Diocletian v. Harris part 3.

As I pointed out in the beginning, blaming greed, price-gouging, speculators, hoarders, monopolists, middlemen, and other witches for inflation goes back at least 1700 years.

I am interested that Harris is not proposing systematic and explicit price controls, as Diocletian attempted. The US used these in WWII and in the Nixon Administration. (Bad ideas about inflation are a bipartisan disease.) Much of the MMT left has been campaigning for price controls since inflation broke out.

Instead, she plans to unleash the mercies of regulatory agencies such as the FTC and SEC on companies for the ill-defined sin of “price-gouging,” charging “excessive prices that are unrelated to the costs of doing business.” Now we get to argue about costs. Sensible economics includes a cost of capital, i.e. some profit, and profit in good times to balance losses in bad times.

Why this approach? I don’t like to speculate on motives, but the operation of the two systems is objectively different. Romans, even under the empire, appreciated rule of law, some objective sense of what was and was not allowable. You either charged 16 denarius for a sextarius of one-year-old second-quality wine, or you didn’t. Unleashing the FTC to prosecute companies for “price-gouging” is obviously much less objective. Under what law, I wonder also? Huge legal fees seem designed to pressure companies into doing what the Administration wants. And prosecutorial discretion looms large. I would make sure my campaign contributions are in order, and that I cooperated on the next “disinformation” campaign. The campaign quotes from my first post celebrated Harris’ career as a prosecutor, and how she plans to “go after” companies. “tackling powerful interests by invoking her time as California’s attorney general and going after corporate greed and price gouging.” The president is not a prosecutor. As a wag put it on twitter, if you charge more than others, they’ll get you for price gouging; if you charge less than others, they’ll get you for predatory pricing; if you charge the same as others, they’ll get you for price-fixing.

But in the larger rhetoric, the project starts to make some sense. This is not a considered policy to fight inflation. The Harris campaign is not that dumb to really believe the price level rose 20% because of price-gouging. The Democratic Party left has been wanting to “go after” “big corporations” for decades. The answer is the same, the questions change. From the racial and gender composition of their boards, their pay and benefit policies, attitude to unions, climate pledges, conformity to whatever covid policies were promulgated this week, use of dividends rather than repurchases to return money to shareholders, and on and on. So if “inflation” is in the news, “going after” big companies in the name, today, of inflation is consistent with the larger agenda.

Additional parts of Jim Tankersley’s NYT coverage stand out. Again,

… a centerpiece of her plans: an aggressive rhetorical attempt to shift the blame for high inflation onto corporate America. Polls show that argument resonates strongly with voters, including independent voters who could decide the November election.

Tankersley is a smart guy, but you have to write carefully in the NYT. Read that last sentence carefully. There is not a hint there (or in any of the other coverage) that Harris is doing this because it is a scientifically valid, cause-and-effect policy to combat inflation. She’s doing it because it polls well, because a witch hunt “resonates strongly with voters.” So, basically, Harris and her campaign may care about the little people, but they think we’re dumb as posts.

I’m actually surprised at this brouhaha. Given Harris has to have some defense against inflation, as clear a sign of macroeconomic policy incompetence as one could ask, why attack big companies? The most natural approach for the Biden-Harris administration to take would be to say, “the Fed, an independent institution, is primarily responsible for inflation. The Fed screwed up, but we respect Fed independence, so there is nothing we can or could do about it.” It’s the Fed’s fault, not our fault. Especially with Trump’s comments about Fed independence, that would have made sense. A lot of the point of setting up an independent Fed is so that politicians can blame it rather than be forced to be in charge of inflation, and take blame for it.

I don’t believe that analysis, of course — I’m Mr. Fiscal Theory of the Price Level, so I think the massive deficits of the covid and post-covid era, along with no plans for debt repayment, were mostly to blame.

But given that the Fed’s primary mandate is inflation, given that the policy consensus says the Fed is super-powerful, given that the Fed chair is a Republican, appointed by Donald Trump no less, why place the blame elsewhere?

In particular, going after “price gouging” by “greedy” corporations now places the blame squarely on the Biden-Harris administration for not noticing “price-gouging” for four long years, and for doing nothing about it; for the FTC and SEC and the rest of the alphabet soup to have wasted their war on large corporations on other issues.

A last reminder. Why is this so hard? The central problem is that, to put it in a way only economists could do: inflation is not about prices going up. Every single story told here is about relative prices, not the overall price level. Greedy producers and monopolists seeking profits want to raise their prices above wages and the cost of inputs. Supply shocks raise the price of short-supply goods above other goods. None of this explains why all prices and wages rise together.

Inflation is one price only: It is a decline in the value of money. Alas, since we measure everything else in terms of money, it’s hard for the average politician to see it. But since Diocletian’s predecessors started reducing the silver content of coins, inflation has always and everywhere been about one thing, the decline in the value of money.

Plus ça change, really plus c’est la même chose, for 1700 years and counting. Will basic economics ever infect politics? Most economists are democrats. What are all the smart economic advisers doing, and how do they allow this silliness to continue? Or how do they sleep at night given that it does?

Update:

Joe Smith reminds us of Forty Centuries of Wage and Price Controls: How Not to Fight Inflation by Robert L. Schuettinger