With inflation raging at its highest level in over 30 years, President Biden reappointed Donald Trump’s Federal Reserve chairman, Jerome Powell, this week, patting Powell on the back for resisting Trump’s supposed attempts at interference in monetary policy. But if Powell has to do anything akin to what the Fed had to do to clean up Jimmy Carter’s inflation, history suggests that Democrats won’t be shy in slamming him, no matter who it was who appointed him to steer the nation’s central bank.
It’s been four decades since the last time inflation was a serious political issue in America, and the infamous “misery index” of adding together the inflation and unemployment rates, which Jimmy Carter used to great effect in his 1976 campaign, bit him back hard when he ran for reelection in 1980.
Ronald Reagan’s tax cuts, paired with Federal Reserve Chairman Paul Volcker’s tight money, eliminated the misery index from political discourse as Americans enjoyed what would be a long era of sustained economic growth with low inflation. “You remember the misery index,” President Reagan joked during his 1984 reelection campaign. “It was 12 1/2 [percent] in ’76. And they said that was disgraceful. So in four years, they ran it up to about 20. … And in 3 1/2 years we’ve brought it down. … It’s now 10.3.”
Reagan reappointed Volcker in 1983, before it was clear to the public that his lower taxes were working—the same Volcker who once noted that “the truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.”
Democrats tried their best to destroy Volcker while he was taking away the punch bowl. During a 1981 House hearing, Rep. Frank Annunzio (D-Ill.), of Chicago, pounded his desk and loudly accused Volcker of being in the pocket of big corporations. Leftist Rep. Henry Gonzalez of Texas, who later in the decade would chair the House Financial Services Committee, actually threatened to impeach Volcker for his commitment to squash inflation.
The next year, House Democratic leader Jim Wright, the Texan who would succeed Tip O’Neill as house speaker and then be forced by a little-known GOP backbencher named Newt Gingrich to resign the speakership in a financial scandal, called for Volcker’s resignation. Wright had met with Volcker no fewer than eight times to pressure him to lower interest rates.
Senate Democratic leader Robert Byrd, not long after Volcker in 1979 began his crusade against inflation, warned on the Senate floor that “The Congress will be watching closely … we will be watching to see whether the Fed” will be “restricting the flow of credit into vital, productive areas of the economy.”
Yet Biden would have us believe that interfering with the independent, politically insulated Federal Reserve is a Republican thing. According to the president, during Trump’s term, Powell “stood up to unprecedented political interference,” and going forward, “we need to do everything we can to take the bitter partisanship of today’s politics out of something as important as the independence and credibility of the Federal Reserve.”
Trump’s “interference,” calling Powell gutless and suggesting he could yank him from office (clearly an idle threat), may have been more colorful than the statements of Democrats during the stagflation era, but it would be hard to argue that they were as ominous. More importantly, Joe Biden’s favorite sector of the Democratic Party’s base, Big Labor—today, not 40 years ago—holds no truck with the lofty notions of Fed independence, and union bosses today aren’t the least bit shy about trampling on the Fed’s independence.
“Too often, the Fed has been a prisoner to overblown concerns about inflation and prioritized price stability over a raising wages economy,” the late AFL-CIO president Richard Trumka in 2019 told a Washington gathering of labor leaders who held positions within the regional Federal Reserve banks or who were “active in the campaign to push the Fed to adopt pro-worker policies.” All of those assembled, Trumka said, “are active in our campaign to influence the Fed’s policymaking,” and they were meeting together to “strategize about the best ways to maximize our collective impact.” Trumka charged that the Fed “has stolen productivity gains from a generation of working people” and was “a threat to our entire democracy.”
This is the same Trumka who gushed, “Just imagine what we can accomplish with an ally in the White House” in his endorsement of Biden for president. Trumka died in August. In September, Biden hosted Trumka’s longtime protege and successor Elizabeth Shuler and other AFL-CIO leaders at the White House, telling them, “This is your house,” and conceding that “I wouldn’t be here without you.”
Serious threats against the Fed’s independence haven’t been heard from high-ranking Democrats for a very long time, but we can be sure that if Powell in the coming months has to get serious in combating inflation, everyone from Squad members in Congress to union bosses to Biden himself will find the central bank chief and his colleagues convenient scapegoats, blaming them for both the unemployment exacerbated by the Democrats’ federal handouts and the inflation caused by their unprecedented spending.
If that happens, we’ll see whether Powell will stand against political interference when it’s Biden, congressional Democrats, and their supporters outside the government who are doing the interfering.