money This week in Bidenomics: Whip inflation how?
Gerald Ford has been popping up on social media. The former president died in 2006, but he’s having a moment because of his “Whip Inflation Now” campaign in the 1970s. When Richard Nixon resigned and Vice President Ford stepped up in 1974, inflation was 11%.
Ford’s anti-inflation campaign—famously memorialized on red “WIN” label buttons—was a voluntary plea for American consumers to buy less and save more. It was so simplistic Ford’s economic advisers, including Alan Greenspan, found it deeply embarrassing, and it became one of the biggest flops of Ford’s short presidency. A few years after he lost to Jimmy Carter in 1976, inflation crested at 15%.
Economy geeks are revisiting Ford’s feckless WIN campaign because President Biden is now in a similar jam. Inflation hit 7.5% in January, led by the soaring cost of cars, home heating, gasoline, food and housing. This is not incidental inflation. It’s the everyday stuff people have to buy, and it’s hammering household budgets. Wages are only up by 5.7%, so typical workers are falling behind. This is political peril for any president.
Biden has a plan. But the lesson from Ford is that presidents don’t have much power, on their own, to combat inflation. The Federal Reserve certainly does, and the Fed under chair Jerome Powell now seems certain to start hiking interest rates and tightening other monetary levers as early as March. Fed tightening takes time, however, and inflation might not drop by enough to help Biden and his fellow Democrats in the November midterm elections. Fed rate hikes can also cause recessions, if they go too far or a recession seems necessary to corral really nasty inflation, as in the early 1980s.
So Biden needs to show some sort of action instead of simply waiting for the Fed, which he doesn’t control anyway. On Feb. 10, the Biden White House published its plan to “lower costs for working families.” Here are the main elements, with some commentary:
Fix supply chains and boost domestic manufacturing. Necessary and good. Supply chain disruptions and ensuing shortages are one cause of inflation. But this is largely a private-sector problem and there’s not much the president can do. More domestic manufacturing would probably be good for workers, but it’s not likely to drive prices down. If anything, goods made in America are more expensive, not less, than imports from China and other lower-cost countries.
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Promoting competition. Also good, but come on. It’s exceedingly difficult to break up conglomerates that have monopoly pricing power, and this is something the Justice Department and the Federal Trade Commission are supposed to do on an ongoing basis, anyway, through antitrust enforcement. One example the White House gives is a new plan to allow the sale of hearing aids without a prescription, at sharply lower prices. This is the implementation of a law Congress passed five years ago, and industry groups, such as audiologists, oppose it. Maybe it will go into effect this year. Maybe not. If it does, hearing-impaired people will benefit, but it will have a trifling effect on overall inflation.
The "build back better” plan. The White House says Biden’s social-welfare plan would “lower kitchen table costs.” The BBB plan would offer free preschool to every 3- and 4-year-old in the nation, subsidize child care for those who need help and cap some prescription drug costs under Medicare.
There are only dozens of problems with BBB. The most obvious is that Democrats don’t agree among themselves what should be in the bill, and haven’t been able to pass it. The closer we get to the midterms, the less likely Democrats will get their act together and pass something.
If they do, they better hope unintended consequences don’t wreck what they're trying to do. Just one example: Biden’s plan for universal preschool has a lot of support and is a good idea in general. But new government financing for preschool would generate massive new demand for facilities and caregivers, and there aren’t nearly enough of those right now to handle the burden. You can’t create new capacity at this magnitude overnight, and one possible outcome would be soaring preschool costs somewhere inside the system. The biggest Democratic critic of BBB, Sen. Joe Manchin of West Virginia, says the bill would make inflation worse, not better, which means his opposition is only likely to harden the higher inflation goes.
There are other examples of how government programs inadvertently drive up costs or cause other problems. Subsidized student loans, for instance, may drive up tuition costs by increasing demand for a product with a relatively fixed supply: a college education. Last year’s American Rescue Plan, which Congress passed with only Democratic votes, probably contributed to the current inflation spike. Some economists warned that pumping so much additional money into the economy would trigger a surge in demand and prices, which is exactly what happened. Biden and virtually all Democrats blew that off at the time.
Democrats in Congress have their own ideas about how to tackle inflation: Suspend the 18.4-cent-per-gallon federal gasoline tax. Cut the budget deficit. Pass BBB ASAP. Kill BBB forever. Republicans don’t have any suggestions of their own, but as the minority party in both houses of Congress, they don’t have to. They’re happy to hammer Biden on inflation and watch the governing party twist in the wind, secretly grateful it’s not them.
Biden has to demonstrate he's doing something to tackle inflation. But he probably knows his toolbox is spare. Biden was in his first term in the Senate in 1974, when Ford launched his feeble WIN endeavor. If Biden's memory is sharp, he'll be careful not to talk about whipping anything.
Rick Newman is a columnist and author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.
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