Round‐up: The Inflation Reduction Act Won’t Reduce Inflation
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pHello! You are reading this because either a) you were on my existing email distribution list, or b) you agreed to be added to this one./p
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pSo welcome to strongThe War On Prices,/strong an occasional newsletter focused on dissecting anti‐market economics in politics and the media, on both sides of the Atlantic. The idea is that this will supplement my weekly column at The Times (UK) newspaper and a href=https://www.cato.org/people/ryan-bourne target=_blankday job at the Cato Institute/a with regular posts and thoughts on economics and politics. Every so often, I’ll send anbsp;round‐up of articles I’ve written elsewhere./p
pI haven’t sent out that sort of general update for anbsp;while. It’s been anbsp;hectic year, with me working on anbsp;bunch of chapters for Cato’s Handbook for Policymakers, starting my weekly Times column, tracking the anti‐Big Tech antitrust agenda here in the U.S., and…most importantly, getting married! So here’s anbsp;whistle stop tour of things I’ve been thinking about and some exciting projects coming soon:/p
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pstrongThe War on Prices/strong/p
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pstrongAgenda at the FTC/strong/p
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pstrongLiz Truss vs. Rishi Sunak/strong/p
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pstrongMy Cato conference/strong/p
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pstrongThe War on Prices/strong/p
pFirst, what can you expect from this newsletter? There will be short pieces on topical issues, but when Inbsp;get anbsp;bee in my bonnet, you’ll get anbsp;long post like a href=https://ryanbourne.substack.com/p/coming-soon?utm_source=substackamp;utm_medium=web%2Creader2amp;utm_campaign=substack_profile%3Futm_source%3D%2Fprofile%2F4425671-ryan-bourneamp;showWelcome=true target=_blankyesterday’s opener./a emThe Washington Pos/emt ran an article claiming that we needed World War II‐style price controls again to head off inflation. Oh dear. Even aside from the bad timing (the U.S. consumer price index was actually flat in July), this romanticization of the wartime experience is pretty shocking given the huge sacrifices Americans had to endure as anbsp;result. You can read my full rebuttal a href=https://ryanbourne.substack.com/p/coming-soon?utm_source=substackamp;utm_medium=web%2Creader2amp;utm_campaign=substack_profile%3Futm_source%3D%2Fprofile%2F4425671-ryan-bourneamp;showWelcome=true target=_blankhere./a/p
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pOur current inflationary period seems to have caused lots of people to take leave of their senses about what prices are and the important role they play in the economy./p
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pOur current inflationary period seems to have caused lots of people to take leave of their senses about what prices are and the important role they play in the economy. The distinction between individual product price changes and “inflation” is constantly blurred. Anbsp;host of myths have resurfaced, including the idea that inflation is caused by a href=https://www.cato.org/blog/monopoly-monopsony-us-economy-big-business-too-powerful-part-2 target=_blankmonopolies/a, a href=https://www.cato.org/commentary/wage-price-spiral-explanation-inflation-dangerous-myth#:~:text=The%20idea%20that%20wage%E2%80%90%E2%80%8B,lead%20to%20such%20misguided%20policy. target=_blankworkers’ wage demands/a, price gougers, and more. Central banks in the U.S. and UK worsened pandemic and war supply‐shocks by pumping in further excess demand, causing nominal GDP to surge above trend. The main inspiration for this newsletter is this pervasive Great Forgetting on economics — what loosely might be dubbed anbsp;war on prices, or at least the price messenger./p
pIt’s anbsp;theme I’ll expand more on in future. a href=https://www.thetimes.co.uk/article/biden-wants-to-reduce-inflation-but-his-new-law-will-do-nothing-to-help-8pbd5l6bz target=_blankemMy Times/em column/a this week was on one aspect of the discussion — Senate Democrats’ so‐called “Inflation Reduction Act.” It’s an unfortunate title, because…erm, it will not reduce inflation. Federal Reserve tightening, anbsp;falling oil price, and supply chains unsnarling likely **will** see the U.S. inflation rate fall through this year. But it would be anbsp;mistake to attribute this to the soon‐to‐be law. Given the bill doesn’t do anything on monetary policy or else much to improve productivity, how would it even mitigate inflation today in theory?/p
pThe answer is: it wouldn’t. The Congressional Budget Office estimates it will have a “negligible effect” on inflation in 2022 and that “inflation would probably be between 0.1 percentage point lower and 0.1 percentage point higher” with the bill in 2023. So anbsp;central estimate of zilch again. The bill was mainly about raising taxes on corporations to engage in lots of green industrial policy. Its name bore no resemblance to its contents./p
pstrongBig Tech Antitrust/strong/p
pSpeaking of anbsp;Great Forgetting, progressives in the States are trying to drag antitrust laws back to the 1960s through anbsp;host of new legislation focused at Big Tech firms that would overthrow consumer welfare as the lodestar of competition policy./p
pI wrote about one such bill a href=https://www.cato.org/briefing-paper/big-tech-self-preferencing-delusion target=_blankearlier this year/a — Senator Amy Klobuchar’s American Innovation and Choice Online Act. This would ban anbsp;host of so‐called “self‐preferencing” behaviors, such as Google putting Google Maps at the top of its search results, or Apple’s iPhone coming pre‐loaded with Apple’s own apps. The central idea? That making every platform as “neutral” and “open” as possible is good because that is what enhances true, level playing field competition./p
pThat’s obviously daft from the perspective of customers or users, who value good functionality and often benefit from the easier navigation to products they actually want. My piece sets out that and other economic errors in the bill a href=https://www.cato.org/briefing-paper/big-tech-self-preferencing-delusion target=_blankin some detail/a./p
pMercifully, it seems as if the Democrats don’t have the votes to pass this law right now. However, that hasn’t stopped Biden’s appointees at the Federal Trade Commission trying to rein in tech firms using other means. We recently saw anbsp;particularly egregious example, as the FTC tried to block Meta (Facebook) from taking over anbsp;virtual reality app developer on the grounds it would supposedly monopolize the “dedicated VR fitness app” market./p
pNo such market exists, of course. VR fitness apps compete with Pelotons, treadmills, gym memberships and more. Nor would any competitors be eliminated as anbsp;result of this acquisition — Meta doesn’t have its own fitness app today. But the Big Tech trustbusters at the FTC just know that Meta is big and so bad, so must be brought to heel, and are willing to gerrymander market definitions to prove their case. a href=https://www.cato.org/blog/ftcs-bizarre-move-against-metas-purchase-within target=_blankFull details of the bizarre intervention here./a/p
pstrongIn Liz We Truss?/strong/p
pThe UK will soon have anbsp;new Prime Minister and that looks likely to be Liz Truss. Inbsp;consider Liz anbsp;friend, so Inbsp;am biased about the Tory leadership race. Inbsp;wrote anbsp;piece for ConHome, in fact, on ta href=https://conservativehome.com/2022/07/13/ryan-bourne-truss-is-the-only-candidate-with-an-economic-plan-to-turn-britain-around/ target=_blankhe economic case for backing her/a and then another on what people might learn from a href=https://conservativehome.com/2022/07/27/ryan-bourne-what-trusss-pre-government-writing-can-tell-us-about-her-approach-to-government/ target=_blankher pre‐government writing/a. She previously a href=https://www.gov.uk/government/speeches/market-millennials-speech-by-the-chief-secretary-to-the-treasury-at-the-cato-institute target=_blankspoke at Cato./a/p
pTruss would be taking over at anbsp;terrible time for the UK economy, with households set to be hit with huge energy bill spikes and the country’s socialized healthcare system under strain (again). Her instincts are very free‐market, but there’s anbsp;lot of damage to undo in the UK — much of which has been driven by an exceptionally weak growth performance since the financial crisis (as a href=https://sambowman.substack.com/p/boosters-and-doomsters target=_blankset out brilliantly by Sam Bowman/a)./p
pAll I’ll say here is that I’ve been genuinely baffled by the campaign strategy of her opponent, the former Chancellor Rishi Sunak. He started the run‐off by dubbing himself the unpopular truth‐teller, opposing the sorts of promises that Truss was making to cancel or reverse his own tax rises. Given tax cuts tend to be popular with Conservative members — the electorate here — that was anbsp;bold strategy. Though Inbsp;disagreed with his economics, it at least earned him some plaudits as a “serious” candidate that was willing to do or say unpopular things./p
pYet as soon as he fell behind, he reverted to the sort of rank interest‐group politics that tells various voting cohorts what they want to hear. There was one week‐long period where he implied supermarkets or suppliers might be ripping off consumers and worsening inflation, that he would force Big Tech to pay a “link tax” to traditional newspapers, that he would tighten the UK’s land‐use planning laws by widening green belts, and that he’d deliver more protection for farmers in trade deals./p
pI’d always seen Sunak as an “I’m anbsp;free marketeer, but…” Conservative MP — the sort for whom everything following the “but” usually shows they are not, in fact, anbsp;free‐marketeer. But in this campaign Inbsp;think his obvious attempt to curry favor with various vested interests has completely trashed the brand he sought out as someone just willing to do the right thing (however unpopular it might be). I’d be very surprised if he eeked out anbsp;win from here./p
pstrongNew Challenges To The Free Economy (From Left and Right)/strong/p
pBack in early 2020, I’d organized anbsp;big economics conference to explore the ascendant anti‐market policies of the progressive left and national conservative right. Then COVID-19 hit and the conference was postponed. Well, now I’ve finally got the go‐ahead for October 6, 2022 here at Cato. And the line‐up is great./p
pTwo keynote speeches will be delivered by former Congressional Budget Office director Douglas Holtz‐Eakin and former Obama CEA chair Jason Furman. There will be panels on antitrust populism, trade protectionism, the politicization of business, the regulatory state, and the prospects for fiscal sustainability. It’s an incredible line‐up of speakers, including Google’s Hal Varian, PIIE’s Adam Posen, GMU’s Bryan Caplan, the University of Chicago’s Casey Mulligan, Harvard Business School’s Elisabeth Kempf, and anbsp;number of my Cato colleagues./p
pYou can sign up to a href=https://www.cato.org/events/new-challenges-free-economy-left-right target=_blankattend or watch online here./a/p
pstrongOther New Content/strong/p
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pCato recently published anbsp;visually appealing guide to the a href=https://www.cato.org/study/government-debt-iceberg target=_blankU.S. Government Debt Iceberg/a that Inbsp;authored./p
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pA podcast with me and my Cato colleague John Samples on a href=https://www.cato.org/multimedia/cato-daily-podcast/what-do-new-conservatives-believe-about-economy target=_blankthe definition of “recession”/a and the social media fact‐checking of it./p
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pa href=https://conservativehome.com/2022/08/10/ryan-bourne-anti-truss-commentators-should-try-to-understand-nominal-gdp-targeting/ target=_blankMy ConHome column/a on the advantages and pitfalls of nominal GDP targeting./p
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pI have recently started a href=https://www.tiktok.com/@mrrbourne target=_blank“Tik‐Toking.”/a If anyone has good ideas for how to make my content more appealing on that platform, I’m all ears. You can reach huge audiences and there’s currently anbsp;lot of bad economics on there that goes viral./p
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