The Daily Signal - How America Can Fix Inflation

Episode Date: January 21, 2022

We likely all have felt the effects of high gas and grocery prices, but what is the government doing to address inflation? Policymakers' negligence has left inflation to an overwhelmed Federal Reserve, a move that resulted in disaster in the 1970s. Four Heritage Foundation policy experts—Rachel Greszler, Katie Tubb, Peter St. Onge, and Daren Bakst—recently gathered to discuss the core factors driving inflation and what Congress and the Biden administration need to do to fight rising costs. Today on "The Daily Signal Podcast," we share their insights on how policymakers can act to curb inflation. (The Daily Signal is the multimedia news outlet of The Heritage Foundation.) Also on today's show, we explain what you need to know about the 49th annual March for Life taking place Friday in Washington. We also cover these stories: New Mexico Gov. Michelle Lujan Grisham, a Democrat, announces that National Guard units will receive certification to work as substitute teachers and child care workers, to fill holes left by COVID-19 infections. President Joe Biden responds to criticism after making comments that seemed to imply a minor incursion by Russia in Ukraine would not be met with severe consequences. The National Collegiate Athletic Association announces changes to its transgender athlete policy to follow a sport-by-sport model. Enjoy the show! Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Friday, January 21st. I'm Doug Blair. And I'm Virginia Allen. Why is inflation continuing to rise? We have likely all been feeling the effects of high gas prices and grocery prices. But what is the government doing to address these rising costs? For Heritage Foundation policy experts recently gathered to discuss the core factors driving inflation and what can be done about it. During a recent Heritage Foundation event, Rachel Gressler, Katie Tubb, Piner St. Ange, and Darren Basque break down what policymakers need to do in Washington, D.C. to fight inflation across America. So instead of our normal interview conversation, we are sharing this exciting event with you all on the podcast today. But before we get to that discussion on rising prices and inflation and what should be done about it, let's hit our top news stories of the day. On Wednesday, New Mexico Governor Michelle Lujan Grisham, a Democrat, announced she had asked state national guard units to receive certification to work as substitute teachers and child care

workers to fill holes left by COVID-19 infections. In a press release announcing her decision, Grisham wrote, Our schools are a critical source of stability for our kids. We know they learn better in the classroom and thrive among their peers. Our kids, our teachers, and our parents deserve as much stability as our kids. we can provide during this time of uncertainty. Nearly 60 districts and charter schools in the state have returned to remote learning in the face of rising Omicron cases, and 75 child care facilities have either partially or completely closed due to the spread

of the virus, per local New Mexico news station, KOB4. In addition to National Guard members, the governor asked state workers to volunteer as well. Both National Guard members and state workers will be paid for the work. If any assembled Russian units move across the Ukraine border, that is an invasion. President Joe Biden says, adding that any such invasion would be met with a severe and coordinated economic response. The president made these comments Thursday in an effort to clarify remarks he made during a Wednesday press conference. The president received criticism after he seemed to imply that a minor incursion by Russia and Ukraine would be. be okay. Take a listen to what Biden said Wednesday per CNBC. It's one thing if it's a minor incursion

and then we end up having a fight about what to do and not do, et cetera. But if they actually do what they're capable of doing with the force of mass on the border, it is going to be a disaster for Russia if they further invade Ukraine. Ukraine President Volodymyr Zelenskyy was quick to respond to Biden's remarks on Twitter, writing, want to remind the great powers that there are no minor incursions and small nations, just as there are no minor casualties and little grief from the loss of loved ones. These comments come as Russia has amassed about 100,000 troops on the border of Ukraine. Biden clarified his remarks to the press Thursday morning saying America would not accept even a minor incursion from Russia. The National Collegiate

Athletic Association, or NCAA, announced Wednesday it was changing its transgender athlete policy to follow a sport-by-sport model. This change is similar to the policies adopted by the U.S. and international Olympic committees and became effective immediately after the announcement. If no national U.S. policy exists, the International Olympic Committee standards take priority. In a statement announcing the change, Georgetown University President and NCAA Board Chairman John DeJoya said, we are steadfast in our support of transgender student athletes and the fostering of fairness across college sports. Before adding, it is important that NCAA member schools, conferences, and college athletes compete in an inclusive, fair, safe, and respectful environment.

It can move forward with clear understanding of the new policy. The International Olympic Committee updated their transgender participation policy in November 2021, focusing instead on testosterone levels to determine eligibility, according to the Washington Post. Transgender athletes and their roles in women's sports have become a hot-button topic in recent months, following numerous examples of biological men dominating against female athletes. In particular, the NCAA's rules came under scrutiny as a result of University of Pennsylvania swimmer Leah Thomas, a biological man. Thomas swam on the men's team for three years, but then began identifying as a woman.

and swimming on the women's team. Now stay tuned for a highlight of a recent Heritage Foundation event on what policymakers need to do to fight inflation. And stay tuned after that discussion to learn what you need to know about the March for Life in D.C. today. I'm Zach Smith. And I'm John Carl O'Conaparo. And if you want to understand what's happening at the Supreme Court,

be sure to check out SCOTUS 101, a Heritage Foundation podcast. We take a look at the cases, the personalities, and the gossip at the highest court in the land. Be sure to subscribe on Spotify, Apple Podcasts, or wherever else you find your podcasts. It's SCOTUS 101. My name is Darren Bax, and I'm a senior research fellow here at the Heritage Foundation. I want to thank you for joining us today as we discuss a critical issue that affects all of us, inflation.

Inflation is soaring that rates that we haven't seen in a generation. In the last 12-month period, inflation rose 7%. That's the largest 12-month increase in 40 years. And I'm pleased to be joined by some of my heritage colleagues, Katie Tubb, is a far left to me. She's a senior policy analyst here and an energy expert. And Rachel Resler is right next to me as a research fellow and covers numerous issues, including labor policy. And joining us from New Hampshire is my colleague and research fellow in economic policy, Peter St. Ong. He'll be co-hosting the program today.

and in addition to our discussion that we're going to have today on inflation, we want to hear from you. So please do submit your questions throughout the program. We're going to be monitoring them, and we're going to have time near the end of the program to answer your questions. So let's get right to it. Peter, it's really nice to see you. I hope everything is going well, New Hampshire. Thank you. It's been cold, but yes.

It's cold here, too. Can you provide us a quick big picture overview of what's going on with inflation? Definitely. Thank you, Darren. So in the abstract, what drives inflation is too much money chasing too few goods. Then you can have sort of an assist from stuck supply chains, from rising government burdens, things like regulations, taxes, and mandates. And those can either add directly to the price of a good, or they can distort markets, which can either raise costs or it can lower supply. Now, the too much money part is largely about federal spending. So we're talking about six to six to six. $7 trillion since COVID. This is aided and abetted by a historically easy money policy at the Federal Reserve. But the too few goods part, that is largely a policy question. And there's really a lot of work that the federal government can do there. So in this paper, which is upcoming, we've focused on a lot of these policy reforms

on things driving inflation, specifically in housing, labor, labor costs. food, energy, international trade, and energy. These are areas that collectively make up almost our entire economy, and of course they impact consumers as well as impacting American factories. So taken together, these policies are causing high prices. They're also disrupting supply chains leading to shortages or empty shelves, as it's trending on Twitter. And they can even strangle entire industries in the crib, right,

which we're currently seeing a sort of slow motion destruction of our domestic energy industry or with independent contractors so-called gig workers that is a popular career choice among younger workers. These are all at risk because of these policies going forward. Thanks, Peter. It's great overview. And we're going to be talking a lot about government intervention today and a lot of about regulation. But I want to talk real quickly about spending. Can you just let us know how spending actually has an impact on inflation? Right. So if the fundamental problem is too much money chasing too few goods, then pouring trillions into the economy sort of creates this wall of demand that runs up against existing supply. Now, if you pair that with a supply chain that's crippled at the moment, partly by COVID and then partly by a series of bad policy choices, you end up sort of getting a double whammy where all of that new money is flowing in. It's pumping up customer demand and supplies unable to respond to it.

When you have that kind of a situation, you can get shortages. One of the most dramatic examples we're seeing, if anybody is trying to buy a car right now, it's quite difficult. We've got inflation and new cars in double digits year on year. In use cars are closer to 37%. Probably most of you are driving cars that are worth more than when you bought them. This is not a natural state of affairs. So additional spending is driving a lot of this.

The Biden administration has a lot of activist mouths to feed. So they keep coming up with new ways to pour yet more trillions onto the fire. So I'm going to turn it over to you, Rachel, real quick. So the one problem I constantly hear from employers is there's a shortage of employees and labor costs. So let's start with labor costs. What's going on there? Yeah, so we've heard about rising labor costs. I think anybody who has talked to a small business owner out there knows that their complaints about having to increase the wages and the compensation that they're paying these workers.

And so we have over the past year, we've seen about a 4.7% increase in the median hourly wage. That's two times the average over the past 10 years before that. So that's already a big increase. But then you add on to that all the benefits that they've had to add. We're talking about massive increase and paid family leave. Now, that actually isn't optional. These benefits are all optional responding to workers' demands, but paid family leave, tuition assistance, pet insurance, there's just all these new things that are there, also increased

costs for health insurance, and workers' compensation packages are significantly higher. I will note, though, that I talked about that 4.7% increase in hourly wages over the past year, but that's nominal. When you take into account that over 7% inflation, workers' wages in purchasing power terms are actually down by 2.4%. So what is contributing to these rising costs, and it's part of a cycle, too, one feeds into the other. But I think one thing we can definitely pinpoint here is that policymakers at the start of the

pandemic instituted these $600 bonus unemployment insurance benefits that were readily available. That resulted in two-thirds of unemployed workers actually making more by not working than if they accepted a job or found a new one. And so that had a significant implication for what employers had to pay workers, particularly at the lower end. So the Federal Reserve measures something called a workers' reservation wage. And if you look at the reservation wages of workers who make less than $60,000 a year, that wage went from about $40,000 in March of 2020 to almost $51,000 in March of 2021.

It just surged over 26%. Some of that has dissipated since then because we don't have those bonus benefits still around, but there are a number of other policies that are still at play. And then another factor that's really contributing to employers' costs is record high quits rates. Over the past four months, 4.3 million workers have quit their jobs on average every month. So if you're an employer, that means that over the course of the year, you should expect to have to replace one out of every three of your workers. Replacing workers is extremely costly.

It on average takes about six to nine months worth of a worker's salary to have the cost of finding a new worker and training them. So if you look at the quits this year compared to last year, employers have had to replace about 10 million additional workers. When you do the math, that increase their cost by about 3 to 4 percent, and there's no new value added to that. It's just a higher cost, so of course they're having to pass that on to customers. So, Reggie, you kind of got to this a little bit, but can you tell us more about the employee shortage problem?

Yeah, and so that's the big thing here, is that there's this huge shortage of willing workers. I estimate that we have about 5 million fewer workers than we would have had if we'd simply continue on trend since prior to the pandemic. And when you couple that with the increased demand that Peter was talking about over $6 trillion in spending in this double whammy, we have a record high number of job openings out there right now, 10.6.5. million. To put that in perspective, prior to the pandemic, when we had an incredibly strong labor market, the record was 7.8 million job openings in November of 2018. So there's a ton of job openings out there. The unemployment rate is actually doing quite well, but it's 3.9% because so many people have dropped out of the labor force. We now have 1.5 jobs available for every

unemployed worker. And so businesses are reporting that labor is their biggest problem. 49% of businesses, according to the National Federation of Independent Businesses, 49% said that they were unable to fill open positions in November. The shortage has contributed to, of course, if you can't fill those positions, you increase your compensation. Forty-eight percent of businesses increase their compensation in December, and another 32% said they plan to increase it over the coming three months. And so now we just get in the cycle here and with employers being desperate for workers or having to rage wages, but it's not that the wages are coming from the workers producing more.

And so that's why we see it feeding in the prices. And Rachel, so how does this impact inflation specifically? Like, how does this feed through to what people pay? Yeah, so the Bureau of Labor Statistics says that about 60% of the costs of all the things that we consume and the services that we purchase are from labor itself. And so if you have this massive shortage out there, that's absolutely feeding through to higher prices. If you have a grocery store that now has to increase wages by 20% just to get the worker to do the exact same job

that they were asking them to do a year ago, you have to raise your prices. If you have a hospital that has to lay off dozens of workers because of a vaccine mandate, and you have to contract in people a 50% increase for those doctors and nurses, you have to increase your costs. And yes, that's originally the insurance company

that's probably footing the bill, but eventually that translates into higher costs for us as well. And if you have all these quits happening, you have to take into that's just added costs that comes with no new value. You know, it's a great thing when wages rise because of adding value, but when there's nothing new produce,

it's just higher costs. Rachel, I do want to ask you something on the side here. You had recently written about the build back better proposal that that could make this worse? Absolutely. There's a lot of things in there that would be keeping kind of the welfare without work policies that were put in place supposedly temporarily during COVID, but making them permanent. There are ways that it would discourage people from participating in the labor market. There are ways it would push workers into unions and restrict their ability to work. You know, taken on net here, there have been some various.

estimates that peg the job losses coming out of the Build Back Better Act anywhere between 5 million to 9 million. And if you're an employer out there and you see there's already 10.6 million job openings and potentially 5 to 9 more million people would drop out of the labor force, that's an even bigger problem. Wow. Those are really big numbers. Thank you for that.

We're going to move over into another huge area that's driving inflation, which is energy. So Katie, while labor costs do get a lot of attention, they obviously impact people. Energy does as well. Energy is an input to nearly every facet of life. Almost every good and service we buy has energy in it. So can you tell us what's happening in energy, what kinds of trends we've been seeing recently? Yeah, Peter, I think you're right to emphasize how important energy is to just our basic well-being. I think in America we're fortunate to take it for granted, but that's becoming harder and harder to take for granted now and ignore them.

So I think it's interesting to look at where we had been back in 2019. So energy production for the first time since 1957 exceeded consumption. Average energy costs were down 5% for Americans, and per capita energy costs were down in every single state except the state of California. which is a rich territory for discussion right there as to why that was. So with that is kind of our baseline of where we had been going. 2020 was a huge shift, and as we've seen energy prices have increased across the board, and we're looking at basically historic energy prices

for the better part of almost a decade at this point, or in comparison to about a decade at this point. I want to look at coal oil and natural gas because that's where Americans get 80% of our energy needs met and 91% of our transportation needs. So natural gas come November 2021, we were seeing the highest prices since the winter of 2014. With crude oil, after the market bottomed out in April 2020, prices increased 125% to November 2021. natural gas, or excuse me, gasoline prices, national average gasoline prices have been the highest they've been since 2014, and they haven't fallen below $3 since the month of May. And coal is an interesting situation in that both production, consumption, and prices

have decreased over the years until recently, and in all three categories, coal has, increased. So the energy information administration puts out a winter fuels outlook every year and I think it helps show some of the implications of these trends for American families and households and what they did is looked at energy costs for households based on where they get their primary heating source. So households that are primarily heated by electricity can expect to see their energy costs this year go up 6 percent. How households that are heated by natural gas are looking at a 30% increase in their energy costs,

heating oil up 43% and propane 54%. I think it's important to qualify that a little bit because there are regional differences based on how states regulate their own energy markets and there are, again, implications for policy there. And of course, that was an October estimate and both November and December were a little bit milder than we were expecting, but I think what we can come away with here is that regardless of the exact increase, the magnitude is the same. It is up. And that's what Americans have been dealing with for the better part of 2021. So, Katie, what's driving these energy trends? Yeah, you know, I mentioned California, but I think there's a whole variety of reasons that we can, I mean, we could talk about

this for the next hour. But I want to kind of highlight a few. things. First, you know, the pandemic, of course, and policy responses to the pandemic absolutely had an impact on energy markets. Just to give you an example of the magnitude of that impact, in 2020, energy consumption was down 7%. That is the largest annual decrease since at least 1949. So we're talking about huge implications in energy markets. On the production side, crude oil, I think, is a good example that was down 8% in 2020. So that's a lot to come back from and correct for and to get back online. And certainly an uneven recovery, again, because of policy implications,

has been a major source of uncertainty in energy markets. But I think it would be a huge mistake to stop there and just say this is the pandemic, and this is economic recovery, because I think we're seeing the implications of bad policy and energy markets that have really injected rigidity into energy markets, both on the production side and the consuming side. And I think that's where the more interesting policy conversation is, frankly, because we're dealing with legacy policies that have gone uncorrected for, in some cases, centuries, the Jones Act being a very good example of that.

But we're also looking at a Biden administration and, you know, you know, the Jones Act, the Jones Act being a very good example of that. administration and the administration's allies in Congress that are pursuing policies more akin to Europe, I think that have profound implications for energy markets and uncertainty there. You know, the administration has used basically every regulatory toolbox, tool in the toolbox to attack coal, oil, and natural gas, whether you're talking about the financing side of this, production or the consumption side of it. And so if you're in those industries, I don't know why you would want to spend millions of dollars investing in workers and infrastructure when this administration has said you have no future

in this country. And so I think that's some of what we're dealing with here, is both the legacy policy inhibitions we've created over just years and years of, I think, poor policy decision-making, but also a very uncertain future under this administration. That is all very interesting and very concerning. Looking forward to European levels of energy prices. I don't think Americans would welcome that. Darren, now it's your turn.

We're going to turn to food, something near and dear to many people. Can you tell us what's happening with food prices? Yeah. I think when it comes to inflation is probably no area when it comes to prices that is more visible to Americans than food prices. Because we go to the grocery store and you see the higher prices. I was just at the grocery store a couple times the last week and not a lot of food actually there, unfortunately, and also higher prices. So it's concerning. In December, last month, the food prices were, I think, an incredible 6.3% higher than last year.

It kind of provides some perspective. The last time food prices had a 12-month increase of 6.3% or more was over 13 years ago. Now, it's true that monthly food prices can fluctuate a lot, but what we're seeing is really concerning, Peter, because we're starting to see a trend over the last several months. And it was initially it was like a couple months we were concerned. Then it was okay, the third month, right? Now it's getting disconcerting. Now you got four months in a row of really, really high year-over-year food prices.

So to give some context, the usual annual rate of increase you'd see in food prices about two and a half percent. So in September, food prices are up 4.6 percent, a lot more than that two point. five or so. October was 5.3 percent, November, 6.1 percent in December, as I said, was 6.3 percent. That is four months a really unusually high year-over-year increases in food prices. So that is disconcerting. And if we look at annual calendar year data, it's also disconcerting. So the USDA, whose latest forecast does not include the December data because they just haven't incorporated yet because it just came out. they have projected food prices for 2021 to be 3 to 4%.

So let's just be conservative and say for 2021 prices, the increase for 2021 would be 3.5%. Over the last 20 years, that 3.5% are higher. We've only reached that number three times. So food prices are really unusually high. And finally, the one thing I really do want to stress is that we're seeing higher food prices across all food categories. It's not just one little area of food is across the food categories. Interesting. So what do you think is driving this? Why are, I mean, food prices go up and down, but why is this happening across the board? You know, I really think that one, the best place

to first start is actually to look to my colleagues here, Rachel and Katie. I think they talked about labor and energy impacting the food sector. And that's, Well, it's the food sector, but everything, labor and energy is so critical across the entire economy. Guess what food sector is a big part of that economy and it impacts the food sector. So neighbor shortages are hurting the food industry, big time, restaurants, fast food industries. You know, I go to a shopping center, and Domino's has got this advertisement of trying to, like, offer these big bonuses for people to kind of be delivery people. I'm like, maybe that's somebody to do on the side. So there's definitely...

A milk farmer in upstate New York, and he was telling me their biggest problem is labor. He's offering people $22 an hour and no experience come in, and he can't get them to come in. And at that time, when the benefits were still in place, they were actually telling them, sorry, but until these bonuses run out, it's more beneficial for me to stay at home.

And that's the type of kind of thing that's going on. It's really difficult for people, for the people on the across the food supply. So we're to choose, so you got it from the upstream downstream of the food supply chain. And then Katie was talking about what I consider to be a war on conventional fuels. And that's obviously going to hurt everybody again across the food supply chain. Look, if you drive up energy and labor costs for businesses, at some point we can't be shocked when those businesses decide to pass on those costs to customers, and that's what we're seeing.

Now, there are some food-specific issues, and let me just give you two really quick examples. First, there are some new countervailing duties on fertilizer, and countervailing duties are just taxes on imports. And it's basically a fertilizer tax, and as you might imagine, farmers are not particularly thrilled about this, and they shouldn't be. is fertilizer is a key input into farming. This is a costly burden on farmers. My second example is something that for people who know me, know that I talk about probably too much, that's an issue called Waters in the United States.

Basically, the term waters of the United States is the way, is a terminology that defines what waters the EPA and the Army Corps of Engineers can regulate under the Clean Water Act. It has been an ongoing issue, and it's really important to know what waters, in fact, the government can regulate, because if it's a very broad and vague definition,

then farmers are really in a position where they're not sure what, you know, can they engage in certain activities or not. And what happened was during the Trump administration, they came up with a new rule that provides some clarity and it provided a more narrow definition for what waters the federal government can regulate. Well, of course, the Biden administration rejected the Trump rule is going to be pushing this kind of big federal overreach.

And something that was just announced, and Katie, I think you probably saw this, is that the Biden administration has said that they're not going to honor, like if the Corps and the federal government have decided, like we're going to tell you that those waters that you have in your property are not regulated, and that was based on the Trump rule,

the Biden administration is saying, guess what, we're not going to comply with what we said months ago. So forget what we said, you're out of luck. So it's already difficult and very, for property owners and farmers, because of all kinds of unpredictability, now you create a scenario where it's so unpredictable that even when you actually have some predictability, oh, I know that this water's not regulated,

then the government comes back a year later to say, oh, it is regulated, too bad, so sad. So you're not going to plan. You're going to be scared. you're not going to engage in certain activities, you're probably just not going to be as productive. So that's the WOTUS issue, the WOTUS United States, so I'm going to call it WOTUS.

I'll probably bring it up as WOTUS again later. Look, if you want to drive up food prices, you impose massive regulations. Biden administration is doing that. You create unpredictability, you create uncertainty. You're going to drive up food prices. The Biden administration is doing that, and that's what we're saying.

Now, I do want to ask you, the Biden administration has been going after meat packers. Senator Warren has been going after big grocery. What, you know, is this corporate profiteering? Never heard big grocery. But, um, grocery margins on average are about 1% per years. Yeah, that's, it's funny how everything is big something. Is that I've heard big chicken? I'm sure there's, I mean, there's just every big, whatever.

Look, I'm going to talk about the meat issue because we do hear that a lot too much. First, I think it's really important to understand that the food price issue is across the board. It's not like some meat issue. It's across all kinds of food categories, as I said at the start. So fresh fruits, for example, are going up way, you know, significantly in price. And the last time I checked, we don't slaughter citrus. um as far as i know second annual beef and veal prices actually declined twice for the last six years so i would say would the by administration blame concentration for that would they see would

they so they probably would say okay it's price gouging because prices are going up the beef and veal are they going to call that predatory pricing the beef and veal third the u scea itself does even argue that concentration is causing higher prices when it comes to meat. Now, now I wrote a piece with a colleague about a year ago saying that, and at the time, the USDA didn't even mention competition or concentration issues at all regarding meat prices. And I just was on the USDA website, and they've updated it, and they have the page now says, quote, concentration and capacity constraints within the meat industry could also affect prices. So I guess the USDA got the administration memo.

And you know what? Here's the thing. I agree that concentration and capacity could also affect prices. It could, yeah, many things could affect prices. For the argument in many ways makes no sense. Just I'm going to take beef as an example. How can current beef prices be attributable to a lack of competition due to high concentration levels, which is the Biden administration?

Alleges went for the past 25 years or more, the concentration levels have been relatively the same the whole time. So it can't be. Unless you actually believe that the alleged concentration problem is just decided to kick in after 25 years. And finally, in the most glaring emission from the administration's meat attack,

and that's what it is, it's an attack on the meat industry, just like as an attack on the conventional fuels, we're seeing an attack on the food system. The meat industry is a thing. is a failure to recognize how the federal government itself has, might have contributed to the concentration problem in meat processing. The existing federal meat inspection system

creates all kinds of high costs for meat processing facilities and it poses high costs of state inspecting facilities. And, you know, when you, so if you're a state inspective facility, you're thought of, but the USDA deems you to be equivalent in terms of safety and everything, as a federal inspected facilities. But as a state inspected facility, you are prohibited by federal law from selling the meat across state lines. You can only sell it within the state.

Look, the only meat processors and facilities that can meet the high costs are the largest facilities. Federal law contributed a big part to what's going on with any type of concentration. And for the Biden administration to not acknowledge that, to me is, I think, says a lot. And fortunately, some legislators out there are trying to address this kind of skewed kind of monopoly, one-size-fits-all federal meat inspection system and try to create some more flexibility within the system. So that state inspective facilities and farmers can more easily sell their meat to people all over country. And actually, now I'm going to ask you a question, Peter, before you ask me another one.

I'm on the hot seat. Okay. Yes. One thing we haven't got into yet is housing prices. And housing is a really important area, and we talked a lot about it in the paper. So can you tell us about housing prices? Yeah, housing is a big deal. It makes up about one-third of the consumer price index.

In other words, about one-third of every dollar American spend goes into housing. they are currently rising at historic rates like many other things. In fact, housing is going up far faster now. These are house prices than in the 2008 financial crisis, which was caused by housing. So this, of course, is driving inflation being a third of the CPI. In fact, there's concern that current consumer price inflation might be understated because of how housing is counted. you know, the main input into housing costs is the price of a house, right? So you would expect that those costs would track housing prices pretty closely.

In fact, year on year, we're looking at house prices are up 20%, as according to the Federal Reserve, yet the housing component of CPI is up 4%. So something's wrong there. And of course, this is about how the statistics are collected. We've changed the methodology since the 1970. and how we count the housing contribution to inflation. So, you know, rents are counted according to the rents this month, sorry, all of aggregate rents.

So, you know, some of these contracts maybe months or years old. They're reflecting old prices. There's a bunch of sort of shenanigans that happen inside the statistics. But the point is housing is rising extremely fast. Indeed, you know, 20% annual rise is significantly higher than generalized inflation. So what's driving this, partly that money creation that we talked about on the top of it, you know, so generally the way that our central banking system creates money is to subsidize interest rates,

to make them too low, lower than the market would have made them. This effectively, currently it's actually paying you to get a mortgage, right? So mortgage rates are around 3% of the moment. Inflation, as Rachel mentioned, is running at 7%. So that means you're being paid 4% a year to buy a house. Okay, you're buying that this is, this is extremely low in historic terms. And of course, people react, right? If you're being paid 4% to buy an asset, you buy it. You should buy it. Beyond these, there's, you know, we've had decades of just government-wide efforts to try to promote homeownership. There are, you know, you're, you your taxes are subsidized.

You get a capital gains break on housing profits. And really, the sort of mechanism of a lot of this subsidization has been two government-sponsored entities called Fannie Mae and Freddie Mac. All right. And really the purpose of these two organizations, which buy up, I believe at the moment, the majority of mortgages in the U.S., the purpose of them is to subsidize home purchase. And perhaps the original intent was that if people buy houses, they're more attached to the community, these sorts of things. But the thing is, Fannie and Freddie, a lot of the money, it either goes into subsidizing second homes, which it doesn't seem like we should necessarily be using government to subsidize vacation homes, which of course are disproportionately owned by rich people. or they're going into so-called jumbo loans, which are these, you know, loans above a certain threshold, typically something like six or seven hundred thousand. And those, again, typically go to

higher income people. So whatever the merits of promoting home ownership in general, it seems like those have lost their mission over time and are really going into essentially handing money to rich people. Now, beyond these subsidies, you've got really, you know, again, at both the federal and even state and local level, you've got this sort of whole of government approach that ends up boosting house prices. So, for example, you have restrictive zoning where, you know, you can only build certain types of housing in particular neighborhoods. Now, there are many cities in the world that use almost no zoning whatsoever, such

as Houston, for one. Tokyo is another nice example, right? You've got 10 tons of people crammed into a very small space. almost no zoning. You might have a factory or workshop right next to a school. This is this is not allowed in our country for the most part. So anyway, restrictive zoning can end up either distorting development, effectively taking land out of the supply. It can even close off entire district. Sometimes that's environmental. They might protect a particular zone in order to keep people from moving there. The Everglades is a nice example of that. If you look at, you know, Seattle, San Francisco, some of the houses with the, or some of the cities with the highest house prices,

if you look at it from Google Maps, a huge part of those cities is unbuilt. It could be built, right? You have hills in San Francisco. Hong Kong manages to build on hills. In fact, the original city of San Francisco was largely built on hills, but all of those have been taken out. And, you know, partly that is to drive up housing costs. partly is to keep land expensive so that poor people don't move in. And then finally we had, yeah, sorry.

Oh, sorry, was I was just to say, oh, sorry, was I dropping out? I know, I was going to say, just in the past two years since COVID, we've really had a big hit to housing costs, which is the eviction moratoria, right? These rules that forbid you from, or forbid land, from kicking out tenants for not paying. And those are having an enormous impact on rents, right, because they raise the risks to landlords. In the old days, he didn't think he had to set aside money

to cover the possibility that everybody would stop paying rent at once. Now you have to cover that. And so, you know, across the board, all of these housing subsidies, the privileges, the distortions, these all end up raising costs to Americans, but particularly to lower income, working families, young families who are trying to buy a house in the first place. That's a great summary, Peter.

We're going to have to go into a bonus round, so I realize how late it is, and we really do talk way too much, I think. So let's just get straight to the solutions. And again, do a bonus round here, because we want to get to questions from the audience. So, Rachel, what are some solutions here on the labor side of things? Yeah, I'll try to keep it brief. I mean, on labor, if we want to have more people participating in the labor mark, it's really twofold. It has to pay to work for people to be willing to work, and it also can't pay to not work.

And so addressing that latter point, not paying to not work, we need to get rid of the existing welfare without work policies that are out there, and we need to not enact new ones to the Build Back Better Act that would make it so that even more people drop out of the labor force. Just one example as some economists have estimated that making the child payments permanent would cause 2.6% of parents to drop out of the labor force. That's 1.5 million and it may seem like there would be some benefit to these payments going to families, but in reality those same economists found that it would have zero impact on deep childhood poverty. So this is simply pushing people out of work and not actually lifting those poorest children up.

And then in order to get people into the labor force, it has to pay to work. There are so many things that can be done on that level. But absolutely, when we passed the Tax Cuts and Jobs Act, you saw that employers used that money. There were tax cuts for individuals and also for businesses. They pushed that back to their employees and they did it not only through wage increases, but also through investment that make workers more productive and then you actually get more value out of the worker instead of just a price increase along with it.

Workers had their wages go up by $1,400 compared to the previous trends after those tax cuts were passed. There need to be options for people to work. There have to be doors that are open and a lot of that comes to independent work. One out of three Americans performed independent work last year. That's gig work, freelancing, contracting, whatever you want to call it. And nine out of ten people say the future is bright for that. But this current administration and a lot of liberal lawmakers want to essentially eliminate those opportunities for people where it's actually just opening doors, providing higher income on average. And then don't impose vaccine, mandates, you're needlessly preventing people from working.

And one thing that could be done in the short term that would actually help reduce taxpayers' costs related to labor is ending the Davis-Bacon law. This is a Jim Crow relic that essentially just drives up the construction costs by using a not-market based wage, rather an exclusive union wage. And so construction costs end up being 10% higher on average. Thanks. Rachel. Katie, what can we do in energy? Sure. Really quick. I think it's simple but not easy,

and the simple answer is to do a total about-face on government-centric policies to manage energy markets and instead move towards customer choice and free competition, open competition in the energy sector to allow innovation to move with the direction of customer demand and also to reduce barriers to the flow of energy between suppliers and their customers. That has implications across policy sectors, for example, we could get rid of all energy subsidies in the tax code and move towards broadly available pro-growth tax policies.

I think states need to up their game here. State renewable portfolio standards and electricity mandates actually inhibit energy suppliers from switching to fuels that are more affordable. And I think, frankly, there are just irresponsible political slogans that have nothing to do with grid reliability or energy prices. So, again, moving towards actual competition and being committed to competition. I think we need to get rid of these legacy policies like the federal methamthane, ethanol mandate, there we go, and policies that discourage energy infrastructure to be built.

I think a really good example of this played out amongst the states is how Texas and the Appalachian region have actually increased their pipeline capacity, which has connected customers with more energy, as opposed to New England, which has not kept up with demand and supply or capacity of their pipeline infrastructure, and they're paying for it now. So I think there's a variety of things that can be done at the federal level, both in Congress and in the administration, but also at the state level. I think one more thing I'd add that probably applies to all of our areas is, you know, there's far more legislation being done by way of regulation

than by Americans' representatives in Congress. And Congress needs to take that seriously and reengage, provide real and tangible accountability to this administration, which is pushing economy-altering regulations through the pipeline. And I think a lot of Americans need to understand that that's happening right now. Darren, I want to give you a chance to weigh in here on food. Are there a couple of specific things that policymakers could do? Yeah, I think that, you know, again, what I keep bringing up the labor and energy stuff is it directly impacts the food sector. So that's, I think that's really important. I like to start there, actually, with it.

So whatever they said, I agree with. So on the specifics, I brought up the fertilizer tax, get rid of that. Bonus issue, it would be nice if we actually had a reasonable definition. The Supreme Court has been asked to hear a case that would provide clarity. as to what Waters United States means. And I'm hopeful that the court will take up this case. They do, that would make a big difference. And I wanna bring up two more things.

One is an issue that I don't think gets enough attention. And it's kind of a big picture issue, kind of like what Katie was talking about with energy. And the Biden administration wants to radically change the food system. It's stated that it has adopted the UN's vision for doing so. And they've embraced the following three overarching principles,

priorities and I'll just read it. Food security and healthy diets for all, climate change mitigation and adaptation, and inclusive and equitable food systems that address the needs the most vulnerable by empowering youth, women, disadvantaged communities. Now that's their language. You know, how about adopting a vision for a food system that's increasingly efficient, uses less inputs, and provides affordable food? You know, call me crazy, but it seems like the primary role of the food system is to actually provide food. There's a strange rejection by many who are pushing a centralized plan type of national food policy to reject efficiency in affordable food. I mean, everything you read that they develop always ignores or actually just rejects efficiency.

Well, if that's the path we're going to go down, guess what? If we have less efficient food system, we're going to have higher prices. And that's a bad thing for American and families. And finally, my last point is let's stop intentionally driving up food prices. For example, we have something called the federal sugar program. The sugar program is designed to intentionally limit the supply of sugar in this country, thereby to drive up prices. It has been estimated to drive up the cost of consumers by about $3.7 billion a year. Once and for all, we need to get rid of the harmful and outdated program. And one last point I wanted to bring up before I don't get a chance to is I think all this probably would agree is that all this

inflation these higher food prices have a disproportion impact on lower income households it hurts the poor the most I hope that's something that's not forgotten and if I could just kind of summarize here because I think across all of our areas what we're looking at is what do policymakers need to do to bring that in the cost and I think too often they look to command the economy tactics to try and manage everything and what they're really doing is adding more layers on top the first step is what What is the government doing that is driving up these costs break down those barriers? And just two real quick things, car prices are high now. What have they proposed to do?

They proposed to create subsidies up to $4,000 just because it's produced by union-made workers or up to $10,000 in total. So they're talking about we're going to reduce the cost through tax subsidies, but making somebody else pay for it doesn't actually make that any less expensive. You're actually driving up the cost. And the same thing is happening in childcare. care is absolutely expensive and it's difficult to find because of a lot of regulations that are out there. What do policymakers want to do? They want to tell child care providers what they have to pay,

including $39 per hour to a single mom in Boston, Massachusetts. That's absolutely going to drive up costs probably by 50 to 100 percent. And simply forcing everybody else taxpayers to pay for that doesn't make it less expensive. It actually makes it more cost. So if you don't mind, I'm going to, and everybody, let's go to the audience. I really want them to be a chance to ask some questions. We don't have a lot of time, but I think we have about, we'll go around to 255 or so. So Liz, do we have any questions from the audience? Yes, we do.

A viewer is asking Rachel Bresler, how is the situation at California ports contributing to the inflation problem? Yes, so we've all heard of the backups and probably, many of you have had items that haven't arrived in time because they're stuck in these ports in California and Peter has, you know, dubbed them the least efficient ports on Earth. And so you have a situation there where the unions are managing everything. They're prohibiting going to 24-7 operations, which is what the rest of the world does. Their workers are making over $200,000 per hour. They're preventing them from using automation that's much more efficient. And then on top of

that, you have things like ridiculous restrictions in California in terms of energy mandates. And and also labor prohibitions so that 70% of the nation's truck supply is not allowed to enter California and so they sit there at the border in those few trucks that can go there have to sit go at the ports pick up the goods move them to the side so it's just incredibly inefficient and I think that we've all felt the impacts of that you have anything else lids yes another viewer asks if there are any things that states can do or cannot do to reduce barriers question katie you want to throw that one Yeah, I think I mentioned it a little bit ago, you know, that state energy electricity mandates are a great example, great example of policies that just by nature increase the price of energy. So I think that's something that states can can and should look at again and make sure that their constituents understand that one leads to the other.

So I think that's a great place to start. You know, I mentioned the Jones Act, and while this isn't exactly a direct answer to that question, I think certain states feel the impact of that more. California is a good example of their gasoline infrastructure depends heavily on the Jones Act and increases the prices of California's gasoline. In addition to all of the other things that California does to increase prices for their own residents. So there's this, at least in the energy sector, there's this interesting nexus of federal and state policy. States are often the entities that are tasked to do the federal garments dirty work, but they are also complicit in some of this.

And we can see that also just in the flow of people in the last year as people exit California and enter states like Texas, which is one of the freest and most of, energy sectors in the United States. So I guess that's the start of an answer for energy on the state side. And there's a lot on the labor side as well. They're one of the biggest things is licensing reforms. You know, if a state is going to require an individual to have over a year in training and pay hundreds or thousand dollars in fees in order to become a barber, then a haircut is going to cost more.

If a state is going to restrict nurses who have licenses in other states from coming into their state and practicing the exact same thing. the exact same nursing, and it's going to cost more there. And so licensing reform is absolutely one thing. Don't enact laws like California where you don't let individuals who want to work for themselves, who want to be freelancers, contractors, don't enact laws that prevent them from doing that. And one thing in the very short term, I would say, is keep schools open. That's something that is going to worsen the labor shortage if you have millions of parents

who are going to have to be at home with children. Peter, do you have anything on that question at all? Well, for sure, right. Katie made a great point there. There's a lot that states can do, and we're seeing that in population transfer. We could argue that maybe we should give more things over the states because they're often apparently run better, and they're certainly more competitive. I want to make sort of a generalized point here that a lot of what we're asking for might sound like a pipe dream.

We're basically asking for the Biden administration to get smart about regulation. This has happened before. In fact, it happened last time we had terrible inflation, where Jimmy Carter, finally, who was relatively left wing, he finally read the writing on the wall. He saw angry Americans were about rising prices. And he did deregulate, specifically trucking, airlines, railroads, even beer. Now, what Carter did was too little too late, but there is time for this guy in the White House to wake up and start actually reforming, deregulating, changing policies. before inflation really gets Americans very angry. You know, I think, Peter, that, sorry, it's just, you know,

it's Congress that really needs to do something, too. You know, it's funny that we go to the administration, and certainly administration needs to do a lot, because they're the ones that are creating an incredible regulatory avalanche, and they're setting the agenda right now in many ways. and but hopefully, depending on what happens in elections, things can change. And I hope that legislators in Congress, who really are the ones who should be developing policy and the laws are paying attention.

And they recognize all the bad policies that previous Congresses had developed and previous administrations that have developed that are actually contributing to this problem and what this current administration, and maybe this current Congress is doing to contribute to this problem. Do we have anything else, Liz? So let's just one more question. Yes, there is a follow-up question. One viewer asks how gig workers have been affected by the current state of the economy,

especially in California with restrictive laws like AB5. Well, I would start first outside California. Gig workers actually nine out of 10 of them say the future is very bright. We've seen millions more come into the gig economy, freelancers, whatever you want to call it, over the last year. But on the other hand, in California,

we've seen people lose their livelihoods who have had to pick up and move out of the state because they simply can't get the work anymore. People who are freelancing for companies have been told, I'm sorry I can't do business with you. My lawyer said that it's too risky. I'm not allowed to use independent contractors anymore. And this is hurting smaller businesses the most

because those are the ones that rely the most on independent contracting. Businesses that have four or fewer workers, they use seven contractors on average. That's how they compete with the bigger workers. And so it's absolutely crushing, you know, the jobs of people in California, and we don't want to see that combination wide with something like the Pro Act that Congress has considered.

Katie, Rachel, Peter, thank you for joining us today. I encourage you to visit Heritage.org to learn more about inflation and also how government intervention and the policies are driving inflation as opposed to fighting the inflation. Do you have an interest in public policy? Do you want to hear lectures from some of the biggest names in a American politics, the Heritage Foundation hosts webinars called Heritage Events Live. These events are free and open to the public. To find the latest heritage events and to register, visit heritage.org slash events.

The largest annual human rights demonstration in the world is taking place in Washington, D.C. today. Thousands are gathered for the March for Life to stand for those who have no voice. The march is held every January and marks the anniversary of the Supreme Court's ruling on Roe v. Wade, the case that made abortion legal across the nation. This is the 49th annual March for Life, and many people are hoping it might be the last. Now, the Supreme Court will release its decision on the Dobbs case out of Mississippi sometime this summer, and the result of the Dobbs case will determine whether or not Roe v. Wade stands or is struck down. Now, Virginia, the theme of this year's March for Life is equality begins in the womb. And as somebody who is very, very passionate about this issue about pro-life causes, what is the atmosphere usually like at these things?

Because you've been there before. Correct. Yeah. The March for Life is such an exciting event every year. I think it's really special to see that sheer number of people all gathered on the National Mall, all really acting as a lot. as a voice for the voiceless. And it's especially encouraging to see so many young people. Many, many colleges from all across the U.S.

are bringing in hundreds upon hundreds of students that are all passionate about the pro-life issue. There's so many wonderful homemade signs that you see out there. People have taken the time to, in really, really creative ways, express their own pro-life views. You're going to be hearing from a lot of big-name speakers that are really leaders in the pro-life field. So across the board, it's going to be a really, really special day.

And like we said, this year is especially unique because everyone is hoping and praying that this is the last year that abortion is legal across the nation. Now, of course, I think the end result of what most people would be at the March for Life for is the end of March for Life. You don't want to keep having to do this. But as we are maybe approaching the end of this phenomenon, do you have any positive memories that you might be able to share like a story out of March for Life that really sticks with you? You know, I think one thing I love to see is the people that are there that are willing to share their personal stories, both from the main stage and in the crowd. So usually there's a couple speakers that have, you know, a really personal story. Maybe they survived an abortion or, you know, maybe their mother was in a crisis pregnancy situation

or they themselves were and they chose to have the child. But then also in the audience, I mentioned signs. And sometimes you'll see people having written, you know, my mom, you know, was pregnant by rape and, you know, still chose to have me. And that's really powerful and really beautiful. And you kind of get the chills when you see that because you realize, wow, all of life, no matter how it starts, is so sacred. Absolutely. And life is such a valuable thing. And let's hope and let's, let's pray that we can find an end to abortion and that we can get to a point where it's just kind of a bad memory and a stain in our past that we can say, well, you know that was a problem, but we moved past it.

Absolutely. And I'm confident that we are going to see that day in America. If you are not following the Daily Signal across all of our social media platforms, YouTube, Twitter, Facebook, Instagram, go ahead and do that because all day long today, we are going to be posting videos, stories, photos of the March we have. Myself and a lot of my team members, we are going to be out in the March talking with individuals who are attending, talking with speakers. So follow us across social media so you can see all of those live updates. Awesome.

Well, I think we're going to end it there. That's going to do it for today's episode. But thank you again for listening to The Daily Signal podcast. You can find the Daily Signal podcast on Google Play, Apple Podcast, Spotify, and IHeartRadio. And if you haven't done so before, please take just a few minutes to leave us a five-star rating on Apple Podcasts. Let us know your feedback. It's so helpful to us. And thanks so much for listening.

We'll be back with you all on Monday. The Daily Signal podcast is brought to you by more than half a million members of the Heritage Foundation. It is executive produced by Virginia Allen and Kate Trinko, sound designed by Lauren Evans, Mark Geinney, and John Pop. For more information, please visit DailySignal.com.