Baby formula and the emerging US fourth-world economy

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President Joe Biden has invoked the Defense Production Act and engaged the Department of Defense to fly in baby formula from Germany. This makes me wonder something. Namely, whether, in a mind-boggling combination of COVID-19 relief, exploding inflation, the Russia-Ukraine war, and grasping for climate change solutions, the United States had somehow begun to behave like a third-world country.

But wait a minute. “Third world” country — or “developing country,” as they're now known — isn't quite right. Maybe we've become something else: a fourth-world country. A rich one where political leadership seizes upon each emerging challenge and invokes top-down regulatory solutions that stay around so long that once-functioning markets can no longer be counted on to perform.

Today, it's baby formula, warnings of pending summer electricity brownouts, trade war-constrained imports of solar cells, congested ports, federally assisted microchip and battery factories, COVID-treatment ventilators and protective garments, vaccines, border controls that don't seem to control, and constant political calls for more of the dog-that-bit-you remedies to the ailment of the moment. The challenges are real and sometimes urgent, but the responses often lack basic trust in the people.

There was a time when rising prices were seen as a prelude to plenty. I do not dispute the severity of our current situation; I merely point out that we once viewed rising prices as market signals that attracted expanded production, new investment and jobs, and a rush of substitute products from world producers. Of course, none of this performed perfectly, but even today, some commentators note that the
remedy
for higher prices is, well, the incentives created by those prices.

But higher prices won't bring more solar cells from China when shipments are constrained by trade wars, cause regulatory-shuttered coal-fired generators to reopen, or induce regulatory-delayed nuclear generating plants to open sooner. Nor will higher wages entice more highly educated scientists and engineers to hop over border controls. Each restriction — and countless others — has its own story and political justification, and each one sticks around and interacts with others.

How do we escape the limitations imposed by our fourth-world behavior? Is it possible to somehow blow a whistle, call “time out,” and put the regulatory engine in neutral? Or must we simply endure the costs and difficulties that pile up when each new national challenge requires heavy-handed regulations first and questions later?

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.





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