Market prices are arrived at through infinite decisions and actions taking place every millisecond of every day around the world. Capitalism is happily too fast for politicians and policy scholars eager to influence them.
Worse, it’s often true that what policy experts imagine to be true about prices and policy isn’t. Take, for instance, a recent affordability-related editorial at the Washington Post.
It read like this: “Both parties are responsible for prices rising faster than necessary. Excessive government spending keeps the economy running hot, even after the Fed hiked interest rates.” Good intent in the passage, lots of misinformation. The reality yet again is that prices are a wildly sophisticated effect of real economic activity engaged in by people around the world who've likely never heard of people with last names like Swalwell, Gonzalez, McConnell, Schumer, Johnson, and Jeffries.
After which, the economics are incorrect. Government spending is by its very name an economic somnolent. There’s no growth that results from government substituting itself for the marketplace in the allocation of precious resources. Yet the Post’s editorial page would suggest the economy runs “hot” when government spends. No, that’s just not true.
It’s also not true that economic growth causes prices to rise as the Post editorial suggests. That’s because economic growth is another term for rising productivity. Which means the surest sign of growth is falling prices for goods and services.
The Post added a bit of a non sequitur about how “Since the pandemic, Republicans and Democrats have settled into unsustainable federal deficits.” Ok, but deficit spending has no direct effect on prices.
Conversely, the lockdowns related to the pandemic certainly affected prices. Governments can unquestionably instigate price increases by locking down people and businesses on the path to eviscerating remarkably sophisticated globalized production of everything. This is basic Adam Smith. The more hands the greater the productivity the lower the prices.
From this, it can be deduced that the coronavirus lockdowns naturally led to higher prices exactly because globalization was put into sleep mode, but the old Post editorial page supported the lockdowns. Absent them, it’s not an unreasonable speculation that “affordability” isn’t much of an issue.
This is worth remembering not just with the Post editorial on government spending in mind, but with the Cato Institute’s recent release of an “affordability handbook,” and with Hoover Institution scholar John Cochrane’s recent lament that in response to expectations of higher prices, “the Fed will have to react strongly.” No! No more policy is needed.
What’s needed is freedom. This was forgotten by the Post’s editorial board in 2020, but also by the Cato Institute as it cited a respect for “science” as a reason for not pushing back against coronavirus-addled politicians who didn’t similarly restrain themselves. As for Hoover, some of its scholars (including notably Kevin Warsh) were literally writing op-eds explaining how the federal government could spend to mitigate the horrid effects of lockdowns.
Still, hopefully in what happened six years ago, and the logical jump in prices that followed what happened which was decidedly not inflation (the imposition of command and control isn’t), readers can see that the only barrier to falling prices is a lack of freedom to produce with others. Trade is productivity personified, which means it’s falling prices personified. The Post is good on trade, so is Cato, so stick to its importance. The rest is excess.
That’s because capitalism is once again too fast for politicians and policymakers. That’s why atonement for past lapses related to personal and economic freedom would well exceed "policy" proposals that real producers don't much care about.
