Government-Mandated Price Increases: A Neglected Aspect of Inflation

Government-Mandated Price Increases: A Neglected Aspect of Inflation

Government-Mandated Price Increases: A Neglected Aspect of Inflation

Government-Mandated Price Increases: A Neglected Aspect of Inflation

Excerpt

The diligent efforts of the author's research assistant, James Langenfeld, a graduate student at Washington University, are gratefully acknowledged. Lee Benham of Washington University and Dan Larkins of the American Enterprise Institute provided numerous helpful suggestions. The views expressed are, of course, solely those of the author.

1 INTRODUCTION AND SUMMARY

The dollars that private enterprises and individuals are required to spend for environmental and other purposes are no less a drain on output because they come from private pockets than they would be if they came directly from government coffers.

Milton Friedman

As the American public is learning to its dismay, there are many ways in which government actions can cause or worsen inflation. Large budget deficits and excessively easy monetary policy are usually cited as the two major culprits, and quite properly. Yet, there is a third, less obvious--and hence more insidious--way in which government can worsen the already severe inflationary pressures affecting the American economy.

That third way is for the government to require actions in the private sector which increase the costs of production and hence raise the prices of the products and services which are sold to the public. As shown in Chapter 3, for example, the price of the typical new 1974 passenger automobile is about $320 higher than it would have been in the absence of federally mandated safety and environmental requirements. Attention needs to be focused on this third route to inflation for two reasons: (1) the government is constantly embarking on new and expanded programs which raise costs and prices in the private economy and (2) neither government decision makers nor the public recognize the significance of these inflationary effects. Literally, the federal government is continually mandating more inflation via . . .

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