Government Regulaion, Not Interest Rates is the Cause of Inflation
I have been thinking about inflation this morning and I had to get this off of my chest. So here's my first Op-Ed blog piece.
Many, including the Fed, are keeping a close eye on inflation fearing that it may be rising too rapidly. The two main culprits are the rising cost of oil and food. I believe that government regulation is one of the main causes for the rapid increase in both of these items. Believe me, I'm all for energy independence, but ethanol...at least using the technology that currently exists...is far from the answer. The government's absurd ethanol policy, along with an increase in global demand, is causing food prices to skyrocket. How will the Federal reserve pausing its easing cycle lower the price of food? the answer is it won't.
The price of oil is also rising rapidly. The race to $100 oil is being fueled by rapid global growth and by speculators bidding up the price. Sure, a slowing of the U.S. economy will have some impact upon the demand for and ultimately the price of oil, but the rapid growth and voracious demand for oil in places like China, India, and Brazil has made the U.S. a much less significant piece of the puzzle than it was in the past. Rather than using interest rates to cripple the U.S. economy in the hopes of slowing the surge in oil prices, the U.S. would be better off opening up additional areas like Alaska and the Outer Continental Shelf to drilling. Technology has come a long way since the environmental disasters years ago that critics of Continental Shelf drilling often point to in their argument against it.
The U.S. has a lot more oil at its disposal that it could use to increase the supply of oil and slow inflation. Instead of providing all sorts of pork to farmers to buy votes in key states like Iowa the government should pull the plug, or at lease ease back on its silly ethanol policy and open up the spigots for more domestic oil production. Doing so would make a lot more sense than crippling the economy by keeping interest rates higher than they should be without actually having much of an impact upon the main causes of inflation.