I mentioned in my year review of books (#838984) that I had read Carola Binder's Shock Values: Prices and Inflation in American Democracy, of which the publisher (University of Chicago Press) had so kindly sent me an advance copy. So last spring, a month or so before the book came out, I was reading Binder's book, and wrote up this review and submitted it to my outlet of choice—only to my horror discover that they'd already accepted (and just published) another.
That's the risk you take in this business, but it still made me annoyed enough that I never tried to republish it anywhere else. So here you are, Stackers: unique (but outdated?) material, in full!
A consumer and a producer want specific prices to move in opposite directions. That’s clear as a matter of logic. In the history of American political economy, the point shines through in debates over tariffs and subsidies, over depressions and recessions, over inflation and unemployment, and over the monetary regime itself.
A schizophrenic mentality thus governs most people in their various roles as consumers (lower prices, please!) and producers (higher prices, please!); at every turn and in every policy proposal therefore, there is somebody who benefits from higher prices and someone else benefiting from lower prices. Fighting over the political apparatus to shove market prices in one’s desired direction is the wholly predictable consequence of that observation, and that is the core point that emerges in Haverford College economics professor Carola Binder’s new book Shock Values: Prices and Inflation in American Democracy.
It is astonishing to see the degree to which Americans, who over three centuries have paid lip service to liberty and free enterprise, can so happily set aside those principles to favor their economic interest over the interests of another group.
Binder’s tale is more of a political and legal history than it is an economic one. Not a polemic text arguing for a specific idea, the book occasionally reads like an encyclopedia-type account of America’s political and legal history, sprinkled with interesting quotes from famous political characters, economists, or legal opinions — indeed so many that the reader routinely lose their way across the otherwise relatively digestible chapters. It takes us until forty pages from the end before we’re treated to a semblance of personal color in an otherwise dry and academic prose. (Binder briefly recounts her being a PhD student at Berkeley, influenced by Christina Romer whose New York Times op-ed on nominal GDP targeting the book repeatedly quotes from). It’s not until the final chapter that we get some policy recommendations and scant insight into her own opinions.
Making a strong case or advocating for a certain idea was only ever part of her intention. Instead, she’s explicitly trying to educate her fellow economists and citizens about the events in America’s past to inform the political-economy trade-offs between monetary regimes, price stabilization, and policy levers to control them. She wants us to “think more deeply about what alternative approaches to price stabilization might mean,” and she does so in a balanced, careful account of select episodes from America’s past.
We no longer have official price setters, free-silver movements, or wartime-style presidential powers over the economy, but there is still large popular appeal for policies to restrict and limit prices when they seem unfair or suddenly change. The starkest observation coming across these 300-odd pages is that the popular instinct for price controls and using government powers against “profiteers” hasn’t gone away. While most economists — like Larry Summers in an amusing Bloomberg interview quoted by Binder — think of price controls as on par with the theory of miasma, the general public is much more prone to invoke government powers against market prices they don’t like.
Stark speeches where politicians or central bankers tried to talk down prices — often by appealing to private industry’s supposed public responsibility — feel all too modern in the 2020s. Accusations of profiteering in the face of shortages were as common in the 1950s or 1890s as they have been recently. Refreshingly, Binder connects that history to the monetary regime and the task of central banking; calls for anti-price gouging laws, tariffs, price controls, and other meddling in economic affairs become worse at times when the central bank fails in upholding its “price stability” goals. People sense when something is rotten in the state of money, and lash out in one of the most direct political ways possible.
In Shock Value, Binder admits that she’s much more concerned about the costs and damages of inflation than most economists; she sides more with the public, who overwhelmingly think of inflation as lowering their standards of living, than her fellow economists, who focus on the unfair shifting of real debt burdens.
“High inflation,” she says, “erodes confidence in policy makers, institutions, and democracy itself.” Under high inflation, or inflation that seems out of control, the public concludes that the system is too dysfunctional, and thus “question[s] the legitimacy of the institutions and structures that govern their lives and livelihoods.”
Echoing her great “Technopopulism” article from a few years back, the failures of a central bank to adequately fulfill its mission undermines credibility both in its own existence and unearths all manner of political nonsense, from anti-gouging laws to greedflation myths.
While the detailed and well-researched rundown of America’s legal and political experience of inflation and price control is valuable, Shock Values remains so nuanced and uncontroversial as to lose much reader attention; at times the writing becomes pretty dull. The cover is horrific (but perhaps we can’t blame the author for that), hinting of a political pop story suitable for the bottom shelf at an airport bookstore rather than the serious academic investigation Binder actually delivers. The kind of reader who picks up the book from that in-your-face cover will be disappointed by its calm and balanced take, the serious audience for whom Binder is writing put off by the flashy colors.
The treatment of bitcoin in a few paragraphs toward the very end doesn't impress. Citing a six-year-old blog post by Larry White in arguing that bitcoin’s “enormously volatile purchasing power” invalidates it as a medium of exchange, she doesn't seem to have grasped that same author’s much more refined point in Better Money — price behavior of pre-monetary bitcoin under fiat isn’t informative of how a monetary bitcoin on a bitcoin standard would operate 1 — even though she explicitly cited that book in an earlier chapter.
Adopting bitcoin would be “both unfeasible and unwise,” she says, invoking scant evidence for such a statement. “The benefits of a central bank that pursues price stability are too large for a society to willingly relinquish,” again, stated without much work to prove such a foundational tenet of modern central banking.
While hardly a page-turner and with some odd and somewhat unsubstantiated policy conclusions toward the end, Shock Values is a good overview of America’s ambivalent relationship with price controls following inflation and crises.
The state’s role in “managing and stabilizing prices” has indeed been “one of the defining struggles of American democracy.” In that, she is right.