Part III of III on Inflation: Conservative Solutions

In my last post in this three-post series, I enumerated the causes of the current high inflation, which is an increase in prices, and analyze the populist proposals by liberal Democrats and Trumpist Republicans that would be ineffective and often counterproductive. In this post, I offer conservative solutions to inflation that would be more effective. In staying true to conservative principles of avoiding doing something when doing nothing would be the better option, I also summarize what non-conservative proposals not to try. Patience with Monetary Policy: Let the Federal Reserve handle the matter. The “Fed” is the central bank of the United States and is charged with creating a stable value of the currency through its control of the supply of money and through the interest rates it charges private banks. It was created in order to be independent of politics in order to make decisions that are only in the economic interest of the U.S. Politicians and the public should be patient for the results of the Fed’s policy of increased interest rates, which will take months to be fully effective. Avoid Increased Spending or Tax Cuts as an Anti-Inflation Policy: Do not spend more, as liberals propose, or cut taxes, as some Trumpists propose, just for the sake of trying to reduce inflation, as both proposals would be inflationary by increasing demand as people would be able to spend more, and thus increase the pressure on prices, as it would increase demand relative to supply. Although such measures are tempting to politicians because they would make increased prices more affordable, they should resist the temptation to try to reduce prices through fiscal policy (i.e. government taxation and spending) because the effect would be only brief and then soon become counterproductive. Avoid Raising the Minimum Wage: Do not raise the federal or state minimum wage, as liberals propose, as it would exacerbate the wage-price spiral and have the same effect as increasing spending, for the same reason, whether or not coupled with increased spending by compensated employers. Cut Tariffs: Reduce or eliminate tariffs that are based on protectionism, which is a policy of taxation that both some liberals and Trumpists support. Because tariffs are excise taxes on imports, the costs of the tax are passed along by importers to consumers as prices increases, reducing them which would decrease prices on imported goods in order to make them more competitive with domestically produced goods. Thus, reducing or eliminating tariffs would accomplish the goal of reducing prices without creating the long-term inflationary effect that other tax cuts would because lower tariffs would effectively reduce the prices of only imported goods while not changing the prices of domestic goods. Border Control Reform: Enact comprehensive reform of border control policy that balances security with economic need, which is a proposal that Trumpists and some liberals oppose. Further restrictions on migrants, such as migrant workers or immigrants seeking lower-paying jobs Americans prefer not to do, as nativist Trumpists especially propose, would only exacerbate the labor shortage, of which the current restrictions contribute, because labor shortages decrease supply and thus causes inflation when supply cannot meet demand. Increasing the number of migrant workers who are permitted to work in America would decrease the labor shortage and, because they tend to work lower-paying jobs, help mitigate the inflationary wage-price spiral. Balanced Energy Policy: Import more oil or other fossil fuels from friendly foreign States that are not members of the Organization of Petroleum Exporting Countries (OPEC), increase domestic production of fossil fuel, and increase the use of efficient alternative energy. The United States should also continue to pressure OPEC, the cartel that influences the supply of oil by limiting production, which has increased oil prices and thus the costs of production and the prices of any goods that are shipped, to increase production of oil. The U.S. has successfully encouraged OPEC, to increase production, but the cartel has not increased it enough to meet the demand. Some of the proposals by liberals or Trumpists or even by conservatives on energy emphasize only longer-term solutions, while ignoring the shorter-term or emphasize only one particular cause of the increase in energy prices. Conservative policies are more reasonable, measured and balanced than the populist policies of either liberals and Trumpists, and would be much more effective.