Since the Carter administration, monetary policy has been the chief tool presidents use to curb inflation, which has been on the rise: The Consumer Price Index rose by 6.8 percent in the year through November — the fastest pace since 1982. The Federal Reserve chair, Jerome Powell, has pivoted to a tighter monetary policy, announcing plans to taper the central bank’s bond purchases and raise interest rates next year.
Yet inflation doesn’t rise and ebb just because of monetary policy. It’s largely the result of choices businesses make. And history shows presidents have the power to stem inflation by taking on corporate power — if they choose.
While Franklin Roosevelt is best known for the New Deal expansion of the social safety net, he also protected Americans against wartime inflation. During World War II, his Office of Price Administration imposed price ceilings on three million businesses and more than eight million goods. The office also put caps on rents in 14 million dwellings occupied by 45 million residents and issued ration stamps for goods like meat to manage supply. According to Gallup polls, more than three-quarters of the public favored extending controls after the war.
When Harry Truman lost a bitter fight in Congress to do just that, there were consequences. When peace came, Americans eager to spend their stored-up savings ran headlong into a supply shortage: Manufacturers had yet to convert back from wartime production.
In the summer of 1946, without controls, the cost of living jumped. In July, meat prices doubled to 70 cents a pound. In the midterm elections that November, Democrats lost control of Congress for the first time since 1932.
In 1948, with inflation running at 7.7 percent, Truman condemned the “do-nothing” Republicans who placed blame for rising prices on newfound union power. In his re-election campaign that year, he promised to expand the New Deal and ran hard against corporate power. “The Republicans don’t want any price control for one simple reason: the higher prices go up, the bigger the profits for the corporations,” he said that year.
At a campaign stop in Kentucky on October 1948, he lashed out at the National Association of Manufacturers, a business lobbying group that opposed price controls, for engaging in a “conspiracy against the American consumer.” He called Congress into a special summer session to restore price controls, but that effort failed.
Democrats returned to the polls; automobile workers gave Truman 89 percent of their vote, helping him secure re-election in a close contest. One key to his success: doubling down on tough talk against inflation and support for liberal programs to raise living standards for ordinary Americans.
From the presidencies of Truman through Lyndon Johnson, Democrats stuck to the program. Like Truman, who went so far as to order a takeover of the nation’s steel mills when they announced a price hike, John F. Kennedy and Johnson also publicly reprimanded steel executives for price increases.
They all spoke out against efforts by William McChesney Martin, the Fed chairman, to raise interest rates. Martin famously asserted his independence and raised rates anyway; as he saw it, the job of the Federal Reserve was “to take away the punch bowl just as the party is getting good.” Truman called him a “traitor.”
When inflation struck in the 1970s, Richard Nixon understood the expectations created by Roosevelt’s Office of Price Administration. As a World War II-era inspector for the agency, Nixon had been horrified at the thought of bureaucrats checking up on the pricing decisions of private business, and he quit. Yet once in the White House, he didn’t hesitate to slap on price controls in response to the soaring cost of beef and gas.
Milton Friedman, the free-market economist, and other conservatives denounced Nixon’s response as heavy-handed — a message that his successor Gerald Ford absorbed. Instead of price controls, Ford distributed “Whip Inflation Now” buttons and called for budgetary austerity.
As American economic thinking fell under Friedman’s influence, the Roosevelt-Truman tools lost favor. With inflation reaching double digits in 1979, President Jimmy Carter appointed Paul Volcker to the Federal Reserve to use monetary policy to fight inflation. When Ronald Reagan came into office, he endorsed Mr. Volcker’s muscular move to raise interest rates and drive the economy into recession to fight inflation. Subsequent presidents have largely stuck to this approach of controlling inflation.
Amid a pandemic, Mr. Biden has shown a willingness to lean hard on corporate America and embrace New Deal-style tools to lighten inflationary pressures. Through his supply chain task force, he is working to reverse offshoring and outsourcing, expand domestic production and help the ports in Los Angeles stay open round the clock to ease the cargo pileup. His infrastructure bill will allocate billions to construct and operate coastal ports and inland waterways, further easing prices.
Mr. Biden has also warned the big four meat processors against anticompetitive practices that probably contributed to spiking prices, including squeezing out competitors. His administration has pledged to take more aggressive action on illegal price fixing and antitrust, while working to bring more transparency to cattle markets. Higher meat prices are “not just the natural consequences of supply and demand in a free market — they are also the result of corporate decisions to take advantage of their market power in an uncompetitive market, to the detriment of consumers, farmers and ranchers, and our economy,” his economic advisers Brian Deese, Sameera Fazili and Bharat Ramamurti recently wrote.
Through the Federal Trade Commission, Mr. Biden has called for an investigation into the prices set by large oil and gas companies and authorized the release of 50 million barrels of oil from the Strategic Petroleum Reserve to dampen OPEC’s ability to raise prices. He also met with the chief executives of Walmart, Mattel, Food Lion, Kroger and other companies to discuss their plans to overcome supply-chain problems and keep prices in check for the holidays.
In the coming weeks, Mr. Biden should use his bully pulpit to make clear to Americans that corporations are padding their profits while working families are struggling through the pandemic. Almost two-thirds of publicly traded companies had substantially larger profit margins this year compared to the same period in 2019, before the pandemic. In 2021, close to 100 of them saw their profit margins go up at least 50 percent relative to 2019, The Wall Street Journal reported.
Showing working Americans that he gets it will help Mr. Biden demonstrate that he cares, as the Democratic pollster Joel Benenson told me. “We’re not having an inflation problem,” he said. “We’re having a corporate greed problem. And the president should put the blame where it belongs.”
As Mr. Biden leans on big businesses to temper rising prices, he also needs to push hard for policies that have a much greater impact than fluctuations in gas or meat prices: His stalled Build Back Better legislation would go a long way to ease the burden of major expenses. Mr. Biden promised the bill would lower out-of-pocket costs for child care, care for the elderly, housing, college, health care and prescription drugs — some of the biggest costs that most families face.
Like his Democratic predecessors, Mr. Biden needs to get tough.
Meg Jacobs teaches history and public affairs at Princeton and is the author of “Pocketbook Politics: Economic Citizenship in Twentieth-Century America” and “Panic at the Pump: The Energy Crisis and the Transformation of American Politics in the 1970s.” She is writing a book on the New Deal and World War II.