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By Joseph Pacovsky

The laws of economics have not been repealed. They sometimes are suspended but they always come back. To paraphrase Paul Volcker, the late Federal Reserve chair, ”economic imbalances can continue for longer than you would expect but will correct themselves with more intensity when least expected.” 

We have experienced an extended period of a large money supply with low interest rates accompanied with low inflation. This is not how economics operates in the long run. The Federal Reserve injected huge amounts of money and lowered interest rates to protect the economy when the housing bubble burst in 2008. We have enjoyed a plentiful money supply and low interest rate for an extended period of time. The accompanying low inflation rate was unsustainable. The situation was compounded by a tax cut for corporations and high-income individuals at the same time the economy was booming which also increased the federal deficit. 

The economy was crushed during the early stages of the pandemic followed by the dramatic recovery after vaccines became available and finally a brutal, unprovoked attack on Ukraine by Russia.

The Russian attack on Ukraine has disrupted the world economy. Together, Ukraine and Russia account for 30% of world wheat exports, Russia is a major oil and natural gas exporter. The war disrupted food and energy supplies at the same time that world economies were rapidly expanding after the pandemic subsided. 

Food and energy prices are set worldwide and are not limited to the United States. A simplistic solution might be price controls. They do not work even in an isolated market and create more problems than they solve. They would be even less effective in a world market where products are free to move to the highest bidder. Normally over a period of time, supply and demand come into balance helping to moderate prices. The complexities of the outcome of an unpredictable war complicate the outlook for pricing. Lax enforcement of antitrust laws have reduced the numbers of competitors for particular products further complicating the return to competitive pricing and reduced inflation rates.

Natural gas prices are an example of prices in general. Natural gas has historically been used for home heating and in industry. It is also used for fertilizer production and increasingly for electric generation. Natural gas recently surpassed coal for electric production in the United States. Natural gas prices were in a range of $2 to $4 per million btus from 2010 until 2021. From the time Russia invaded Ukraine until now the wholesale price has increased from $4.50 to $9.00. 

Prices for many products have increased due to demand increases after the pandemic has waned. The crushing effects of the largest European war since the Second World War with tens of thousands killed and millions of people displaced has upended supplies of critical resources and increased prices for essential products. 

Some are trying to blame President Biden for supply problems and the current high rate of inflation. These are world problems and are not limited to the United States and actions President Biden can take. 

Please join us at the DFL picnic. It is Thursday, June 16, at 6 p.m. at Pioneer Park. Meet Jeff Ettinger, candidate for Congressional District 1; Brandon Lawhead, candidate for Senate District 23; Mary Hinnenkamp, 23A candidate; and Tom Stiehm, 23B candidate. 

Joe Pacovsky of Hayward is a member of the Freeborn County DFL Party.