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Will the Biden Administration impose price controls to fight inflation?
To avoid blame for rising prices, President Biden and his team are faulting greedy businesses, primarily meat processors, oil-and-gas producers and pharmaceutical companies. There is growing talk that if inflation doesn’t ease soon, the White House may impose “temporary” price controls on voter-sensitive products such as beef, chicken, gasoline, heating oil and various prescription drugs. This would be disastrous. Several thousand years of experience have demonstrated that controls don’t work. They make things worse, because they attack the symptoms, not the underlying cause, which is the devaluing of the currency.
Governments always look for inflation scapegoats: The Roman Empire blamed Christians; medieval Europe faulted witches; President Richard Nixon pointed his finger at currency speculators and Arab oil producers for causing the Great Inflation of the 1970s. But Nixon precipitated that devastating crisis when he “temporarily” took the U.S. off the gold standard in 1971 and imposed controls on prices and wages.
By artificially suppressing prices, controls increase demand for products while hurting the creation of more such goods, because producers can’t cover their growing costs.
Take a favorite White House target, meat. Demand for meat around the world has taken off during the pandemic. The unexpected surge initially sent prices up, which is why profits for meat processors temporarily went up. This will change, however, as production costs increase.
The cost of feed is moving higher. The cost of transportation is rising because of a shortage of drivers, and prices for fuel are significantly higher. Other materials like packaging are more costly. Then there are the serious labor shortages. Wages are going up, which also means elevated prices.Those juicier profits won’t be lasting. Such is the historic pattern for certain businesses in the early stages of inflation.
Nonetheless, the administration is imposing more regulations and is ready to spend $1 billion to subsidize small regional processors to promote “competition.” Oil-and-gas companies are always a popular political bogeyman, never more so than during inflationary periods like this. The Biden Administration came into office attacking the industry, canceling pipelines, restricting explora- tion and production and making it clear that the president’s long-term goal was to send these companies to the corporate graveyard.
It’s no surprise that gas prices took off like a rocket. Now the White House is begging Russia and OPEC to boost production and is threatening domestic producers. Price controls on prescription medicines would kill innovation, which is what has happened in Europe. The continent’s pharmaceutical companies were once a font of new drugs, but unable to recover the high costs of developing medications and medical devices, the European pipeline dried up. Before it resorts to controls, expect the White House, along with the Justice Department and other government agencies, to harass targeted companies and their executives with civil and even criminal actions. President Biden and his cohorts ignore the root causes of the current inflation: shortages made worse by misbegotten pandemic policies and the Federal Reserve having created too much money.
Text: Steve Forbes