A debate is brewing over solutions to wage stagnation, pitting advocates of wage subsidies and cash transfers against those who emphasize boosting purchasing power. In the Federalist yesterday, Sean Davis argued that policymakers aren’t paying enough attention to rising food prices. Davis points out that for the average middle- or lower-class American, grocery bills are growing faster than their wages. Some on the right have fired back, taking issue with the suggestion, at least implicit in Davis’ work, that the loose monetary policy of the Federal Reserve is contributing to price inflation.But whether or not the Fed’s monetary policy is the cause of inflation is a very narrow question to pick out of the broader set of issues inflation raises. For a complex variety of reasons not reducible to monetary policy, the basic products and services Americans spend money on are getting more expensive (health care, education, and yes, even food). Regulations play a big part, of course—the more hoops businesses have to jump through to get their products to market, the more expensive those products become. Mandates (like Obamacare’s “essential benefits”) are another problem. Regarding food, as AEI’s Jim Pethokoukis points out that weather conditions (droughts, for example) have reduced the supply and raised the prices of many staples. Easy student loans help inflate the price of college.So the causes of inflation are complex, and we should resist any easy conclusions about Fed policy based on price jumps. But the inflation hawks are right to focus on prices rather than subsidies. We don’t need to support rising prices through student loans, or insurance subsidies, or cash transfers. We need to think about what is causing inflation and what, if anything, we can do to reverse it.
Prices Prices PricesEasing Sticker Shock for Cash-Strapped Consumers