Biden Will Pay a High Price for Bread and Circuses

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When the Roman writer

Juvenal

penned the adage “bread and circuses,” he warned emperors that they must conjure such distractions to pacify peasants into accepting lousy rulers. This should have President Biden worried—the price of bread in the U.S. has jumped 15% since the start of 2020, while a ticket to a modern-day circus, an NBA game, has climbed 37% since last season.

There’s real wisdom in the Roman cliché. Bread is a staple and its cost often reflects worldwide commodity prices. If it isn’t affordable, citizens throw fits and rocks. In 2007 hundreds of thousands from Mexico to Bangladesh to Italy rose in protest when prices of loaves, tortillas and pasta soared. But there’s another point of wisdom in the price of a circus. In our modern era, the cost of a night out doesn’t only say something about entertainment, but also the service sector—something to which the Federal Reserve and White House have not paid enough attention.

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Some product price increases can be attributed to supply-chain holdups, but the service industry is more unmoored from logistics logjams. If service costs are rising, that’s more than a temporary, isolated snag, like waiting for a late delivery truck. Ignoring services’ inflation has ricocheted the Federal Reserve and the White House against the guardrails. Last month the Institute for Supply Management reported that inflation in services hit its third-highest level it had ever recorded. The New York Federal Reserve said in November that renters expect a 10.1% hike over the next year, while parents expect college tuition to leap 7.4%. Please note, there are no container ships anchored off the coast filled with studio apartments or English professors.

Until two weeks ago Fed Chairman

Jerome Powell

dismissed inflation as “transitory” goods shortages, while Mr. Biden continues to blame vague supply-chain disruptions that he has said are too confusing for average Americans to fully grasp. When as a candidate Mr. Biden declared that “

Milton Friedman

isn’t running the show anymore,” he should have also thrown in the name of Paul Volcker—the 6-foot-7-inch Fed chairman who waved a giant stogie as he explained to congressional committees the importance of conquering Carter-era inflation.

I proudly confess that I was an inflation dove for a dozen years, until 2020. I defended

Ben Bernanke,

Janet Yellen

and Mr. Powell as they fought off the impact of the 2007-09 recession. In these pages and elsewhere I explained why the gig economy helped contain inflation. But starting a year ago, the four pillars that help the economy withstand inflationary forces started crumbling.

First, a vigilant Fed. Put simply, the Fed has printed too much money, with the basic money supply catapulting twice as high as its prior growth path, an unprecedented experiment that’s shoved about $4 trillion extra dollars into bank accounts. The central bank’s $120 billion a month of bond-buying, including during 2020 bonds of private companies, overwhelms the credit system and distorts markets, and it will continue to even as the Fed gradually slows its generous shoveling of cash.

This can perhaps be blamed on the rise of Modern Monetary Theory, which is better thought of as economic astrology. MMT theorists told government leaders they could go on trillion-dollar printing sprees without damaging the standard of living. They merely had to cut spending (or raise taxes) if inflation started to bounce. But now that inflation has jumped, shouldn’t MMT enthusiasts be the first arguing for restraint? Let me know if you hear from them.

Second, regulators and legislators in government have reversed deregulation and undercut the gig economy, both of which battle inflation. About a third of the U.S. workforce engages in gigging, as companies like

Airbnb,

Uber, and logistics startup Curri inject new supply into housing, transportation, and building equipment. More supply drives down prices. Many Democrat-led legislatures are intent on classifying giggers as employees. California has squeezed independent truckers (when the U.S. needs more deliveries!) and even curtailed freelance writers and artists. New York City capped the profit margins on food deliverers like

DoorDash,

which will limit competition and hurt city-dwellers stuck in their cramped kitchens.

Third, world trade tends to tame inflation. Mr. Biden has re-armed for the trade wars and skirmishes of his predecessor, making imports of wood, natural gas, solar panels, and electric cars from Canada more expensive. This in turn has driven up the prices of homes, heating and driving. The president might rightly use trade policy to dissuade

Vladimir Putin

from threatening Crimea or

Xi Jinping

from menacing Taiwan, but it’s hard to understand what danger he sees in our northern neighbor, outside of hockey.

The fourth pillar supporting the economy against inflation—a firm dollar—remains in good shape. But this is not proof of wise U.S. economic policy; it’s a sign that other countries are as hapless, or far worse in the case of Turkey.

Even with a firm dollar, the cost of bread and circuses continues to rise. Mr. Biden and his party should be wary as the next election cycle approaches. Voters won’t be satisfied with a political clown show.

Mr. Buchholz is a former White House director of economic policy and managing director of the Tiger hedge fund. He is author of “New Ideas from Dead Economists.”

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