Ringo Chiu via AP
Cargo ships stacked with shipping containers are docked at the Port of Long Beach, California, January 10, 2022. A law passed in June should result in lower shipping prices for imported goods.
The Inflation Reduction Act is now law, and I hate it. Not the bill, which has the capacity to transform clean-energy investment and mitigate climate change, make modest but useful advances in health care, and ensure a modestly more fair-share payment of taxes.
I hate the title.
It’s not just that the law will have little to no effect on inflation. It’s not just that the parts that will lower costs, like prescription drug price negotiation in Medicare or the production of cheaper clean energy, won’t happen for years. It’s not just that the benefits of public investment far outstrip short-term price movements.
It’s more that it’s another example of Democrats hiding policy preferences behind a flailing attempt to speak to the politics of the moment. If they believe that transitioning away from fossil fuels and creating an industrial policy to make America an export leader in zero-carbon fuels is good for long-term economic prosperity, environmental health, and national security—well, just say so. If they believe that the IRS has been gutted for too long and the drug industry has held too much power, just say so. The policies here are fine, but too much of Democratic political positioning involves concealment, and I think it generates natural but unnecessary skepticism.
Unfortunately, Democrats didn’t just rename it the Manchin Act (although, in that case, Sen. Sinema would have probably objected that she wasn’t consulted and forced some letters of her name into the real title at the last minute). But the thing is, there have been inflation reduction acts, passed in this Congress and implemented by this administration, that could certainly provide evidence of Democrats addressing this vital concern, especially if built upon. In fact, substantial moves on those initiatives were made this week.
The law with the best claim on the name “Inflation Reduction Act” recently is the Ocean Shipping Reform Act of 2022 (OSRA 2022), passed in June and intended to finally crack down on the activities of the ocean shipping cartel. It gives the Federal Maritime Commission authority to scrutinize shipping contracts, prevent price-gouging and extortionate fees, and facilitate exports.
This week, the FMC signaled that it would require ocean carriers and ports to share cargo data with other stakeholders, in a bid to fight congestion. Some freight companies have already begun to share capacity information. As Bob Kuttner wrote last year, one of the most intractable problems in the supply chain is the fragmentation of data, which prevents prioritization and streamlining. OSRA 2022 finally gave the FMC the authority to force data-sharing. While bottlenecks in aggregate have been easing with the slowdown in goods demand, specific areas remain clogged, and getting early warning on the problems can mitigate shortages and price shocks.
The FMC has also issued guidance to make it easier for cargo owners to fight unreasonable shipping charges, and warned ocean carriers to stop charging companies for containers that are stuck at the ports and cannot be moved. OSRA 2022 “turns the FMC into an enforcement agency along the lines of the Securities and Exchange Commission and the Federal Trade Commission,” Agriculture Transportation Coalition executive director Peter Friedmann told Freight Waves. While the agency needs more resources, there are indications that shippers are heeding expert advice to start complying with the law. That should filter down into lower shipping prices on every imported good.
The law with the best claim on the name “Inflation Reduction Act” recently is the Ocean Shipping Reform Act of 2022.
Also this week, the Biden administration secured a lasting reduction to the cost of hearing aids, again by breaking up a cartel. The Food and Drug Administration, five years after the passage of a 2017 law, finalized rules to sell hearing aids over the counter without a prescription. This ends the stranglehold by the four companies that control over 80 percent of the market. Hearing aids have been costing as much as $4,700, including visits to specialists who normally contract with one of the Big Four. Hearing isn’t covered by Medicare, so these costs are borne by individuals, many of whom go without hearing assistance because they can’t afford it.
Reducing barriers to the market could increase hearing aid innovation, along with bringing down prices significantly. The president himself issued a statement on the hearing aid rule, which is rare for a president to do upon the promulgation of a regulation. Biden’s competition executive order last year demanded a final rule after years of delay. “It’s the latest action we are taking to make our economy more competitive and less concentrated,” Biden said, explicitly making the connection between monopolization and higher prices. The action on hearing aids also managed to earn a shout-out from the Wall Street Journal editorial board for perhaps the first time in the Biden presidency.
The Education Department is also lowering costs by canceling burdensome student debt on borrowers who were simply cheated by their colleges. Building on a June action forgiving all debt from shady for-profit Corinthian Colleges, this week the Education Department canceled $3.9 billion in debt for 208,000 borrowers who attended ITT Tech, another defunct nonprofit, at some point in the past 17 years.
In addition, practically all of the 7.5 million student borrowers currently in default will have their good standing restored, eliminating a hardship to their credit that makes the cost of borrowing higher, and could lead to garnishment of wages or tax refunds. This “fresh start” combines with a rejuvenation of the Public Service Loan Forgiveness (PSLF) program, which has given hundreds of thousands of borrowers billions of dollars in relief.
In this area, more can be done. The PSLF waiver process, which ends in October, requires borrowers in older, private loans to consolidate into a Direct Loan, and millions of borrowers could be left behind. And of course, the administration has the authority to cancel some or all federally issued student debt. There’s a soft August 31 deadline for this, as it’s the expiration date for the current payment pause on student loans.
The administration is now talking about extending the payment pause through the end of the year and pairing that with $10,000 in debt cancellation, with some sort of eligibility cap. (Bob Kuttner this week explained why that should probably be at least $20,000.) The Education Department has told its student loan servicers to hold off on sending billing statements for September, so obviously there’s something in the works.
The idea that debt cancellation would wipe out the inflation gains from the Inflation Reduction Act is ridiculous; realistically, there’s nothing to wipe out. But more to the point, you can find in all of these policies, including debt cancellation, an agenda that uses multiple means to drive costs down. Some of it involves competition policy, some involves regulatory action to prevent untoward profit-taking, some of it is direct relief. Add to that the supply-boosting potential of bills like the CHIPS Act, or the program adopted from Employ America to use advance market commitments to increase oil supply, and you see a variety of experiments being taken to keep costs down.
It’s probably wrong to say that this has already paid off. Yes, inflation did not budge in July, but that was largely due to gas prices plummeting, which stems more from a combination of international factors and a slowdown in demand. The Fed engineering a recession is not something Democrats should take credit for.
But what the administration can say is that they’re instituting long-term policies that will moderate costs. Hearing aid prices and global shipping are likely to be permanently lower. Companies are more interested in onshoring, which has job creation as well as inflation reduction potential, because of a newfound commitment to supply chain resilience and industrial policy. The administration can do more here, with strong regulatory enforcement to fight corporate power, with robust overhauls of non-functioning processes in higher-education finance, with smart implementation of existing authorities.
Ultimately, voters will respond to tangible benefits rather than the name of a bill. Fortunately for Democrats, they don’t need to rely on the Inflation Reduction Act to reduce inflation.
