By signing the Inflation Reduction Act of 2022 (IRA), President Biden has led a major effort to address climate change, health care costs, clean energy development (and not so clean), minimum corporate income tax and financial transaction taxes incurred by some of America’s wealthiest corporations and individuals. By any measure (the new law is over 700 pages long and authorizes over $700 billion in spending) and by the scope of implied federal action, the IRA is major legislative action.
But what about inflation? Does the law deliver the goods implied by its name? Or are these politically useful words just a case of false and misleading advertising? If so, should the Federal Trade Commission (FTC) get involved in the name of consumer protection or, as the case may be, voter protection?
Well, come on. Of course not. The FTC controls the private market, not politics. Yet, consider what might happen if we held our legislators to a similar standard and FTC enforcement entered the picture.
Interestingly enough, the Biden administration tends to change the subject when asked to put dimensions on the reduction in inflation that can be generated by the IRA. Indeed, when prompted during an Aug. 8 National Public Radio interview to talk about inflation, Brian Deese, director of the Biden administration’s National Economic Council, touched on the issue, but explained detail how the new law would cap the annual cost to individuals. ‘ to $2,000, provide subsidies for the purchase of electric automobiles, and allow Medicare to negotiate with pharmaceutical companies to lower drug costs.
Deese’s answer was not about inflation (which happens to all prices taken together) but about the relative prices of some important items purchased by consumers. His comments followed almost to the word the administration’s Aug. 6 description of the legislation: “This legislation would reduce health care, prescription drug and energy costs, invest in energy security and make our tax code fairer, while fighting inflation and reducing the deficit.” The wording suggests that inflation is almost a side effect.
An analysis of the two most comprehensive treatments of the issue, one by the Congressional Budget Office and the other by the Penn-Wharton Center at the University of Pennsylvania, indicates that there is no imminent reduction in inflation generated by the misnamed law. The Penn-Wharton summary stated, “The impact on inflation is statistically indistinguishable from zero for either estimate.”
Admittedly, the administration’s reluctance to talk about reducing inflation is perfectly understandable from a political point of view, even if the title of the law seems patently wrong. But, going back to our original premise, if this discovery involved a labeling or advertising issue for a private company or agency, the FTC would have a basis to initiate an investigation under its consumer protection program which focuses on false and misleading advertising.
The agency’s policy states that “objective claims for products or services either explicitly or implicitly represent that the advertiser has a reasonable basis to support those claims.” These representations of justification are important to consumers. In other words, consumers would be less likely to trust product and service claims if they knew the advertiser had no reasonable basis to believe they were true.
And the citizens? And the voters? Should they be able to rely on the unspoken promise found in the title of a piece of legislation? Is truthful advertising less important in crafting a political package than when an advertiser crafts a statement about ready-to-eat cereals, tires, weight-loss remedies, or automobiles?
We should expect our political leaders to back up their claims. Yes, telling the truth should count, even in political markets.
Bruce Yandle is a Distinguished Fellow of the Mercatus Center at George Mason University and Dean Emeritus of Clemson College of Business and Behavioral Sciences. He is a former executive director of the Federal Trade Commission.