WASHINGTON, DC – NOVEMBER 02: U.S. President Donald Trump (R) shakes hands with his nominee for the … More
President Trump recently warned Walmart to not raise prices in response to his imposition of tariffs. Economists and pundits reacted to Trump’s warning with a mix of horror and haughty disdain. With good reason.
Mindless as tariffs are, the foolishness of tariff imposition is magnified when the individual behind the implementation demands that prices not reflect the initial error. Some might even ask if the demand for flat prices is an implicit acknowledgement of the error, but that’s a digression.
Back to all the reasonably expressed horror about Trump expressed in haughty fashion, why all the parallel quietude about the Federal Reserve? Why indeed.
While there’s no reasonable way to defend Trump, neither is there a way to defend the Fed. This is notable simply because the Fed is being treated as the adult in the room relative to Trump’s much-ridiculed child.
Except that in pretending that the central bank has a role in mitigating Trump’s errors, the central bank comes off as Trump’s equal in the foolish department. Seriously, what does the Fed think it can do to soften the higher price implications of tariffs? Tick tock, tick tock…
If the Fed’s answer is that economic growth causes prices to rise (the Fed sees higher prices as “inflation”), and that slower growth born of a higher Fed funds rate will weigh on prices, then economists should be reacting in horror and haughty disdain toward the Fed too. Figure that Fed officials near monolithically embrace the discredited Phillips Curve, which says growth causes prices to rise.
Economic growth is an effect of investment, and it reveals itself in enhanced production techniques that increase production of market goods at ever lower prices. How interesting, how ripe for ridicule that Fed economists think economic growth would exacerbate the price impact of Trump’s tariffs. Except there’s more.
Easily the biggest informer of consumer prices is the number of tessellated hands and machines around the world at work in the production of market goods. That’s why when global cooperation is compromised due to taxes like tariffs, or perhaps lockdowns (see “Trump”, “coronavirus” “panic” “first term”), prices of market goods rise. Conversely, when meddling politicians leave production and people alone, cooperation soars in concert with falling prices.
Despite these truths, we presently have a central bank trying to arrogate to itself a role in tamping down the higher prices that it not unreasonably says will be an effect of his tariffs. Ok, but how?
What on earth could the Fed do to keep prices from rising assuming the imposition of Trump’s tariffs? The question has to be asked simply because the Fed thinks it has a role here as it endlessly leaks to a compliant and rather worshipful media its fears about the price implications of the Trump tariffs. Fine, but what’s the Fed’s plan?
The question rates asking in consideration of the popular belief inside the Fed that economic slowdowns push down prices. The view is laughable, but since economists believe it to be true, aren’t the Trump tariffs the paradoxical answer to higher prices from tariffs? It’s a clown question, but that’s the point. Much as Trump rates our scorn for wanting prices to not reflect his mindless imposition of tariffs, so does the Fed rate equal amounts of scorn for thinking its own market interventions can blunt those of the President.
It’s just a comment that Trump isn’t the only clown at the moment. Unknown is why he’s getting all the laughs.
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