OPINION: This article contains commentary which may reflect the author's opinion
It is ironic that we are emerging from the pandemic when Joe Biden’s economic policy missteps are driving us toward a brick wall of malaise and stagflation.
It is difficult to ignore the similarities between Jimmy Carter’s presidency and Biden’s.
In other words, why does the Biden administration continue to ignore the cause of Carter’s financial collapse as well as President Ronald Reagan’s very successful formula for reversing it?
Unless there is a significant economic wake-up, it will be a tough three years.
In much the same way as Carter, the Biden administration ignores fundamental economic problems indefinitely. It simply cannot.
A deep recession will only become more likely by the longer we delay addressing inflation, labor shortages, and supply chain problems.
A perfect example is Biden’s claim that December’s inflation report showed ‘a meaningful reduction in headline inflation over last month’ indicating that ‘we are making progress in slowing price increases.’ If you are an American working or middle class, this may come as a surprise.
In December, the Bureau of Labor Statistics reported that inflation in this country exceeded 7 percent, which is the highest level of inflation in 40 years.
The current inflationary surge is unprecedented for most Americans. Those who have seen the disastrous effects of applying failed Keynesian demand-side fiscal policy in the face of a sluggish economy facing rising inflation will recall the results all too well.
Simply put, inflating an economy by infusing more money has the opposite effect of increasing prosperity, which is hyperinflation. Ample historical evidence confirms this conclusion, even if common sense does not.
During his administration, Nixon declared that he was a proponent of Keynesian economics.
After Nixon’s term ended, Gerald Ford, failed to win the battle against rising inflation with ‘WIN’ (i.e., ‘Whip Inflation Now’).
During Carter’s presidency, Ford was criticized for failing to beat inflation, and then Carter increased spending.
Carter vowed to eliminate the federal deficit during his term, but it increased from $27.7 billion in 1979 to nearly $59 billion in 1980.
America was plunged into the nightmare of ‘stagflation’ by the end of the decade.
Inflation soared due to fiscal stimulus and easy monetary policy, wiping out household savings and making basic necessities unaffordable.
As soon as Ronald Reagan became president in 1981, one of his first orders of business was to join forces with Federal Reserve Chairman Paul Volcker to stop the self-perpetuating cycle.
By then, though, the only way to bring inflation into control was to endure a recession of sharp and painful proportions. Interest rates on mortgages rose to the high teens.
However, America was not able to experience the economic miracle for which the 1980s are famed until after that economic hangover was over and economic fundamentals returned to a stable equilibrium.
Given how Americans tend to punish sitting presidents for economic recessions, Reagan’s approach was politically courageous. Leadership is what he displayed, and he ultimately won reelection with a landslide in 1984.
President Biden today has taken the opposite approach. With inflation potentially increasing due to the pandemic, Biden chose to act as if nothing were wrong with his plan to ‘fundamentally transform’ the American economy by spending trillions of dollars.
During the COVID pandemic, Democrats and Republicans spent $5.3 trillion on bipartisan COVID relief. Last March, Biden and his Democratic allies spent another $1.9 trillion to further the insipid stimulus checks.
As a result, demand was energized and supply was reduced by government checks that encouraged leisure at a time when unemployment was already slowing a recovery from the pandemic.
During the recession, businesses underproduced and underordered as fewer people worked. Consequently, inflation was inevitable.
There’s no doubt they were warned, and not just by those on the right.
Former Democratic administration economists like Larry Summers and Steve Rattner wrote extensively about Biden’s massive government spending leading to inflation and a recession. The data kept proving their point, but the Biden administration didn’t listen.
As inflation continued to rise – and became worse by the month – Biden threatened even more deficit spending with the $3.5 trillion ‘Build Back Better’ bill.
Brian Deese, Biden’s chief economic advisor, promoted that spending plan as a way to tame inflation just last week. Fortunately, the bill seems to have died, at least for now.
The inflation Kraken was released in March, and halting it will require more than just stopping Biden administration policies from causing further economic harm.
We have a great example in living memory of how to handle surging inflation, rather than the situation of the 1970s – a combination of aggressive Fed policy to reduce demand and tax and regulatory reductions which encourage an increase in supply.
That’s right. Reduce the demand, which will reduce prices, and increase supply, which will reduce inflation.
Similarly, the Federal Reserve Bank has also been slow to recognize the inflation problem (for months calling it ‘transitory’), perhaps because it was itself partially responsible for creating the conditions that led to this crisis.
The Fed’s Board of Governors has been reluctant to believe that tangible inflation was even possible after nearly a decade and a half of historically low-interest rates accompanied by successive rounds of ‘quantitative easing.’
A belatedly acknowledging the serious threat of inflation, the Fed is planning to raise interest rates in 2022. Although anticipated tightening in monetary policy has therapeutic effects, Biden’s reckless spending will counteract those effects.
American workers’ wages are being drowned out by an inflationary rising tide, which reduces their spending power and wipes out the value of savings they’ve accumulated over their lifetimes. As time passes, it gets worse.
By burying their heads in the sand for as long as Biden and his allies have, the worse the eventual outcome will be.
We might have been able to simply inconvenience people had we dealt with inflation proactively.
Now, as the economy is about to leap from the pandemic frying pan into the inflation fire, we are facing a significant recession that will cause serious economic pain for millions of Americans.