The BDN Opinion section operates independently and does not set news policies or contribute to reporting or editing articles elsewhere in the newspaper or on bangordailynews.com
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson University College of Business & Behavioral Science, and a former executive director of the Federal Trade Commission.
In recent days, the inflation indicators have stubbornly signaled that a high tide of prices is still soaking us consumers. Growing at a 3.5 percent annual rate in March, the Consumer Price Index has now exceeded expectations for three months hand-running. Once again, investors and financial decisionmakers — and isn’t that everyone with a bank account? — are playing the Federal Reserve guessing game.
What will the Fed and its 500 economists do now? After all, this is an election year. What about President Joe Biden? Is there something his nearly 2 million civilian executive branch employees can do? To Fed Chairman Jerome Powell, the frustrating and painful combination of interest rate hikes and orchestrated reductions in the money supply may be feeling like King Canute’s fabled attempt to counter an incoming tide.
According to legend, the 11th century Viking ruler of England, Denmark and Norway sought to prove to his fawning royal staff that, as much as they wished otherwise, even their king could not control the tides. Canute had his throne moved to the edge of the sea and then ordered the tides to halt and not wet his feet and robes. Of course, the tide paid no attention, and the king retreated to higher ground.
After admonishing his subjects not to expect unyielding forces to obey his commands, Canute proceeded to take other actions that would make life more pleasant. He set to work reducing tariffs and taxes imposed on his people when they made important pilgrimages to Rome and devoted his energies to other beneficial changes, all of which focused on policies that he could actually control.
Maybe Fed Chair Powell should admit that the Fed is not able to bring about calculated and systematic reductions in the price level at this time. Unpopular as it may be, perhaps he should admit that after the government spending spree that began during the pandemic and distorted the money supply, the inflation tide will ebb and flow. It seems clearer by the day that as long as Congress and the president continue to spend drastically more money than the nation takes in, they’ll fan inflation’s flames and make Powell’s job extremely difficult at best.
Lacking a king’s authority to deliver other policy benefits, Powell can only hope that Biden will also follow Canute’s lead. But Biden seems to be playing the opposing hand. Apparently believing that he can control the tides, Biden has launched a “Strike Force on Unfair and Illegal Pricing,” this in addition to his earlier efforts to jawbone the economic powers of the world into bringing down prices.
Yet while pushing his throne closer to the edge of the sea, Biden has also increased consumer prices by imposing higher tariffs on imported steel and automobiles. He’s marched with UAW workers to gain increased wages, which tend to push prices higher. And he’s happily canceled more than $7 billion in student debt while arguing that the burden was limiting former students’ ability to buy homes and other consumer goods. That ability, if bolstered, would also tend to push prices higher.
With Powell watching and no doubt hoping for beneficial results, Biden is sitting in his figurative throne waiting for inflation’s incoming tide to obey his command. Meanwhile, his almost countless staff members are cheering him on. When will Biden pull back from the edge and take other inflation-limiting actions?
