On Sunday, California lawmakers inched closer to a budget deal that would issue direct payments to California residents making less than $250,000—a plan being pitched as inflation relief. For the past few months, inflation driven by the pandemic, supply chain crises, and the war in Ukraine has pushed food and gas prices to new heights, and the payments aim to mitigate some of that pain.
Gas prices, in particular, have reached a national high in California: on average, it runs $6.299 for a gallon of regular but has gone as high as $9.60 a gallon in one city. Initially, Governor Gavin Newsom proposed an $11 billion relief package to combat the inflationary gas prices that hinged on $9 billion worth of direct payments to registered vehicle owners ($400 per vehicle, capped at two). The plan faced immediate backlash, however, and was changed into a more general form: direct payments for everyone.
Californians making up to $75,000 will get less than $350, doubling to $700 for joint filers making up to $150,000, and another $350 can be added if there are any dependents, coming out to a cap of $1,050. Families making $125,000 or $250,000 jointly can recieve $250 or $500 combined, getting another $250 for dependents, for a maximum of $750.
The program's beginnings as a gas tax holiday is notable. Tax holidays don’t actually work: They may provide a small amount of short-term relief but do nothing to address the root of the issue—oil company market power leveraged into price hikes and historic profit margins for the industry. Time and time again, when gas tax holidays are introduced their results are not only mixed at best but do nothing to actually address supply or demand-related reasons for high gas prices. They also, as California discovered, only apply to car owners, while inflation affects everyone.
So, here's an idea: every American gets inflation relief. That sentence will no doubt rankle anyone who believes, as the memes that have proliferated in the wake of California's decision have reflected, that stimulus checks caused our current bout of inflation. The truth, however, is that the previous waves of stimulus checks, relief packages, and other demand-side phenomena have been shown to not be primary drivers of inflation. Crucially, much-needed relief should be coupled with policies that address supply chain and corporate market power drivers of inflation. In addition to giving people money when they are hurting, we need to explore options that help people without directly enriching the fossil fuel companies driving our ecology to the brink (and can solve any supply issues that pop up in the future).
In a letter to executives at BP, Chevron, Exxon Mobil, Marathon Petroleum, Phillips 66, Shell, and Valero Energy, the President accused the firms of refusing to increase refining capacity in a bid to preserve and expand historic profit margins. The letter included vague threats and the suggestion that refinery capacity should increase, but it’s not clear how much further it can be expanded or if another refinery will ever be built.
Options are relatively limited, as New Republic writer Kate Aronoff explained earlier this month:
“As Fed Chairman Jerome Powell has conceded, the main way interest rates are likely to lower energy prices is by making people poorer (“get wages down”), thus reducing energy demand,” Aronoff wrote. “Whether coaxed or cajoled, oil executives don’t have much of an incentive to either reduce prices or stem their steady flow of carbon and methane into the atmosphere. Without getting creative, getting the industry to help bring down prices means giving up on climate goals.”
The main option explored in Aronoff's piece is a National Refining Company, helping to meet shortfalls in the short run by running infrastructure at a loss before shutting down to help accelerate a transition. If companies are worried about the capital costs of refineries, sell them to a public utility that'll run them at a loss—and, better yet, into the ground. Introducing a major state-owned factory into the industry that operates without a profit incentive is key, as oil companies have little intention of walking away from the profits yet to be made at great cost to the planet.
Corporate power driving inflationary increases applies outside of oil markets, too. As Rana Foroohar wrote in the Financial Times, the political economy of food production has spent a century pursuing cheap food via flawed models: “The New Deal encouraged the production of massive amounts of subsidized cereal grains to feed an influx of urban dwellers. The Reagan revolution encouraged further consolidation—as an illustration, consider that four companies control up to 85 percent of the meat market.”
President Bill Clinton's "Freedom to Farm" bill, Forohoor pointed out, closed the door on state intervention in the supply and demand of food stuffs. What has the result been? Concentration along the agricultural supply chain has let giants leverage market power into massive price hikes now provided cover by today's inflation. Farmer inputs like seed, herbicide, and fertilizer that are provided by a concentrated group of giants have seen triple-digit price increases, while farmers themselves are struggling to stay in the black as they produce corn or soybean. Similarly, meat prices have seen sharp hikes during the pandemic and driven food prices to new heights; a close examination of the food supply reveals the low prices aren't coming from cattle ranchers, but the four beef packing companies that control over 80 percent of the industry.
Foroohar suggests we "rethink the entire way we farm in America" and there are two main ways forward suggested by her reporting: addressing market concentration and state intervention in the agriculture sector.
Antitrust action to fight concentration along agricultural supply chains would be a good step. No matter where you look, whether at beef packing or chicken farming, a handful of companies have been able to erect chokepoints that minimize farmer revenue but maximize corporate profits. Fighting collusion among food monopolies means lower prices, better conditions for farmers and animals, and a food system designed with more in mind that excessive profits.
Government management of supply and demand, along with strategic grain and foodstuff reserves for domestic buyers, could be another option here. Matt Bruenig at the Policy Planning Center has suggested simply nationalizing one of the major colluding corporations in the meatpacking industry, allowing it to be: run at a loss, improve conditions across the board, but also influence behavior in other sectors scared of being the next acquisition target. But why stop there? We could also nationalize supermarkets—the largest buyers of food in our system—or, if that feels a bit too pinko, take a page from the National Refinery Company playbook and create or nationalize smaller buyers of food to help design, shape, or regulate food markets.
All this might not immediately reduce the pain of high prices at the pump or grocery store, but that's what the checks are for. Eventually, this approach will put us in a better position to transition from oil, ensure farmers actually can earn a living, keep food or oil prices stable during inflationary periods, and provide more room for stimmies that can provide relief elsewhere that oil and agricultural giants can’t immediately suck up—and economists can’t fearmonger as a recipe for inflation.