President Joe Biden wants to remind you that your Super Bowl party was more expensive than before. The reason, he argues, is corporate greed and shrinkflation. In a social media video before Sunday night’s game, he talked about companies selling “smaller products than usual where the price remains the same.” He opposes this behavior and “calls on major consumer brands to put a stop to this behavior.”
It’s a truly amazing move. There is a straight line between contraction in inflation, inflation and the fiscal irresponsibility of the Biden administration.
The inflation restriction is real. It happens when companies reduce the size or quantity of their products while keeping the same sticker price, effectively increasing the real price. In this case, Biden points the finger at the snack food and sports drink industries as two major culprits. Have you noticed your Gatorade bottle getting a little smaller? Does your bag of chips seem full of more air than ever? It’s probably not your imagination.
However, Biden’s complaint would be funny if it weren’t so sad. As Domenico Pino says National review explains, heat shrinking is legal if the packaging accurately reflects the contents of the product. Additionally, the Food and Drug Administration regulates packaging practices such as “slow-fill,” the primary purpose of which is food preservation, not ensuring smaller portions as Biden appears to advocate. And yes, it’s true that some sellers have reduced the contents of their packages without changing prices, but this adjustment occurred in 2022.
Why 2022? This is the most important part.
The wave of contraction in inflation came in response to the rising inflation the country has experienced since 2021. I am baffled that the president would make such a big deal out of it now. The administration has tried to deceive voters into confusing the fact that inflation has eased with the idea that prices have essentially returned to normal. It is not so. While inflation has fallen, the price of food has increased by an average of 20% since February 2021. Chicken and bread have increased by 25% and rents are still very high.
These higher prices explain why voters continue to express a lot of frustration with the economy despite low unemployment, positive economic growth and rising wages.
Ultimately, the president’s tirade against corporations is a feeble attempt to distract us from the fact that his (and his predecessor’s) overspending policies during the pandemic caused inflation. My former colleague William Beach, who headed the Bureau of Labor Statistics, examines this question in detail in a new brief from the Economic Policy Innovation Center titled “Is Inflation the Result of Excessive Deficit Spending?”
As Beach reminds us, the total federal deficit from 2020 to 2023 was $8.8 trillion. These are the largest peacetime deficits in US history, both in nominal terms and as a percentage of gross domestic product (GDP), and include much of the spending approved by Biden after much of the pandemic crisis had been averted and the economy was recovering.
This influx of deficit dollars led to a 25.4% increase in US bank assets between 2020 and 2021, translating into a significant increase in lending. Consumer loans increased 19.2%, real estate loans increased 12.1% and total loans increased 13.7%. It was the largest increase in lending since before the Great Recession. Additionally, much of the money supply grew by $5.4 trillion between March 2020 and April 2022, about a third of U.S. GDP at the time.
Beach rightly notes that alternative explanations for inflation – such as supply chain disruptions, rising prices, and modern monetary theory arguments tied to the illusion that government spending shouldn’t worry us – are not credible. The same is true if you blame the contraction in inflation on corporate greed rather than on a government that injected excessive purchasing power into the economy and caused an inflationary crisis, leaving us all to find ways to adapt.
The best part of Beach’s report comes when he reminds us that while politicians are responsible for starting the recent inflation, they also have the means to stop it. While prices may not return to 2020 levels, Congress can improve economic efficiency and productivity by reforming the tax code, reducing regulations and moving toward looser policies, potentially easing the strain on household budgets by raising incomes.
Congress may finally get serious about cutting spending. This would greatly help the Federal Reserve tame inflation completely. Blaming companies for inflationary price increases is both wrong and cowardly.
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