Inflation, which recently hit 7 percent, is back in the news. Everyone has an explanation for why it’s on the rise — and often a pet solution. But in Washington and beyond, there is little agreement on either the cause of inflation or the best response.
The United States hasn’t experienced this kind of inflation in more than a generation. But looking at the last time it did highlights a dynamic we can expect to return: commentators using inflation as an opportunity to advance loosely related policy goals.
Economists used inflation to push for deregulation
In 1974, Gerald Ford had just been thrust into the presidency and wanted urgently to address inflation, which had reached a historic 10 percent. One of his first actions as president was to convene a “summit conference” on inflation.
As part of this event, the administration brought together a wide-ranging group of economists, including liberals (Kermit Gordon, Walter Heller, John Kenneth Galbraith) and conservatives (Milton Friedman, Herbert Stein), and charged them with proposing solutions.
The economists talked for several days. Then, as now, there was no disciplinary consensus on the best response to inflation, and no consensus emerged at the summit, either. The attendees admitted they could not agree on how to stop it.
But in the years leading up to the meeting, economists had come to a consensus on a different policy position that challenged the status quo. They all agreed that economic deregulation was a good idea. Specifically, they agreed that government should stop controlling prices and restricting new entrants into various industries. Removing these restrictions, they believed, would introduce beneficial competition, driving prices down.
When Thomas Moore, a senior staffer on Nixon’s Council of Economic Advisers and author of a book on freight regulation, presented the summit with a long list of deregulatory goals, he found widespread support. All but two of the 23 economists present — including nearly all the liberals — signed off on the program, which included everything from “reduce or eliminate entry barriers into trucking” to “repeal import quotas on dairy and other farm products.”
Even Moore, who proposed the platform, admitted that the link between economic deregulation and inflation was somewhat tenuous. But he argued — and his colleagues apparently agreed — “I do think that it will help move things in the right direction. … It is a desirable thing to achieve.”
Economists’ advocacy of deregulation as a solution to inflation fed into Ford’s policy leanings. A month after the economists’ conference, Ford gave his historic “Whip Inflation Now” speech. Better remembered for urging American consumers to reduce consumption, the speech also proposed deregulating the natural gas industry, establishing a commission to overhaul the independent regulatory agencies and reviewing the inflationary impact of all major executive regulations.
Over the next two years, Ford repeatedly used his platform to advocate for deregulation, particularly, though not exclusively, of the transportation industries. Indeed, proponents of deregulation within his administration were pleasantly surprised, and his political strategists a bit dismayed, by just how committed to the project Ford turned out to be.
It took a few years for the deregulation project to come to fruition. The most significant pieces of legislation, the 1978 Airline Deregulation Act and the 1980 Staggers Rail Act and Motor Carrier Act, were signed into law by President Jimmy Carter, not Ford. But it was under Ford that the deregulatory project first gained momentum, and it was under the guise of reducing inflation — however loosely the two were tied in reality — that it found its opening.
Why has U.S. inflation hit 7 percent?
Perhaps today’s commentators will push for antitrust
Now, as in the 1970s, debate rages over what, if anything, should be done about levels of inflation. Economists don’t agree any more about how to respond now than they did back then.
And again, the challenge of inflation is creating political opportunity. It is a problem unusually open to interpretation, which produces persistent disagreement among the experts. That provides a potential opening for “policy entrepreneurs” — people who want to advocate for a particular policy cause or idea — to push for changes that might or might not be independently good ideas, which are only relatively indirectly linked to inflation.
At present, the most likely candidate for this role is increased antitrust enforcement. The Biden administration was already supportive of strong antitrust, which could at least plausibly keep firms in concentrated industries like meatpacking and petroleum from raising prices. President Biden has floated such ideas as he works to articulate a clear response to an emerging problem.
Why the supply chain crisis isn’t going away anytime soon
In the short run, it is not clear if antitrust will successfully be sold as a solution to inflation. While economists have become increasingly convinced that market power is a problem, their position on antitrust today is nowhere near as unified as their predecessors’ position on deregulation was in 1974.
But in the long run, inflation might provide the justification for aggressive antitrust — or some other comparable policy — to gain center stage. Problems of clear importance and unclear solutions make it easier for people to advocate reforms that are only loosely connected. Such policies may have benefits on their own terms, but it is inflation that provides the political opening.
Don’t miss any of TMC’s smart analysis! Sign up for our newsletter.
Elizabeth Popp Berman is associate professor of organizational studies at the University of Michigan and author of the forthcoming Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy (Princeton University Press).