Anybody remember the late 1970s, when high inflation joined forces with rising unemployment and slow growth in the U.S. economy? The word for that was “stagflation.” We haven’t heard about it for nearly 40 years—until now. Back then, stagflation caused so much consumer angst that President Jimmy Carter lost in a landslide election to Ronald Reagan in 1980.
The latest GDP forecast from the Atlanta Federal Reserve Bank through the end of February—that is, the first two months of 2022—is a snail’s pace rate of 0.6 percent. That’s economic anemia. And that was BEFORE the Russian invasion of Ukraine and the economic chaos that has caused.
Now combine that with the dreadful price inflation. Over the past 12 months, we’ve had consumer prices rise by 7.5 percent and producer prices rise by roughly 10 percent. Grocery prices are up more than 12 percent and energy costs have jumped by more than 30 percent.
So, runaway inflation and less than 1 percent GDP growth so far this year. That’s a pretty awful performance—especially coming out of a pandemic, and it’s no wonder that now less than one in three Americans approve of the way Biden is handling the economy.
Democrats are desperate to make lemonade out of these lemons. Donna Brazile, former chair of the Democratic National Committee and Al Gore’s campaign manager in 2000, told ABC News on Feb. 27: “I know that there’s a great challenge not to appear joyful, but you know what? Compared to where we were a year ago, two years ago, four years, I think we’re in better shape. ... I can’t speak for every American. I can only speak for myself.”
But wait a minute. Better shape? The inflation rate was 0.7 percent when Trump left office in January 2021; now it’s four times higher. The United States was a net exporter of oil and gas; now we have to import our fuel from Saudi Arabia, OPEC, and Russia. The price of gas at the pump appears headed to $4 or even $5 a gallon in some markets; when Trump left office, the average price of gas nationally was $2.59.
Meanwhile, inflation is shrinking worker paychecks. Wages were up last year by more than 5 percent, but inflation was 7.5 percent—so families LOST purchasing power. In 2019, by contrast, median income households saw some of the biggest GAINS in income in 30 years. So what’s better now?
Worst of all, just like in the late 1970s, Democrats are out of ideas for controlling inflation. They think another $5 trillion in spending will lower consumer costs. But that would be like dumping kerosene on a brush fire. They think raising tax rates will lower inflation, but higher taxes on companies will reduce their output and thus raise prices still higher.
Senate Majority Leader Chuck Schumer of New York floated a trial balloon of cutting the federal gas tax to reduce prices at the pump. That may lower gas prices by about 15 cents a gallon, but with prices up by $1 to $1.50 a gallon, this is at best a Band-Aid.
The solutions to stagflation are pretty straightforward. In the early 1980s, Reagan and Fed chief Paul Volcker broke the back of inflation by cutting government spending, raising interest rates, cutting taxes to increase the supply of goods and services, and ending price controls. Democrats want to do just the opposite—spend, borrow, print money, bash business, and raise taxes.
Biden, Schumer, and the rest of the Democrats in Washington may be surprised when voters toss them out of office, just as happened in 1980. History may be repeating itself.
