Throughout history, American presidents have undertaken and generally struggled, to curb the economic and political threat posed by consumer inflation.
LBJ undertook unsuccessfully at jawboning. A presidential decree was issued by Richard Nixon. The Ford administration issued buttons urging Americans to “Whip Inflation Now.” Today, President Joe Biden is taking a dig at it.
Confronted with a surge in gasoline and other consumer prices that has afflicted American consumers, Biden directed the release of 50 million barrels of oil from the US strategic petroleum reserve on Tuesday. The measure, which was made in conjunction with several other major economies, seeks to keep energy costs in check. Oil markets, contemplating the move, were disappointed by the details: Oil prices soared in response to the news.
It was the latest action Biden has taken to demonstrate he is doing all possible to tackle inflation, as rising gasoline and food prices have placed an increasing strain on the American people. On Monday, he confirmed that he would reappoint Jerome Powell as chairman of the Federal Reserve, a move intended to calm financial markets that Washington is committed to economic stability. He announced a pact last month to resolve supply chain bottlenecks at the Port of Los Angeles by scaling up operations to 24 hours a day, seven days a week.
Unfortunately, none of the president’s efforts are expected to have a significant impact on rising prices soon.
Mark Zandi, the chief economist of Moody’s Analytics supposes that the president does not have many levers at his disposal to bring inflation down at any time. The things Biden is doing are positive, and they have no negative consequences… yet they are marginal. They are unlikely to significantly change the dial.
HOW ARE CONSUMER PRICES BEING IMPACTED?
The government’s consumer price index soared by 6.2% in the 12 months ending in October, the highest annual spike since 1990. According to AAA, the average price of regular gasoline has jumped to $3.40 per gallon, up from $2.11 last year.
To add insult to injury and increase the pressure on Biden, inflation has been surpassing Americans’ income.
Inflation is terrible, and it is always political,” according to Diane Swonk, chief economist at Grant Thornton, an accounting and consulting business.
HOW COME THE PRICE SURGE?
It is partially a result of extremely positive news. The global economy, and particularly that of the United States, has recovered with stunning speed and strength from last year’s brief but severe recession. It was the outcome of ultra-low interest rates, significant government spending, and, finally, the widespread rollout of vaccines that enabled the reopening of a greater section of the economy.
Businesses were caught off guard by the speedy recovery. They were gearing up for the worst a year and a half ago, laying off employees, culling shelves and warehouses, and slashing investment and factory output.
And energy corporations responded similarly: they slashed oil and gas production as demand for transportation fuels fell. They were ill-prepared as demand surged back to life. They were forced to race to rehire employees and purchase sufficient supplies to fulfill consumer demands. Ports and freight yards were overwhelmed by the volume of traffic. Countries battled it out for boatloads of inflated liquefied natural gas. Periodic COVID-19 outbreaks in Asia forced the closure of ports and factories. Supply chains on a global scale have been disrupted.
As costs went up, several businesses discovered that they could pass the cost on to customers through increased prices. Meanwhile, many families had deposited their government relief checks and saved. Interestingly, many opponents saw Biden’s $1.9 trillion emergency aid package as adding to the economy’s overheating and inflation strains.
WHAT THEN, IS PRESIDENT BIDEN’S RESPONSIBILITY?
The White House’s options of reversing price hikes are limited. That task is more appropriately assigned to the Fed, which has the authority to raise borrowing rates to cool a heated economy. However, during the 1960s and 1970s, presidents came under growing pressure to address inflation, which had grown into a severe political concern.
President Lyndon B. Johnson sought to push businesses to forego price increases and labor unions to restrain pay demands through a process called jawboning. When Bethlehem Steel raised steel prices in 1965, Johnson chastised the company’s executives as unpatriotic, and they capitulated, according to Robert Samuelson’s book, The Great Inflation and Its Aftermath. In 1966, when egg prices went up, Johnson directed America’s surgeon general to stress the health risks associated with cholesterol in eggs, to cut egg sales and hence prices.
Nixon implemented wage and price controls in 1971 and 1973, which temporarily curbed inflation until prices skyrocketed after the limits were abolished.
The Whip Inflation Now campaign of Gerald Ford pushed Americans to produce their vegetables, reduce food waste, and consume less.
Biden signed a $1 trillion public works package into law last week, allocating prices to repair roads, bridges, and ports, potentially alleviating supply chain bottlenecks that have contributed to price hikes. Unraveling shipping bottlenecks would benefit the economy in two ways: it would relieve inflation pressures while also improving the flow of commodities to customers.
Biden wrote to the Federal Trade Commission’s chair last week, urging that chair explore probing whether higher gasoline prices were the consequence of illegal conduct.