Free trade, regulation, the fed, and inflation
Inflation is rampant, and Democrats as the responsible party need to address it. I have listened to Federal Reserve chairman Jerome Powell’s testimony regarding their dual mandate full employment and price stability/limiting inflation. Powell’s testimony leaves me wondering if this is the best way to run a donut shop considering their history? As growth has continued, asset bubbles have formed because too many dollars are chasing too few goods, so the fed thinks raising rates is the best way to deal with the imbalance. I’ve had arguments with friends and family similar to the ones economists are having, does raising rates to decrease demand allow production to catch up? Could it also risk slowing demand too much and dipping us into a recession?
Some economists believe inflation is always a monetary problem. I am not one of those, and Powell also doesn’t seem to be, so why are we doing it? Because policymaking, while more precise, takes time and effort. No one wants to hurt their donors or special interests groups, and honestly, no one wants to take accountability if things take longer than expected or do not work out, but that is why we put them there to solve problems.
Policymakers should focus on increasing the supply of goods and services experiencing inflation. Doing so would eliminate the need for rate hikes, and the fed can continue to focus on job growth instead of eroding purchasing power to decrease demand. I think understanding economic incentives and using them to craft policy is important. I am a Democrat, but understand the market is, if properly regulated, is the best tool to generate wealth and prosperity so should all Americans. The goods you see experiencing the most inflation are most susceptible to cost disease socialism. So I want to define it simply as subsidizing goods and services in limited supply, further inflating the costs. While some people try to point to Baumol’s cost disease (which states service sector employers increase costs to offset costs in retaining employees that other opportunities at better-paying jobs) costs in healthcare, housing, and education are outpacing raises.
So what is the deal and what should be done? I have previously written about the need to return to free trade policies from returning to TPP, ending unnecessary tariffs, sanctions and trade wars to increase the supply of goods and services. I’ve also written about the importance of energy independence or a coherent policy to develop cheap, plentiful, and abundant energy. I have even written about increasing worker pay and immigration to increase the supply of workers in the workforce along with healthcare and childcare benefits, but that is the easy stuff now, the hard. Policymakers need to take on rising costs and wasted subsidies head-on in the same way we can increase supply elsewhere, so should we in healthcare, housing, and education. Addressing these issues increases workers’ purchasing power and, unlike subsidies and minimum wage hikes, is not inflationary.
A quick summary I hope to come back to at a later time.
1. Strip protections of hospitals acting as nonprofits while engaging in mergers in price-fixing. Their nonprofit protection prevents investigations into their market manipulation decreasing competition amongst healthcare providers.
2. If unwilling to move to single-payer expand the ACA marketplace providing a public option and requiring employers to buy plans off of the ACA marketplace (increasing portability of healthcare and decreasing bloated spending as part of employer compensation.)
3. Allow drugs and prescriptions from other countries that have been vetted. Increase investment in production and allow some federal and or state price negotations.
4. Decrease the costs of education to medical students by changing our current degree system to a more technical one, one with more on-the-job training and testing. Changing this not only increases the supply of people able to become doctors it allows them to pursue less lucrative medical professions because they do not have as high costs. Finally, it allows more healthcare aids to support existing doctors.
1. Focus on education bells and whistles have costs that aren’t usually needed new rock walls, football stadium, track, while nice do not increase the quality of the education or the quantity that, can be taught.
2. Increase the number of community colleges that are more affordable as a whole and ideally make a two-year degree or other credentials free.
3. Increase the number of alternatives to college including the ability to not go to college to decrease the demand on limited spots.
1. Allow more construction even luxury condos or apartments alieve pressure on limited supply. As more affluent people leave for luxury condos their former homes come on the market.
2. Build affordable housing
3. Decrease local regulation preventing new construction.
4. Support home builders involved in building affordable homes.
1. Use the Canadian model allowing the government to run a basic background check and certification process to increase small home daycare providers.
2. Support family daycares
3. Decrease regulatory burdens on larger providers with a more extensive but limited child care course required for workers and a small subsidy to get workers up to the state or the federal minimum wage whichever is higher. These changes drive costs of education and compliance down while also incentivizing workers to the field.
These policies along with expanding free trade not only address inflation they do not give up on our values. Building an economy that works for all Americans should be our focus and this is how we can get buy-in for our vision if we are willing to be bold.