All too much of our lives are controlled by a tyranny of government “experts.” This past week, Treasury Secretary Janet Yellen admitted she had been wrong about inflation. It would have been nicer if she had the decency to resign since Ms. Yellen and Fed Chair Jerome Powell were the prime actors in creating the new great inflation, which has lowered living standards for hundreds of millions of their fellow citizens.
Expecting those who make very bad decisions, which cause great misery, to resign is a very mild rebuke — and used to be common when people took responsibility for their actions. Think of the great pain and damage that Dr. Antony Fauci and his colleagues at the CDC have done to tens of millions of children by ordering shutdowns of schools, not based on real science or cost-benefit analysis. He has yet to apologize, let alone resign or find an appropriate way to meet his maker.
Because of the limits of knowledge we all have individually and collectively, we ought not to be too harsh on those who make policy mistakes — provided they acknowledge beforehand the limits of their knowledge and that their opinions are only advisory and not mandatory.
Ms. Yellen and Mr. Powell, based on several hundred years of empirical evidence (and basic logic), should have known that creating money much faster than increasing the supply of goods and services was likely to cause a great rise in the rate of inflation. Many private-sector economists, without the benefit of the hundreds of economists employed by the Fed and the Treasury Department, have been sounding the alarm for more than a year.
The mess began when then-President Donald Trump, on the advice of the CDC, shut down the economy at the beginning of the pandemic. Dr. Fauci and the other “experts” said the shutdown would only have to last for a few weeks. The pandemic did not stop, causing the president and Congress to continue the shutdown, again, on the advice of the “experts.” Given that millions of workers had been laid off, those in government decided to give everyone money (stimulus checks) to pay their bills. The money did not come from an increase in tax revenues. In essence, the Fed printed the money, not in payment for goods and services, but to give the illusion that people would not suffer from the loss in real income despite the shutdown.
As the economy began to open up, the Fed should have started withdrawing all of the extra money they produced. But instead, they continued to create new money to cover the ongoing deficits. This new money showed up in the rise of commodity prices and housing — making people feel wealthier, even though little new wealth was being created. People began spending their “new wealth” on goods and services — but the production of goods and services was not high enough to cover the demand for them from the “new money.” The result is shortages of many items, with a steep bid up in prices. Everyone is now paying the price for the “free money” (for not doing anything) they received during the pandemic.
The appropriate response should have been for the Fed to stop financing the deficits, for the Congress and administration to reduce spending and the deficit, and for the government to make a concerted effort to remove as many supply constraints on production as possible. But in fact, the administration, the Congress, and the Fed have done just the opposite.
Mr. Biden and his advisers seem to have little understanding of the total impact of the rise in oil and gas prices. The world has in large part a petroleum-based economy. Plastics, fertilizer (read: “food”) and most everything that is manufactured depends on having sufficient oil and gas as a component material or for energy in making the product.
Biden administration officials have been very explicit in stating that the rise in gasoline prices is a good thing because it will encourage a more rapid move to the “green economy.” So, they continue to withdraw potential gas and oil-producing lands, refinery expansion permits, and permits for the construction of needed pipelines. Restricting the supply of petroleum and making it more expensive and difficult to transport and refine it do not just increase the price of gasoline.
As noted, gasoline is just one of the many products made from crude petroleum. Artificial supply restrictions also mean higher food prices and product prices for everything with components, at least in part, made from oil and gas. An increase in fuel prices also negatively affects the shipment of goods by train, truck, boat or plane. And yes, these higher prices do indeed have a bigger negative impact on the poor and women and children.
The disastrous monetary and regulatory policies of the Biden administration are so obvious that, without being a conspiracy fan, one can only conclude that they are extraordinary thick-brained, mean-spirited or both!
• Richard W. Rahn is chair of the Institute for Global Economic Growth and MCon LLC.