The rising price of beef offers a meaty lesson on the limits of the government's ability to combat inflation by throwing more money at the problem.
Even in an environment where almost everything is getting more expensive, the price of a pound of beef can make your eyes water. The Bureau of Labor Statistics says beef prices are up 12 percent since last September—beef steaks, specifically, are up by 16 percent over the same period. That's considerably more than the increases for food products (3.7 percent) and all products (5.3 percent) over the past 12 months.
The Biden administration, perhaps worried about the political toll that rising food prices could extract in next year's midterms, announced plans earlier this month to offer up to $500 million in loan guarantees to beef producers. That's on top of $500 million approved as part of the $1.9 trillion American Rescue Plan that was supposed to "expand processing capacity and increase competition in meat and poultry" industries, according to the U.S. Department of Agriculture.
The second prong of the White House's plans seems to involve shaming meat-processing companies. "Just four large conglomerates control the majority of the market for each of these three products (beef, pork, and poultry), and the data show that these companies have been raising prices while generating record profits during the pandemic," Brian Deese, director of the White House's National Economic Council, said during a press briefing last Friday, the Detroit Free Press reports.
Taken together, the White House's approach to high meat prices can be summarized as an argument for greater government subsidies based on the idea that stimulating more competition in the meat-packing industry will expand supply and reduce bottlenecks.
But, as David Frum details in The Atlantic today, there are some good reasons to be skeptical of this argument. For starters, it takes about $200 million (and several months, if not longer) to build a single new meat-processing plant. That means the Biden administration's new loan programs will not purchase much additional capacity, and whatever gains are made will not happen immediately. Even if the plan is successful, smaller producers will likely need ongoing support beyond the initial loans—if there was a market for more, smaller meat processors, the private sector would be investing in them already.
"There's a real risk," writes Frum, "that the initial commitment of $500 million in aid and loan guarantees to small packers will expand into continuing intervention in the marketplace to keep smaller competitors in business in the face of the higher efficiency and lower prices of the big packers."
Of course, because this is Frum, he handles the shortcomings of President Joe Biden's plan with kid gloves, even while admitting that White House officials had no answers for his pretty basic questions about how all this will actually, you know, work. Still, he writes, "the architects of the Biden plan are uneasily aware that it rests on a lot of hopes, guesses, and optimistic assumptions."
Let's just call this what it is: a good way to waste $500 million without making any impact on the price of beef.
In some ways, Biden's approach here mirrors his recent big announcement about using the Defense Production Act to get more rapid, at-home COVID tests available to the public. Thanks to an inept Food and Drug Administration (FDA) that's still refusing to approve rapid COVID tests that are readily available in Europe and elsewhere, America has a relatively small supply of these tests—and, naturally, that means the tests are relatively more expensive here. That's a problem because the main benefit of rapid, at-home COVID testing is that you can take a test whenever you want, but that's a lot harder to do when the tests are $20 each—and harder still when you can't find any.
Biden's solution is to use the hammer of government power to force companies to make more tests. That might sound workable in theory, but in practice, even the White House admits that it will be able to squeeze out only another 280 million tests. That's enough for every adult in America to take…one test.
But 280 million sounds like a big number. So does $500 million. Indeed, they are big numbers. But in the context of a national economy like America's, they are actually quite small. So small as to be insignificant, really.
It's not impossible to imagine a more expensive government response to rising beef prices, of course. The Biden administration could ask Congress to approve $20 billion to subsidize farmers who raise cows, build more meat-processing plants, and send every American family a weekly coupon to reduce the cost of steaks and burgers at the local supermarket. (At the very least, this would allow those of us in the news business to write fun headlines about how the beef czar was grilled during a congressional hearing.)
That would be a response that might move the needle, though it would be awful on so, so many levels. The never-ending interventions that Frum describes would be only a part of it. It probably wouldn't take long for the beef industry to become a sacred cow for Congress in the same way that corn-growers already are.
And even if the government did all that, it still wouldn't do anything to address the actual root causes of the current beef price problem: a massive drought in the Western U.S. that has caused beef herds to shrink and the average cow to be 15 pounds less meaty when it is slaughtered. It would not fix the ongoing pandemic-related staffing issues at meat-packing plants, which are operating less efficiently even when fully staffed because they have to take necessary precautions to limit outbreaks that could cause even bigger disruptions.
The lesson here is one about the inability of the government to direct the economy on a large scale. Using the Defense Production Act isn't the best way to get more rapid COVID tests into American homes, sweeping aside FDA red tape is. The test makers will do the rest. Offering $500 million in loan guarantees to anyone who wants to build a new meat-processing plant isn't going to address the supply chain problems at the existing plants or end the Western drought.
Higher prices, while politically difficult for the Biden administration, will send signals up the supply chain that result in more workers being hired and more cows being raised. Beyond that, it's just a matter of waiting—because any government intervention will be either insignificant or ineffective.
And maybe we'll have to eat more pork for a while.