How To Make Everything More Expensive

There are few things voters hate more than high prices.

In recent years, the sting of inflation has led to politicians all over the world getting kicked out of office.ⁱ

Which sends a clear message: If you're a government official, do everything in your power to keep prices low.

Or at least it seems like it should be a clear message.

Because here's the thing: There are a lot of cases where politicians raise prices on purpose.

They just hope you don't notice.

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Here's something that's pretty close to an iron law of politics: When the economy is bad, voters get mad at politicians. And when the economy is good ... well, we get slightly less mad at politicians.

Which might sound uncharitable, but in America "slightly less mad" is as good as it gets. After all, we used to tar and feather the tax collector.

Now, this seems like a pretty tidy system. If politicians know that voters will reward them when the economy is doing well and punish them when it’s doing badly, well, that’s just called accountability.

But, in some cases, that accountability breaks down. Because it turns out that there are lots of instances where politicians are directly responsible for increasing our cost of living — and yet most of us never know about it.

And it’s not some grand conspiracy. It’s just old-fashioned politics … that tends to fly under the radar.

One example of this is food.

In the mid-2000s, Congress attempted to wean America off of fossil fuels by passing a law requiring that “biofuels” like ethanol be mixed into our gasoline.ⁱⁱ

What does that have to do with food? Well, here’s the thing: Most ethanol comes from corn.ⁱⁱⁱ

The result: by 2023, about 37 percent of all the corn grown in the United States was used for ethanol^iv — which, by increasing demand, drives up corn prices for everyone who … y’know, eats it.

Now, you might think “So, we get better, cleaner fuel and pay a little bit more for corn. How big a deal can this really be?” And the answer to that question is … pretty big. Here’s why.

For one thing, ethanol actually doesn’t work that well as a fuel source. It gets you about 30 percent less energy than gasoline^v and generates carbon emissions estimated to be at least 24 percent higher than gasoline.^vi

And for another … the impact on prices is probably way bigger than you’d think. Because while Americans only eat about 10 percent of the corn we grow, we use nearly four times as much for animal feed^vii — which means things like eggs, dairy, and meat also become more expensive.

What does that look like in practice? Well, as the proportion of our corn going to ethanol went like this, the cost of corn went like this:^viii

And, by the way, Americans paying more for food … actually got off easy by comparison. The simultaneous adoption of biofuels mandates in the U.S., Europe, and Brazil helped to touch off a food crisis that left 75 million people around the world on the brink of starvation and drove 44 million into extreme poverty.^ix

Now, there’s an obvious question here: If this was bad for the environment, bad for consumers, and bad for the world’s poor … how did it happen? And the answer to that question is … it was very good for people who grow corn. In fact, 75 percent of the country’s ethanol comes from farmers in just six states.^x

And that turns out to be the key. Economists refer to this as the problem of “dispersed costs and concentrated benefits.”^xi Even policies that are bad for society as a whole will oftentimes get enacted anyway because a small group of people reap lots of benefits — and thus lobby to keep the program going — while the rest of society foots the bill in increments small enough that politicians hope we won’t notice.

And if this sounds dimly familiar … it’s because it’s basically the scheme from Office Space.

And once you’re aware of this, you start to see the pattern everywhere.

It’s also the case, for example, with tariffs.

Because tariffs are a tax on foreign products, they help American companies by making their products cheaper relative to their international competitors. Research found, for instance, that the tariffs on foreign steel and aluminum that began in 2018 created about 1,000 new jobs for Americans in those industries during their first 20 months.^xii

But that’s only part of the picture. Because that same research concluded that those increased prices also led to 75,000 fewer jobs being created by manufacturers who saw their steel prices increase.^xiii

Moreover, another study, from the Tax Foundation, found that the higher prices resulting from tariffs imposed by the Trump and Biden Administrations cost every American household about $625 a year.^xiv

And here’s one more example that — fair warning — is probably going to make you want to smash your computer. The principle of dispersed costs and concentrated benefits … is also the reason that buying a car is such a pain in the ass.

Apart from a few exceptions for electric car makers, it’s generally illegal for manufacturers to sell a car directly to you the consumer.^xv That’s the reason there’s no automobile equivalent of the Apple Store. Instead, car companies are required to have dealerships, which are often given what, in the business, are known as “exclusive territories” — and what, to the rest of us, are known as “monopolies.”^xvi

These laws persist because they’re very good for car dealerships — even though they’re very bad for car buyers. Analysis from the Department of Justice has estimated that allowing direct sales to consumers could cut thousands of dollars off the cost of a new car.^xvii

But this lack of competition is also the reason the process is so miserable: The hidden fees. The strongarm sales tactics. The coffee that was made during the Eisenhower Administration. Car dealers can treat you this way because they know you don’t have many other options.

All of these examples point to one overarching principle: We can’t just judge policies on their purported benefits. We also have to look at the costs — and who bears them. Because even the best-intentioned policy may be making it more expensive to feed your family, less likely that you’ll get a job, or even that much more annoying to buy a car.

Although, when it comes to that last one, … there’s another solution we could think about.