the only doubt i have is about whether politicians are dumb or in bad faith (meaning they need to show they are doing something when price controls have been repeatedly proven useless at best or detrimental). the idea of centralized planning and control is embedded into the mindset of too many people. they can't accept that you need to let prices free to float so demand and supply will get the right information. it is a simple concept, no need to read Hayek or Mises
There's a third way -- politicians and bureaucrats don't care. They get theirs from taxes. I bet a lot of them drive government cars, use a government gas card or refuel at government garage pumps, or have drivers.
You would think, or at least hope, that after the disastrous collapse of their economy in 2009 that some lasting lessons learned the hard way would prevent the adoption of this sort of "remedy". Guess it didn't quite sink in.
I can see the United States government enacting any number if those proposals and if not the Federal government then diffently the various state governments coming to the aid of the poor and middle class! Just my humble opinion.
California politicians are already floating the idea of temporarily zeroing out the 61¢/gallon gasoline tax. They won't stop spending, of course, providing further justification for the billionaire tax coming up in November.
One comment. I’m married to an Economist who constantly reminds me that inflation is not caused by rising prices. Inflation occurs because governments expand the money supply. Price rises to ration scarce goods. Some goods affect others as noted: the rising price of gasoline increases the cost of shipping and/or producing other goods.
I'm no economist and run into that contradiction all the time. I think it's because the word "inflation" has two meanings, and everybody, including economists, don't make the distinction. I've given up trying to complain about the dual usage.
I believe Cochrane says inflation is caused by government spending that the market does not expect to be paid for (that is, it must be inflated away). Inflation can stay low if spending is not unfunded debt. That said, I used to own stone quarries, so there is a good chance I’m wrong.
Strictly from the point of view of an economist struggling to identify the empirical effects of stupid policies in noisy data, we should be grateful for having stupid politicians doing stupid things.
That walks into hoarding. Will US oil producers prefer to sell at the Brent much higher price or at the WTI much lower price? Although there will be physical limits to export, the US can just ban exports to protect its own supply. Hopefully, it won't because increasing supply from the US is part of market forces that would be lost.
"Despite these failures and challenges, Diocletian's reforms fundamentally changed the structure of the Roman imperial government and helped stabilize the empire economically and militarily, enabling the empire to remain essentially intact for another 150 years despite being near the brink of collapse in Diocletian's youth. Weakened by illness, Diocletian left the imperial office on 1 May 305, becoming the first Roman emperor to abdicate the position voluntarily. He lived out his retirement in his palace on the Dalmatian coast, tending to his vegetable gardens. His palace eventually became the core of the modern-day city of Split in Croatia." --- Wikipedia, "Diocletian".
Thanks! I gather overall a quite good emperor, except for the inflation and price controls. Which did not have 1700 years of experience to ignore as we do
In Austria, a reduction of the tax on gas is discussed, which is currently 40-50 cent per liter. It would probably also prevent the reduction of demand by customers, but on the other hand, maybe this high level of tax was bad in the first place? So is this a better "tool" than the ones you describe?
The distinction you draw between a one-time price level shift and a sustained inflationary spiral is exactly the analytical question markets are wrestling with right now. The key seems to be whether central banks can hold the line on expectations even as the energy shock feeds through supply chains. I wrote a short analysis of today's central bank positioning here: https://thisweekineconomics.substack.com/p/global-central-banks-lock-into-hawkish
The piece argues it's not really about central banks holding the line — it's about whether governments convert a one-time relative price shift into ongoing monetary expansion through subsidies and price caps. The spiral doesn't start with expectations drifting; it starts with fiscal policy refusing to let the price signal do its job.
There are many predictions in economics as robust as any predictions in physics. Because denying them does not have immediate and obvious catastrophic consequences (such as the certain death that occurs when you jump from a skyscraper balcony attempting to deny gravity), the public gets away with the denial. It’s sad, and tragic.
90% ideology, 10% economics in this post. Hard to make a serious case that those measures will lead to higher inflation.
On the previous inflation bout, the US still has to get to 2% inflation, EU is already there -since September 2024- even though inflation peaked at basically the same level in both cases.
Finally somebody - thank you. Pretty clear.
Simple and clear. Excellent job
the only doubt i have is about whether politicians are dumb or in bad faith (meaning they need to show they are doing something when price controls have been repeatedly proven useless at best or detrimental). the idea of centralized planning and control is embedded into the mindset of too many people. they can't accept that you need to let prices free to float so demand and supply will get the right information. it is a simple concept, no need to read Hayek or Mises
There's a third way -- politicians and bureaucrats don't care. They get theirs from taxes. I bet a lot of them drive government cars, use a government gas card or refuel at government garage pumps, or have drivers.
They just don't care.
You would think, or at least hope, that after the disastrous collapse of their economy in 2009 that some lasting lessons learned the hard way would prevent the adoption of this sort of "remedy". Guess it didn't quite sink in.
Different politicians and bureaucrats 17 years later. Different circumstances. It's NOT THE SAME!!!!
I can see the United States government enacting any number if those proposals and if not the Federal government then diffently the various state governments coming to the aid of the poor and middle class! Just my humble opinion.
California politicians are already floating the idea of temporarily zeroing out the 61¢/gallon gasoline tax. They won't stop spending, of course, providing further justification for the billionaire tax coming up in November.
Thank you for the update on the situation in California.
One comment. I’m married to an Economist who constantly reminds me that inflation is not caused by rising prices. Inflation occurs because governments expand the money supply. Price rises to ration scarce goods. Some goods affect others as noted: the rising price of gasoline increases the cost of shipping and/or producing other goods.
I'm no economist and run into that contradiction all the time. I think it's because the word "inflation" has two meanings, and everybody, including economists, don't make the distinction. I've given up trying to complain about the dual usage.
It's not always that simple. There's a supply and demand chart for money. If there's not enough the economy stagnates. If there's too much, inflation.
Unfortunately, expansion of the money supply is generally governed by politicians, few of whom have ever read a book on economics.
I believe Cochrane says inflation is caused by government spending that the market does not expect to be paid for (that is, it must be inflated away). Inflation can stay low if spending is not unfunded debt. That said, I used to own stone quarries, so there is a good chance I’m wrong.
Strictly from the point of view of an economist struggling to identify the empirical effects of stupid policies in noisy data, we should be grateful for having stupid politicians doing stupid things.
If the tools are to reduce some of the artificial costs such as carbon taxes, the effect might still be inflationary but not that bad overall.
“There are still only 9 gallons around.”
So far, at least in the western hemisphere there are still the same 10 gallons that were around before, so…
That walks into hoarding. Will US oil producers prefer to sell at the Brent much higher price or at the WTI much lower price? Although there will be physical limits to export, the US can just ban exports to protect its own supply. Hopefully, it won't because increasing supply from the US is part of market forces that would be lost.
To give credit where credit is due:
"Despite these failures and challenges, Diocletian's reforms fundamentally changed the structure of the Roman imperial government and helped stabilize the empire economically and militarily, enabling the empire to remain essentially intact for another 150 years despite being near the brink of collapse in Diocletian's youth. Weakened by illness, Diocletian left the imperial office on 1 May 305, becoming the first Roman emperor to abdicate the position voluntarily. He lived out his retirement in his palace on the Dalmatian coast, tending to his vegetable gardens. His palace eventually became the core of the modern-day city of Split in Croatia." --- Wikipedia, "Diocletian".
Thanks! I gather overall a quite good emperor, except for the inflation and price controls. Which did not have 1700 years of experience to ignore as we do
In Austria, a reduction of the tax on gas is discussed, which is currently 40-50 cent per liter. It would probably also prevent the reduction of demand by customers, but on the other hand, maybe this high level of tax was bad in the first place? So is this a better "tool" than the ones you describe?
I think those dudes should ask Nixon how well his price controls worked out.
Nixon? Old school, 50 years ago?
We've learned so much since then. It will work this time.
The distinction you draw between a one-time price level shift and a sustained inflationary spiral is exactly the analytical question markets are wrestling with right now. The key seems to be whether central banks can hold the line on expectations even as the energy shock feeds through supply chains. I wrote a short analysis of today's central bank positioning here: https://thisweekineconomics.substack.com/p/global-central-banks-lock-into-hawkish
The piece argues it's not really about central banks holding the line — it's about whether governments convert a one-time relative price shift into ongoing monetary expansion through subsidies and price caps. The spiral doesn't start with expectations drifting; it starts with fiscal policy refusing to let the price signal do its job.
There are many predictions in economics as robust as any predictions in physics. Because denying them does not have immediate and obvious catastrophic consequences (such as the certain death that occurs when you jump from a skyscraper balcony attempting to deny gravity), the public gets away with the denial. It’s sad, and tragic.
“I sincerely hope the commissioner is misquoted.”
Hope is not a strategy.
ChatGPT indicates your beginning quote is consistent with multiple sources.
But writing articles like this one may at least help on the margin.
90% ideology, 10% economics in this post. Hard to make a serious case that those measures will lead to higher inflation.
On the previous inflation bout, the US still has to get to 2% inflation, EU is already there -since September 2024- even though inflation peaked at basically the same level in both cases.