Stop using defense production law and antitrust law to fix government created economic problems

The Democrats in Washington have a problem, and it’s not because polls suggest they will be swept from power in Congress this November. They recognize that rapidly rising inflation combined with a mangled supply chain is keeping the economy listless. And yet the only solutions they seem capable of are employing the Defense Manufacturing Act and antitrust law.

The Defense Production Act (DPA), first passed in 1950, states that it is essential for the domestic industrial base to “provide materials and services for the defense of the country”. In particular, military conflicts, domestic terrorism and preparing for national or man-made disasters are mentioned. The president can use the DPA to control domestic distribution when it comes to “scarce and critical material essential to national defense.” It also allows the White House to incentivize private companies to provide expanded manufacturing capacity if it serves the “implementation of the United States national security strategy.” It is clear that this law is primarily intended to benefit the Pentagon.

President Joe Biden first invoked the DPA over precious metals in March 2021. The White House said the order will help “bolster our clean energy economy by reducing our dependence on China and other countries” for metals and minerals used for clean energy. It seems government policy to rely on Canada, Brazil and Australia has failed. Whether that means the federal government will approve or re-approve two precious metals projects in Minnesota remains to be seen.

Biden’s next Defense Production Act target was baby food. The White House became concerned months after Abbott Nutrition issued a voluntary recall over five cases potentially involving Salmonella Newport and/or Cronobacter sakazakii Contamination. Abbott’s tests found nothing but traces Cronobacter sakazakii in “areas not in contact with the product”. But because two babies died, the Food and Drug Administration (FDA) temporarily closed the facility for an investigation, though it didn’t know the source of the contamination. (Health and Human Services (HHS) is reviewing the FDA’s decision to close the facility.)

The President seemed stunned weeks later that the DPA’s action didn’t immediately solve the problem. Baby formula makers told the White House they knew the recall and plant closure would result in shortages and empty shelves. The Biden administration accused Abbott Nutrition of taking too long to agree to a reopening plan. But the administration also sent mixed messages about exactly when the White House started working on the formula shortage.

Biden’s three most recent DPA statements this month were related to green energy. He said America’s future depends on its ability to make solar panels, insulation, electrolyzers and batteries. The order includes more clean energy projects on public land and artificially stimulating demand for solar panels for about one gigawatt of domestically produced solar panels in the near future.

Now the White House can apply the DPA to oil prices. Democratic MP Raja Krishnamoorthi said CNN that “we’re refining about a million barrels a day less of oil than we did before the pandemic.” He wants the DPA used to reopen 11 closed refineries in the US, and Biden appears to be considering it.

Why did the closures happen?

Tighter state and global regulations were to blame, according to a report by rating agency and economic forecaster Fitch Solutions Country Risk & Industry Research, oil and gas industry website Rigzone. Fitch analysts said the moves prompted Big Oil to focus more on clean energy to stay in business. This transition exacerbated gasoline prices, which have been rising since May 2020, combined with skyrocketing inflation.

It is questionable whether any of these DPA statements fall within the realm of national defense. Biden’s executive order on precious metals and green energy makes no mention of how the military will benefit from the use of electric vehicles, solar panels and charging stations. You can benefit from the stationary storage sector, but a study by Dutch financial institution Rabobank found that lithium-ion batteries only last four hours. It could be a decade before large-scale energy storage works from a cost and feasibility standpoint. The Pentagon admitted last year that it will take time to develop more clean energy technologies.

And baby food? How the hell does that equate to national defense? It’s not like the Department of Defense is going to suddenly start using baby soldiers to fight wars.

“The DPA is primarily a tool for telling certain manufacturers to prioritize government contracts or get certain more favorable terms on things to get things done quickly,” said Eric Gomez, director of defense policy studies at the libertarian-leaning Cato Institute asked about the use of the DPA in the manufacture of baby food. “The defense liaison is often tenuous…Things like the baby food charge have nothing to do with national defense.” The baby food charge has nothing to do with national defense.”

Gomez’s concern is that the DPA will become a short-term crutch for the federal government. “It allows us to ask bigger questions about what could either fix this in a more sustainable way or lead us to make some bigger changes that we should be making in our policy,” Gomez said. He also notes that the government tends to ignore problems when there is no crisis. Republican Senator Pat Toomey voiced his own concerns about DPA overuse, suggest It was time for Congress to step in to limit its missionary crawls.

Biden’s use of DPA also ties in with the administration’s and congressional Democrats’ desire for more antitrust law as a tool against inflation. Democrats — and many Republicans — want to use antitrust laws to crush Big Tech, slash shipping costs, and target drugmakers with what the Federal Trade Commission (FTC) calls illegal rebate schemes. That includes Democratic Sens. Elizabeth Warren and Tammy Baldwin’s Anti-Price Gouging Act, which insists corporate greed is at the root of price spikes. The Consumer Financial Protection Bureau (CFPB) also uses antitrust law, although critics say its moves are too vague.

It’s a theory that Joshua Withrow, a pro-free market fellow at the R Street Institute, sees as another ludicrous example of politicians giving in to the so-called “do something” game. “It’s just a squirrel for the public to chase,” Withrow told The Daily Beast, laying the blame on the federal government’s 2021 spending spree. He added, “Not that some lawmakers don’t want to use antitrust laws seriously, because they are afraid of the “greatness” of companies for their own sake, but I think so [administration] mostly just want the distraction.”

It is particularly noteworthy that left-wing economists also find this cartel initiative ridiculous.

Former Obama administration official Austan Goolsbee quipped, “How do we get back to this?” in a recent Initiative on Global Markets survey of gas price controls. Former Clinton Administration Treasury Secretary Larry Summers slammed Counterproductive to the Biden administration’s antitrust push, which tweeted that the guidelines “can reduce efficiencies and by lengthening supply chains reduce resilience.” The Washington Post‘s Catherine Rampell wrote that using antitrust law to fight what Biden, Warren and others call “greedflation” is akin to a conspiracy theory as there is a lot of money in the market right now.

Perhaps most frustratingly, there are solutions to lower inflation and increase supply, but policymakers ignore them. The administration could lower some tariffs on the Trump administration. That’s a good start, but not enough. More tariffs have to go, the sooner the better. The Federal Reserve needs to keep raising interest rates and selling its balance sheet. Congress and the White House cannot continue to spend exorbitantly because it further centralizes power within the federal government.

A weaker government, not a stronger one, will fix this mess.