[Ed. note: The following My View was written in response to two Riley bills. Read them at here and here .]

Dear Rep. Riley:

It is commendable that you keep an eye on prices.

As an economist, I want to tell you that your 85 percent should not be pulled out of thin air. It should be based on an analysis of the cost structures of insurance companies.

But I want to talk to you as an economist about your bipartisan bill to control the prices of groceries:

In our capitalist economic system, prices are determined automatically, without any human intervention, through supply and demand. In addition, competition is pushing prices to an absolute minimum, at which the producer or a retailer can still recover their costs and make a suitable profit, which makes it possible to stay in business. Those who do not obey this simple dictum of the market do not stay in business long.

Thus, your bipartisan bill is based on a lack of knowledge of economics and is therefore superfluous.

The wage and price controls introduced by President Nixon, a Republican, in 1971 should serve as a warning to us: Meat started disappearing from stores and farmers were drowning their chickens so they would not have to feed them and sell them later at a loss. (See, for example, www.politico.com/news/magazine/2024/09/01/richard-nixon-kamala-harris-economy-00176374) 

The current cries about the high price of groceries are misguided in that most groceries are cheaper than they were 50 years ago. These cries are based on a lack of knowledge of the mathematics of inflation.

Here are the facts:

For instance, the average price of meat in 1975 was $1.88 a pound in 1975. Adjusted for inflation, $1.88 in 1975 is worth $10.68 a pound today. But I can buy today a nice lean steak for less than $10.68 a pound. And our supermarket regularly sells chicken drumsticks for 99 cents per pound. Notwithstanding the “nicely marbled steaks” for $24 a pound (marbling is all fat) or Japanese Kobe steaks for snobs for $400 a pound.

Similarly, a dozen large eggs cost 88 cents in 1975. Adjusted for inflation, this comes to $5 today. But I just bought four dozen large eggs at our supermarket for merely 50 cents a dozen.

The notable exceptions in other prices are the price of gasoline, because of the closure of the Hormuz Strait, which we hope is temporary. The second exception is the price of housing, which is caused by two factors: (1) high demand and (2) the fact that the square footage of a new house in 1975 was 1,700 square feet, whereas it is 2,500 square feet today.

The luxury materials today, which were unavailable 50 years ago (marble countertops today vs. Formica 50 years ago), also raise the cost of housing, together with high demand. Perhaps the construction workers may be earning a little more, adjusted for inflation, than 50 years ago.

Cumulative U.S. inflation since 1975 has been 568 percent. This comes to 3.48 percent when compounded annually.

The current CPI is 3.8 percent and the core CPI without the volatile prices of food and energy is 2.8 percent. Incomes certainly kept pace with and exceeded inflation for any period of time consisting of several successive years.

We do need a low but positive inflation to protect us against deflation, whereby prices start dropping uncontrollably, inflation drops below zero, producers and retailers are unable to recover their costs and a wave of bankruptcies ensues.

But the current inflation target of 2 percent of the Fed, which has been emulated by the central banks the world over, has not been the result of any economic study, but was pulled out of thin air.

Ivan Orisek lives in Forestburgh, NY.