As Treasury Secretary Janet Yellen said during today’s meeting, the price of doing nothing when it comes to economic relief is too high. Congress must act quickly and pass the American Rescue Plan to deliver relief and help dig us out of this crisis. [Photo Credit: Adam Schultz, Public domain, via Wikimedia Commons]
Commentary by: Richard Stern, Preston Brashers, David Ditch, Peter St. Onge, E.J. Antoni & Joel Griffith
With inflation surging to 9.1% and averaging much higher in the ruralheartland than in urban areas, now is not the time for the federal government to pour gasoline on the fire.
Yet, as Democrats negotiate the newest iteration of their socialist nightmare—the so-called Build Back Better Act—that is exactly what they are planning to do. This plan would increase inflationary pressures with shortage-inducing price controls on prescription drugs and an increase in spending for Obamacare subsidies.
If this sounds like the approach of the 1970s, it is—rapidly expanding federal spending and the money supply, and ultimately triggering double-digit inflation. Then, too, rather than rein in spending, Washington resorted to price controls.
The newest version of the euphemistically named Build Back Better follows this failed playbook.
In the 1970s, government price-meddling led to gasoline lines stretching for blocks. This time the price-meddling will make it harder for vulnerable Americans to get their hands on lifesaving drugs.
Inflation is too many dollars chasing too few goods and services, and this bill dumps in even more dollars, while chasing down and destroying even more economic production.
Americans deserve better. To avoid stoking the inflationary firestorm sweeping the country, Congress must reject this newest iteration of Build Back Better.
Price Controls to Oblivion
The legislation would impose a formula-driven price ceiling on certain prescription drugs sold in the Medicare market. With statutory limitations on prices imposed, the “negotiations” between the government and the private companies that develop and produce lifesaving medicine would be about as one-sided as the Pittsburgh Steelers squaring off against a Pop Warner football team.
A company could either accept the government-dictated price or be cut off altogether from the large Medicare market.
If a business were to sell a price-controlled drug at higher than the “negotiated” price, it would face an effective tax rate of more than 100%. No business can afford a 100% tax, but this tax isn’t about raising revenue or reducing the deficit. In fact, it’s designed to raise zero dollars of tax revenue. The point of the tax is to strong-arm businesses into doing what the government wants. Or else.
The price controls may look like spending cuts, but they would act like new business taxes. Whether businesses are taxed at 30% on sales or whether they’re forced to reduce prices by 30% makes no meaningful difference to them. The chilling effect on business activity and research and development would be the same.
These regulations would only make it harder to produce vital medicines, and they wouldn’t mitigate the true cost of producing such important products. Instead, these costs would simply be shifted to other Americans—most likely, to the 82% of Americans not covered by Medicare who could see the largest cost increases.
Perversely, this version of Build Back Better—theoretically intended to reduce the cost of insurance—could instead indirectly increase insurance costs for the vast majority of Americans by way of these destructive price controls.
However, we cannot know for sure how far-reaching these negative effects will be. They will show up as costs that slow down other sectors of the economy, that reduce wage levels, and that will mean some new businesses and research projects will never get started at all.
Hauntingly, we will never know how many millions of lives could have been saved or brought out of poverty by the innovative pursuits these price controls will choke to death.
Spending Our Way to More Inflation
Whenever governments spend—as this plan would, on more Obamacare subsidies—they have three options to pay for it.
They can tax it, taking directly from hardworking Americans and destroying the delicate business arrangements that provide jobs and produce the things we use and need.
They can print it, devaluing your savings and the value of your paycheck by watering down the value of each dollar.
Finally, they can borrow the money, leaving debts for your children while draining the oxygen out of the economy today as the government squanders job-creating investment dollars to bloat itself. When the government borrows, it does so with the promise to either tax someone or print even more money in the future to pay it back.
The certainty of the burden it will impose and the uncertainly of how it will impose it cause economic chaos. Governments can’t create value out of nothing. There are no free lunches here. The resulting chaos triggers inflation today as people try to hedge against the prospect of future slower economic growth and a devalued dollar.
Spending more money to reduce inflation doesn’t pass the smell test.
Inflation is a hidden tax, but it’s still a tax, and no tax in history was ever reduced by the government spending more money. To reduce a tax, including inflation, the government must spend less.
Today’s inflation is the unavoidable result of Washington printing an incredible amount of money and adding $7 trillion to the national debt since the COVID-19 pandemic.
Rather than acknowledge this reality, congressional Democrats and the Biden administration have now spent more than a year obsessively trying to force through yet another massive spending package. There was the fake “infrastructure” plan (supported, unfortunately, by 19 Republican senators), then Build Back Better, then a revised version of the latter packed with deceptive budget gimmicks, and now this newest plan.
Get Washington Out of Way
Regardless of how many more mutations Build Back Better goes through, regardless how many times President Joe Biden renames and repackages it, it still suffers from the same fundamental flaw: It concentrates more money and power in Washington at the expense of the real economy.
It distorts the economy for the benefit of special interests, and it will lead to a combination of tax hikes, deficit spending, and inflation, now and well into the future, all to the detriment of hardworking families.
Instead of further antagonizing households, we could use deregulation and pro-growth tax reform to help the economy. This path would revitalize the nation and dust off the engines of the world’s most dynamic economy.
Or with this new Build Back Better, we can continue down the road to expanding government control, crushing businesses and jobs, and squeezing families trying to make ends meet.
Make no mistake, this will lead straight to a more painful and longer-lasting inflationary crisis.