Do you ever get the feeling that you may be living in a time warp? I mean, doesn’t it seem just a little weird that bell-bottom pants and Marcia Brady hairstyles are the latest rage? I don’t know about you, but one trip through the 1970s was good enough for me.
Unfortunately, bad fashion sense and bad hairdos are not the only bad idea that has been resurrected from this tumultuous decade. Recently, the idea of reviving government price controls on food and other consumer staples has been injected into the public forum.
Why Now?
It’s an election year, and a presidential election year at that. We all know politicians will say almost anything if it will mean just one more vote come election day.
On Friday, August 16, Democratic presidential candidate Kamala Harris floated a public policy that hasn’t been tried since the Nixon administration. To address rising food prices, Harris proposed a federal ban on price gouging, focusing on “excessive” and “unfair” mergers and acquisitions that give big food companies the power to “jack up” food and grocery prices.
There is a reason that such a heavy-hand tampering by the government in the supply and demand workings of the marketplace was banished from the political landscape as we know it. Former president Richard Nixon tried it, and it failed miserably! It would have been prudent for Vice President Harris to have brushed up on her history before rolling out this bad batch of political candy to lure the last group of undecided voters.
The twist of historical irony is that Nixon rolled out his first series of economic control measures, including wage and price freezes, almost 53 years to the day that Harris publicly floated her ideas. On August 15, 1971, in a nationally televised address, Nixon announced, “I am today ordering a freeze on all prices and wages throughout the United States.”
After a 90-day freeze, increases would have to be approved by a pay board and a price commission, with an eye toward eventually lifting controls — conveniently, after the 1972 election. Unfortunately the American people would pay the price — but not until after Nixon coasted to a landslide re-election in 1972 over Democratic Senator George McGovern.
Not Then, Not Now
By the time Nixon reimposed a temporary freeze in June 1973, Daniel Yergin and Joseph Stanislaw explain in “The Commanding Heights: Battle for the World Economy,” it was obvious price controls didn’t work: “Ranchers stopped shipping their cattle to market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets.”
When price controls were implemented in 1971, inflation stood at 5.8%. By the summer of 1975 it had ballooned to 8.7%. For the rest of the decade, inflation totally derailed the U.S. economy. The real pain came with what it took to ultimately slow that train. The Federal Reserve took the Fed Funds rate from a low of 3.75% in 1971 to an astronomical 19.29% in 1981.
For U.S. agriculture, these were the worst of times. As interest rates rose and land and commodity prices bottomed, U.S. agriculture endured one of the darkest periods in modern history. The final governmental gut punch came in 1979 with President Jimmy Carter imposing a grain embargo on the Soviet Union, resulting in a 20% decline in agricultural exports.
Farmers saw the rally cry to “plant fencerow to fencerow” and “feed the world” turn into prayers so that they could feed their family. Bankruptcies and suicides became all too common as the fabric of rural America ripped apart. Government had failed them, and their best hope was that Willie Nelson would show up to do another Farm Aid concert in their back 40.
With farm income expected to record its largest year-to-year dollar drop in history, now is not the time to roll out love me ’til election day economic proposals. Still reeling from supply chain chaos caused by the Covid-19 pandemic, U.S. agriculture is in a weakened state.
The Real Drivers
It is important that all links of the U.S. food supply chain remain strong. With average profits of less than 3% for farms and only 1.6% for grocery stores, one has to wonder who the government is going to have to squeeze if price controls were implemented. Vice President Harris specifically pointed her finger at large corporate food processing companies and suppliers.
Although the Harris proposal was light on specifics, it marshals the Federal Trade Commission and state attorney generals with new authority to “impose strict new penalties” on companies that price gouge. She also said her administration would address “unfair mergers and acquisitions” that contribute to higher priced food and groceries.
One would hope if these government agencies were currently doing their day job, then the above mentioned issues should not be a problem in the first place. We don’t need a governmental “grocery czar” telling us what a box of Cheerios should or shouldn’t cost.
Our government needs to look in the mirror to see the key factors that have really driven up grocery prices. Energy costs and interest rates are two of the biggest. Both have a huge impact on food production costs and the price paid at the grocery store. Over the past four years, the consumer price index for energy has risen 32%. In that same time, the prime interest rate has gone from 3.25% to 8.50%.
Even Captain Obvious could connect the economic dots from the current administration’s policies and legislative actions to the reality that is happening to consumers at the checkout line. On day one in office, President Biden canceled the Keystone XL pipeline, and he and Harris have continued for the past three-and-a-half years to throttle the traditional fossil fuel industry at every turn. Meanwhile, the Congressional Budget Office projects that under Biden’s four-year term $7.902 trillion will have been added to our overall national debt. Such actions and polices have been a lead foot on the gas pedal that is driving inflation.
It’s That Bad
So, before we grant our government Wizard of Oz powers over the nation’s food supply chain, it might behoove Vice President Harris and her economic advisers to address the root cause of inflation. Instead of trying to fix it artificially through failed policies of the past and election year pandering, they should address the real issues behind high food prices and inflation as a whole. When friendly press allies such as the New York Times, Washington Post and CNN all shot the Harris plan down from the moment it left her lips — you know it’s bad. The Washington Post called it a “populist gimmick”, and personal finance guru Dave Ramsey said, “It’s not sustainable because it’s artificial.”
Let us hope and pray that such policies will forever remain as a footnote in our history books and not become part of our future economic reality. Whenever I hear something like this I’m always reminded of what Ronald Reagan considered the nine most terrifying words of the English language, “I’m from the government, and I’m here to help!”
