance of Biden and his party. At a meeting of the White House Competition Council last week, Biden fumed:
My message is simple. To the companies running gas stations and setting those prices at the pump: Bring down the prices you’re charging at the pump to reflect the cost you pay for the product. . . . It is going to save people a lot of money.
Biden’s rant against 7-Eleven store owners only reinforces the scary reality that we are now a year and a half into the worst inflation wave since the 1970s. This administration has no clue how to bring down prices. Biden now wants price controls on oil, gas stations, credit-card companies, banks, health care, and pharmaceuticals. And that’s just for starters.
Back in the 1970s, President Richard Nixon, in an effort to tame the inflation issue as his reelection bid neared, imposed economy-wide wage and price controls. He even made it illegal for many months for companies to raise prices. “We’re all Keynesians now,” he reassured doubters.
In reality, Nixon aides report that he was aware of the history of wage and price controls. All of recorded history — starting from when the Roman emperor Diocletian tried them 2,600 years ago — proves they don’t work economically. One historian noted the result of Rome’s controls: “The people brought provisions no more to market, since they could not get a reasonable price for them, and this increased the dearth so much that . . . the law itself was set aside.” Diocletian himself was swiftly removed from the throne.
Nixon’s Soviet-style strategy flopped, and inflation only got worse when the price controls were lifted. In the years that followed, inflation ramped up from 6 to 8 to 11 percent.
In the short-term, Nixon won reelection, although his success had far more to do with the ineptness and radicalism of his opponent, George McGovern. He was, of course, forced from office over Watergate in 1974.
But his controls left a bitter legacy. Instead of calming inflation, they — along with the simultaneous ending of the gold standard that had linked the U.S. dollar to gold — set America on a path to stagflation, when inflation soared while economic growth fell.
The only good news that came of it was the way it readied the nation for Ronald Reagan’s election in 1980 and the adoption of the pro-growth tax cuts and deregulatory policies that began a boom that lasted for more than a quarter-century.
Biden, who won his seat in the U.S. Senate the year after Nixon adopted wage and price controls, should know better.
He witnessed the results with his own eyes, which makes it all the more remarkable that he’s touting the benefits of his Inflation Reduction Act. Whether it’s the result of poor advisers or a failing memory, Biden seems incapable of explaining his policies much less understanding them.
Take this exchange last month from CBS’s 60 Minutes, as Biden told Scott Pelley that the “inflation rate month to month was up just an inch, hardly at all.”
Pelley pushed back, asking, “You’re not arguing that 8.3 [percent] is good news?”
Biden offered up this word salad:
No, I’m not saying it is good news. But it was 8.2 percent or — 8.2 percent before. I mean, it’s not — you’re ac — we act — make it sound like all of a sudden, “My god, it went to 8.2 percent.” It’s been —
Pelley pushed back again, “It’s the highest inflation rate, Mr. President, in 40 years.”
Biden:
I got that. But guess what we are. We’re in a position where, for the last several months, it hasn’t spiked. It has just barely — it’s been basically even. And in the meantime, we created all these jobs, and prices have gone up, but they’ve come down for energy. . . . So, I — look, this is a process. This is a process.
Sounding like an unconvincing, confused pitchman, Biden did nothing to calm public fears.
Biden’s economic “process” is borrowed from Nixon’s New Economic Policy. Nixon himself justified his actions at the time as part of a long-term “process” to bring down the inflation that his jawboning of then–Federal Reserve chairman Arthur Burns created. Nixon’s policies — followed by those of Jimmy Carter — cost us a decade of economic growth and weakened the United States during the Cold War.
Biden’s inflation policy has all the unhappy echoes of Nixon’s. This story, like that of the 1970s, will not have a happy ending.