Gerald Ford is popping up on social media. The former president died in 2006, but he’s having a time because of his “Whip inflation nowcampaign in the 1970s. When Richard Nixon resigned and Vice President Ford took over in 1974, inflation was 11%.
Ford’s anti-inflation campaign, celebrated on “WIN” red label buttons— was a voluntary plea for American consumers to buy less and save more. It was so simplistic that Ford economic advisers, including Alan Greenspan, found this deeply embarrassing, and it became one of the biggest flops of Ford’s brief presidency. A few years after his loss to Jimmy Carter in 1976, inflation peaked at 15%.
Economics geeks are revisiting Ford’s WIN campaign as President Biden is now in a similar predicament. Inflation reached 7.5% in January, driven by soaring costs cars, home heating, gasoline, food and housing. This is not casual inflation. These are the everyday things people have to buy, and it’s hammering household budgets. Wages rose only 5.7%, so typical workers are lagging behind. It is a political peril for any president.
Biden has a plan. But the lesson from Ford is that presidents don’t have much power, on their own, to fight inflation. The Federal Reserve is certainly doing it, and the Fed under President Jerome Powell now seems certain to start raising interest rates and tightening other monetary levers as early as March. Fed tightening takes time, however, and inflation may not come down enough to help Biden and his fellow Democrats in November’s midterm elections. Fed rate hikes can also cause recessions, if they go too far or if a recession seems necessary to contain really nasty inflation, like in the early 1980s.
So Biden needs to show some sort of action instead of just waiting for the Fed, which he doesn’t control anyway. On February 10, the Biden White House released its plan to “reduced costs for active families.” Here are the main elements, with some comments:
Fix supply chains and boost domestic manufacturing. Necessary and good. Supply chain disruptions and resulting shortages are one of the causes of inflation. But that’s largely a private sector problem and there’s not much the president can do. More domestic manufacturing would likely be good for workers, but it’s unlikely to lower prices. On the contrary, goods made in America are more expensive, not less, than imports from China and other lower cost countries.
Promotion of competition. Good too, but come on. It’s extremely difficult to break up conglomerates that have monopoly pricing power, and that’s something the Justice Department and the Federal Trade Commission are supposed to do on an ongoing basis, anyway, through the enforcement of antitrust laws. An example given by the White House is a new plan for allow the sale of hearing aids without a prescription, at significantly lower prices. It is the implementation of a law passed by Congress five years ago, and is opposed by industry groups, such as audiologists. It may come into force this year. Maybe not. If so, people with hearing loss will benefit, but it will have a negligible effect on overall inflation.
The “build back better” plan. The White House says Biden’s welfare plan would “cut kitchen table costs.” The BBB plan would provide free preschool to all 3- and 4-year-olds nationwide, subsidize child care for those who need help, and cap some prescription drug costs under Medicare.
There are only dozens of problems with BBB. Most obviously, Democrats disagree among themselves on what should be in the bill and were unable to pass it. The closer we get to midterms, the less likely Democrats are to pull themselves together and pass something.
If they do, they better hope the unintended consequences don’t destroy what they’re trying to do. Just one example: Biden’s plan for universal early childhood education has a lot of support and is a good idea overall. But new government funding for preschool would generate massive new demand for facilities and caregivers, and there are not enough currently to bear the burden. You can’t build new capacity of this magnitude overnight, and one of the possible outcomes would be preschool costs skyrocketing somewhere in the system. The BBB’s top Democratic critic, Sen. Joe Manchin of West Virginia, said the bill would make inflation worse, not make it better, meaning his opposition is only likely to harden if the inflation increases.
There are other examples of how government programs inadvertently increase costs or cause other problems. Subsidized student loans, for example, can raise tuition fees by increasing the demand for a product whose supply is relatively fixed: a college education. Last year’s US bailout, which Congress passed with only Democratic votes, likely contributed to the current spike in inflation. Some economists have warned that pumping so much extra money into the economy would trigger a spike in demand and prices, which is exactly what happened. Biden and virtually every Democrat blew this up at the time.
Democrats in Congress have their own ideas on how to fight inflation: Suspend the federal gasoline tax of 18.4 cents per gallon. Reduce the budget deficit. Pass BBB as soon as possible. Kill BBB forever. Republicans don’t have any suggestions, but as a minority party in both houses of Congress, they don’t have to. They’re happy to hammer Biden on inflation and watch the ruling party writhe in the wind, secretly grateful it’s not them.
Biden needs to demonstrate he is doing something to fight inflation. But he probably knows his toolbox is spare. Biden was in his first term in the Senate in 1974, when Ford launched his weak WIN business. If Biden’s memory is vivid, he’ll be careful not to talk about whipping anything.
Rick Newman is a columnist and author of four books, including “Rebounders: How winners go from failure to success.» Follow him on Twitter: @rickjnewman. You can also send confidential advice.