Signal price

Could price controls be the answer to inflation that Biden seeks?

Analysis of the Russian attack on Ukraine has rightly focused on the strategic, military and humanitarian considerations of the conflict itself. Soon, however, the national implications will begin to impinge on geopolitics. Maintaining public support will be essential because President BidenJoe Biden Irish Prime Minister tests positive for COVID-19 during visit to DC CNN anchor breaks down speaking to Ukrainian father whose family was killed Graham presents resolution urging Biden to help send jets in Ukraine MORE and other democratic leaders around the world are asking their citizens to sacrifice themselves for the cause of fighting Russia’s war.

The urgent nature of this challenge is underscored by the ban on Russian energy imports announced by Biden on March 8. Cutting the revenue that Russian oil and gas sales generate for the Kremlin is of obvious strategic importance, but most analysts agree that it will raise the prices of gasoline and other energy for the American consumers. Such hikes will add to the existing inflation problem that the Biden administration has been grappling with for months.

To date, public enthusiasm for helping the Ukrainian cause has been high. If the conflict drags on into the spring and summer months, however, there is a real risk that high gas and other commodity prices will undermine public support, weakening the Western position against Russia. While blaming the president for high gas prices is not a rational position given the global nature of energy markets, the reality is that many Americans remain dependent on gasoline to do their jobs and meet the needs of their own families. Many have little economic cushion against such a rise in gasoline prices.

The link between strategic imperatives and national economic factors is not new. Even before Pearl Harbor, the Roosevelt administration feared that war mobilization would lead to runaway inflation, with the supply of labor, raw materials, and basic consumer goods being outstripped by booming demand. boom. FDR responded with price controls, a tool that for now is beyond the reach of White House Biden.

Implemented through the Bureau of Price Administration and Consumer Supply, wartime price controls effectively limited inflation. Although the controls reduced production somewhat and rationing was necessary for some products, production remained high enough to sustain the war effort and meet basic consumer needs. The price control regime ensured that high inflation would never undermine public support for the war.

Price controls were used again during the Korean War, and then in different ways and with varying degrees of success by the Truman, Kennedy, Johnson, and Nixon administrations. By the late 1970s, the shortcomings of some of these efforts, along with the rise of a market-oriented consensus that opposed such interventions, removed price control from the menu of policy options available to presidents.

Most mainstream economists today oppose price controls, although in recent months a sometimes intense debate has emerged on the issue. Critics point to the policy’s pitfalls, such as how it can exacerbate shortages by preventing price signals (i.e. price increases) from prompting producers to increase supply. There is also the problem that controls alone cannot fix the underlying structural causes of inflation.

Proponents of the approach note that a nuanced regime of “administered prices” operated in the European Union and that China relied on a price management system during the early stages of its rapid economic development in the 1980s and 1990s. They also argue that controls can prevent corporate profits.

However, whatever the drawbacks of price controls, the issue is no longer just one of economic policy. This is now also a strategic issue, as the Biden administration’s other options for cushioning the impact of the Russian energy ban have their own downsides. In recent days, for example, the administration has begun talks with the regime of Venezuelan dictator Nicolás Maduro to ease oil sanctions against that country. Likewise, he accelerated negotiations with Iran on a revised nuclear arms control agreement that would unblock Iranian oil exports.

Even more generally, the favored inflation-control policy of the past four decades—raising interest rates by the Federal Reserve—has the potential to trigger a recession. After two years of pandemic upheaval, rising unemployment and resulting anger will do little to strengthen the hand of the United States and its allies against the Russian president. Vladimir PoutineVladimir Vladimirovich PutinRussian journalist explains why she staged anti-war protest on live TV CNN anchor breaks down talking to Ukrainian father whose family was killed overnight Defense and National Security — Presented by AM General — More weapons but no planes for Ukraine MORE.

Nasty choices, alas, abound.

Even before the Ukrainian invasion, economists such as James K. Galbraith and Isabella Weber called for the use of strategic price controls to alleviate the inflation problem in the United States. This term now takes on a deeper meaning when applied to energy prices in the context of the war in Ukraine.

Price control is not ideal. But neither is it about negotiating with Iran or Maduro from a position of need, nor about trying to counter Putin in a domestic political context of runaway energy inflation. In this crisis, the tools Franklin D. Roosevelt successfully used should at least be on the table for Joe Biden to consider.

Guian McKee is an associate professor at the Miller Center for Public Affairs at the University of Virginia, specializing in how federal politics, particularly in executive power, plays out at the local level in American communities. Follow him on Twitter @guian_mckee.