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Veronique de Rugy: Greedflation Is A Witch Hunt, Not Real Economics

Dominic Pino had a good post on how hard it is to defend the nonsensical soundbites pushed by Democrats, including the president, on inflation. They are incredibly busy looking for imaginary witches to blame for their irresponsible policies of excessive spending. While there is plenty of blame to go around for the terribly accommodating Fed policies all the way through March 2022, no one can blame the Republicans for the American Rescue Plan.

The Democratic motto of “never let a good crisis go to waste” is on full display these days, with legislators blaming corporate profits and greed for inflation. They are also quick to push the kind of policies they would love to see implemented even without inflation, such as higher taxes in corporations and price-control legislations. Senator Warren‘s bill to ban price gouging and use the FTC to enforce the ban is a good example of this nonsense.

Thankfully, in recent days, many left-of-center economists have come out to denounce the fake greedflation narrative. This is important, because bipartisan denunciation of these bad policies is the only way to avoid making things worse. Here are a few examples.

Jason Furman:

Catherine Rampell:

The problem with this narrative is that it’s just a pejorative tautology. Yes, prices are going up because companies are raising prices. Okay. This is the economic equivalent of saying “It’s raining because water is falling from the sky.” Well, why? . . .
Here is how economists explain the recent run-up in inflation: Demand is strong, thanks to pandemic-forced savings plus expansionary government policies (stimulus payments, low interest rates, etc.). Meanwhile, supply remains constrained by covid-related disruptions, labor shortages, other unfortunate shocks. Companies can’t ramp up production quickly enough to procure all the stuff that consumers want to buy, whether that “stuff” is oil, furniture or eggs.
Consumers still want to buy all this stuff, though, and Americans overall have an unusually high amount of cash on hand. So they are willing to pay more. That pushes prices up.

Matt Yglesias:

At the end of the day, though, only a very stupid person would think companies suddenly became greedy in 2021 after years of being non-greedy. In fact, during this whole period from 1997 until 2020 when the price of durable goods was steadily falling, I routinely heard that ascribed to greed. The bad corporations were outsourcing jobs to China to cut costs — greedy!

Noah Smith:

Even if it rousing anti-corporate sentiment were good for Democrats’ electoral prospects (which I highly doubt), it pushes Democrats’ governance toward questionable policies. Lashing out at corporations by any means available will not bring down inflation, and voters in November are still going to be mad.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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Posted: May 17, 2022 Tuesday 11:22 AM