The DFL’s plan to lower prices will do nothing to actually lower prices
The Bureau of Labor Statistics (BLS) announced last week that, at 8.5 percent from March 2021 to March 2022, inflation was running at its fastest year-on-year rate since December 1981. Not surprisingly, this is a serious concern to many Americans. It was reported last month that:
Nearly one in five (17%) Americans say inflation is the most important problem facing the country today, according to new Gallup poll. Inflation ranks as the top economic concern of those surveyed, and it’s now the second biggest worry overall.
It’s been nearly four decades since inflation was so high on the list: Gallup says the current mentions of inflation as the country’s most important problem are the highest the firm has recorded since 1985.
Of those surveyed, 4% said fuel prices were the most important problem, and 11% said the economy is general is the top issue. Only 3% said the main problem as of March is COVID-19/diseases, down from 20% in January.
The pollsters also asked around 700 respondents how much they worry about inflation, and 59% indicated they worried “a great deal,” roughly tying with the 58% who said they worry a great deal about the economy. On this basis, inflation was also a leading public concern of the 14 issues the respondents were asked about, which ranged from crime and violence to the quality of the environment to the Social Security system.
Americans’ concerns over inflation began rising last fall, according to Gallup. Rising prices registered no more than 2% of mentions in surveys about the public’s concerns throughout most of 2021. That number jumped to 5% in October, and shot up from 8% in January to 17% in March.
“Inflation doesn’t dominate Americans’ perceptions of the most important problem facing the country today the way it did in the early 1980s,” Lydia Saad, Director of U.S. Social Research at Gallup wrote in a post accompanying the survey results. “But it’s more top-of-mind than it’s been in over three decades and appears to be taking a toll on Americans’ broader economic confidence.”
Interestingly, while inflation disproportionately affects poor people, Americans at the higher end of the income spectrum are also very concerned about rising prices. The percentage worrying a great deal about inflation who earn $100,000 or more (58%) is nearly as high as the percentage who earn less than $40,000 (63%), Gallup found.
This is bad news for incumbents in an election year. The scramble is on to do something about it. This has to start with an understanding of what is causing it — namely that:
…real GDP — the amount of stuff there is to buy — grew by just 1.9 percent between Q4:2019 and Q4:2021 [while] the amount of M2 — the money there is to buy it — increased by 40.3 percent.
This is a macroeconomic phenomenon originating at the national level and there is little a state government can do about it. Nevertheless, politics dictates that they try.
To this end, the House DFL recently released “a plan to reduce costs.” It comprises more tax credits for child care, more credits for housing, more credits for student debt, and price controls for medicines.
None of these measures, however, are actually about lowering costs but about shifting those costs to the taxpayer. The price of housing or childcare — which is driven by the relative supply and demand for these things — will be totally unaffected by these policies.
I wrote recently that President Biden has no idea how to deal with inflation. Neither, it seems, does the House DFL.