All the talk of renewed inflation brought back some terrible memories for me, and I wrote about them at New York:
When I was a freshman college debater at Emory University in the fall of 1970, the national debate topic was not Vietnam, but the desirability of wage and price controls. Little did we know that just months ahead a Republican president would impose a wage-price freeze, long the anti-inflationary prescription of the left wing of the Democratic Party. But the surprise known in financial circles as the “Nixon shock,” nearly a half-century ago (on August 15, 1971) showed how pervasive the fear of inflation — running at just over 5 percent in 1970 — had become.
That’s ancient history now, even to those of us who remember the double-digit inflation of the late 1970s, and the particularly horrid scourge of “stagflation” (high inflation and unemployment simultaneously). Inflation seems to have been tamed by wise monetary policies. The periodic warnings from 21st-century conservatives that low interest rates and federal budget deficits would create inflation didn’t much bother me. It was like hearing an old priest chant a forgotten litany in a lost language — just one among many ritualistic arguments for the tight credit and reactionary social policies these people favored instinctively as a sort of class self-defense posture.
The
current surge in consumer prices doesn’t necessarily change that picture; the current post-pandemic (we hope) economic environment was sure to produce a spike in wages and prices that cannot be projected into a future where something approaching normalcy will surely return (though the real-estate bubble is indeed troubling). But now I am beginning to hear echoes of the inflation panics of the not-so-distant past, which make me tremble.
Like Tim Noah, I suspect there may be a generational lapse in understanding the politics of inflation:
“I don’t care to be condescended to by a bunch of Gen Xers and Millennials about my ’70s-bred fear of inflation. It feels too much like the condescension we Boomers directed toward Depression babies whenever they warned us that we were playing with fire in deregulating the financial markets. Poor dears, we thought, traumatized for life by the 1929 crash and one-third of a nation ill-housed, ill-clad, ill-nourished.
“The Depression babies turned out to be right, of course.”
Noah makes it clear he’s not arguing inflation per se is bad for the economy. It is, however, bad for progressive politics, and not just because “stagflation” probably killed the Carter presidency and ushered in the Reagan era far more than the Iranian hostage crisis or other better-remembered Democratic foibles. The deflationary economic strategies of the 1980s weren’t called “austerity,” but rather a corrective for undisciplined policies that fed wage and price spirals which in turned hammered the value of savings, the living standards of those on fixed incomes, and the political case for federal domestic spending.
Most lethally for progressivism, the conservative supply-side tax-cutting when combined with inflationary fears can create enormous pressure for public disinvestment and the shredding of safety nets (which is why reactionaries happily labeled the intended result “starving the beast”). We are still living with some of the long-term consequences of anti-inflationary backlash. As Noah points out, California’s Proposition 13 ballot initiative in 1978 and similar “tax revolts” were a by-product of price spirals that boosted tax assessments on property and income alike.
But sometimes lost in an examination of the right’s exploitation of inflation fears is the abiding fact that the left has no clear prescription for dealing with it, either, other than by denying its existence or significance (sometimes rightly, sometimes wrongly). Ironically, that was made most evident by the supposedly illiberal Richard Nixon’s surprising use of the great liberal instrument for taming inflation.
The veteran ex-conservative economic and political analyst Bruce Bartlett has penned an exceptional explainer on the background and consequences of the “Nixon shock,” particularly its international dimensions, and the role played by Treasury Secretary John Connally, who like his boss and ally Nixon was more focused on short-term politics than on long-term economic realities. What’s clear is that Nixon was convinced a recession induced by the Eisenhower administration and its Federal Reserve Board appointees designed to kill inflationary pressures also killed his 1960 presidential candidacy. As prices spiked in 1970, he was terrified the same thing could happen in 1972.
Nixon had inherited (and temporarily extended) an income-tax surcharge from LBJ that was designed to pay for the skyrocketing costs of the Vietnam War, but its effects were limited. So with his signature televised bombshell reveal (the one he deployed a month earlier to announce his trip to China), amid great secrecy, Nixon rolled out a combo platter of initiatives to fight inflation and international economic instability. They included a suspension of fixed currency exchange rates and the convertibility of the dollar to gold (to head off a raid on gold supplies triggered by a British demand for a major conversion); an import surcharge (to prevent a worsening of the trade balance); and most significantly for most Americans, a 90-day freeze on wages and prices to be followed by an indefinite period of controls by federal panels.
As political theater, Nixon’s speech announcing a “new economic policy” was, well, Nixonian. He began with dessert: an assortment of tax breaks and job-creation incentives balanced by mostly unspecified spending cuts; only then did he mention the wage-price freeze. After promising to “break the vicious circle of spiraling prices and costs,” Nixon moved on to his international proposals, which he downplayed as “very technical,” while assuring viewers that “if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.”
Nixon’s wage and price controls were initially very popular (as polls had told the White House they would be) and did indeed hold down inflation through the reelection year of 1972, when Nixon won his famous landslide reelection over poor George McGovern, in part by goosing federal appropriations to create a mini-boom. By then the administration had moved on to a more discretionary system for regulating wage and price increases, which generated rumors of employers currying favor with generous donations to CREEP (the Committee to Reelect the President), the notoriously corrupt operation heavily complicit in the Watergate scandals that brought down the Nixon presidency. Between the suppressed and eventually unleashed inflationary pressures and the oil-price shock Nixon’s international economic policies helped create, the country paid a very high economic price for the brief respite from inflation the wage-price freeze earned him. He sowed the wind with even greater inflation, and his successors Gerald Ford (whose feckless “Whip Inflation Now” campaign was widely mocked) and Jimmy Carter reaped the whirlwind.
Before you dismiss these events from 50 years ago as irrelevant, consider how much Nixon’s short-sighted approach sounds like something President Donald Trump might have done if inflation had became a political problem during his tenure (or in, God help us, a future term). Indeed, any president mulling Nixon’s choice of recession-inducing fiscal or monetary policies might be tempted to resort to the easy-to-understand, if dangerous, strategy of wage and price controls in which the pain is mostly back-loaded, particularly in or near an election year. Old folks remember how it preceded Nixon’s landslide 1972 win, followed by a decade of economic pain and multiple decades of political misery for progressives.
Like Melior and Billmon, I read the muck-dog’s “strongest economy in 20 years” line, and nearly laughed out loud. It’s almost too ludicrous a statement to need response, but, for the record, as Billmon says, the quote refers to one brief three-month period. It’s like an isolated day of thundershowers in the midst of a three-year drought — any public official who went around saying “We now have our best water situation in 20 years” would be strung up.
The economy over the Bush term has been clearly poor. The recent (undeniable) job gains held promise of at least reversing the public verdict on current conditions. But now signs are suggesting that what recovery there was is about done: the job numbers took a sudden dip, GDP for even Q1 were revised down, all other reports suggest even weaker activity in Q2 and Q3…and the oil price situation grows ominously bad (the Yukos problem may push it into crisis). At best, the economy will be a semi-negative factor for Bush, since many never bought into the recovery idea to begin with (particularly in swing states). But much worse is possible: a near-downturn prior to the election, and (as I’ve heard predicted by reputable sources) a sharp market drop. If that should come about, Bush will long for the days when he could hope for 47-49% of the vote.
Ron,
I understand that there are senarios that don’t include winning Ohio or Florida. I’m not so confident about Arizona. And, Missouri will also be very tough.
A poll out last week in Nevada has Kerry up by 4 points. Plus, I’ll bet that New Hampshire goes for Kerry. Southern NH is the high growth area and is filled with Massachusetts Democrats moving over the boarder. He’s 2 points up in a poll from July 21.
Unfortunately, combined with Nevada that stills comes up 1 short. So, you’ll still need West Virginia or possibly Arkansas. But, let’s face it, if places like Nevada, NH, and W. Virginia fall to Kerry, then we’re talking decisve win, because that trend will pull, at the very least, Ohio and possibly Florida with it.
Bush has to be VERY concerned right now. There are no states that went for Gore in 2000 where he realistically has a chance. There are a number of states that went for Bush, where Kerry is either slightly ahead, or in a statistical tie.
Hold onto your hat for the October surprise. This group will not go down easy. They will beg, borrow, cheat and steal to stay in power.
“Well, the economy is the strongest in 20 years…”
If the Republican chowder heads want to run on that message in Ohio, Michigan and Wisconsin, I think that’s just dandy.
(That “strongest economy in 20 years” talking point, BTW, applies to the GDP growth rate in exactly one one quarter – the third quarter of last year. And, of course, it doesn’t apply at all to employment and wage growth.)
But like I said, if that’s how the Bush-Cheney campaign wants to commit suicide, it’s fine with me.
Good point, Ron. I’m actually feeling very optimistic about our chances of taking Arizona, more so than Missouri this time.
“Well, the economy is the strongest in 20 years…”
Keep whistling. You must have missed the announcement this week of the return of record budget deficits, the looming spikes in oil prices, and “unexpectedly” more billions to feed the Iraq war. There is little confidence in the fundamentals by investors (who don’t just listen to Greenspan) right now, despite record valuations.
Keith,
I don’t think we’re necessarily screwed if we lose Ohio and Florida. I think Kerry will win both, but if he carries all of Gore’s states, he only needs 10 additional electoral votes, and he could get those in Missouri, or Arizona, or by winning West Virginia and Nevada.
as a side note, here’s a link that ought to settle the debate re kerry’s anticipated convention bounce:
http://salon.com/politics/war_room/archive.html?wire=D843KIN80.html
despite ed gillespie’s purposefully wrong take on the size of convention bounces historically enjoyed by candidates (he says 15 points), the truth is
“[t]he average bounce for a convention like the current Democratic convention is 5 to 7 percentage points, said Frank Newport, editor in chief of the Gallup Poll.”
now, why has the 5-7 points number been so hard to verify? I know what gillespie’s motives are but why can’t the major media outlets simply use past poll data to debunk GOP claims ?
the answer for me is incredibly lazy journalists who are quite content to mechanically structure articles around point/counterpoint, instead of doing a little background work to verify the factual allegations they so blindly print. I guess it’s easier to parrot GOP talking points than take the few minutes to run a NEXIS search or call a polling organization to get a definitive answer.
really, in the information age, not bothering to verify your source’s statements is unforgivable.
Well, the economy is the strongest in 20 years and Greenspan is already tapping on the brakes. It makes sense that folks would give Bush a good mark on the economy. It’s done really well rebounding from the 2000-2001 recession.
Polls, polls, polls… I study them till my head spins. Am I wrong in sensing that this whole race will be decided by two states.. Ohio and Florida. If Kerry wins one of them, game is over. If he loses both, four more long years!!
Net-net (if you can excuse the expression), the polls show K/E about two points ahead, and leading in the electoral college. That is, if there are ten polls in any given two week period, and eight of them show K/E ahead, that ought to be a pretty good measurement. Obviously, any one poll has a much larger margin of error.
Remember the under-measurement of Reagan votes in 1980. And given the enthusiasm this year, I’m hoping for a good, un-measured, turnout effect.
I agree that it’s got to be a party ID thing with the Post poll. It just just such an outlier in so many ways that it’s not a reasonable poll. The deltas, even with it’s own poll the previous month, is just too severe for any reasonable explanation. 10 point shifts are all over the place when not that much happened in the last month to favor bush. Also, the Post polls have always given bush much larger job approval ratings than other polls. It’s been the Post polls with the Fox ‘polls’ that are way outside the norm. I’m not sure what the Post is doing (I know what Fox is doing!), but they have consistenly produced out of the mainstream poll numbers. These latest are just another example.
I think the Post/ABC poll is having some problems with sample quality – first there was the huge swing towards Kerry on the terrorism issue back in June (which the Post played up a big story) then the big swing back towards Bush in the two July polls. I don’t think anybody really believes that Kerry closed to even with Bush on the GOP signature issue – and certainly none of the other polls ever showed it.
Something else I noticed (somewhere) about the Post/ABC poll was that their latest sample was 33% Republican, which seemed awfully high to me. I don’t think Post/ABC controls for party identification, so what we’re seeing may just be some random noise – or an exaggeration of a real trend, which the Gallup poll would seem to suggest.
Given the incredible partisan polarization on just about every issue, it seems logical to me that even a minor shift in party ID within the samples could have a big impact on the results.
Of course, controlling for party ID has its own problems – what’s the “right” split? And I’m not going to argue that it’s the better way to do things. But the media, as usual, is doing an awful job of explaining the limitations of polling, and the fact that many of the “trends” that people think they see in the numbers are in fact just noise.
You could make a case that the concentration on first the Edwards selection, then the 9/11 Commission, and now the convention has been marginally beneficial for Bush, as it has kept the chief source of his weakness — Iraq — from holding the center ring. It’s not like nothing’s going on over there: we’re still losing 1-2 military per day, with countless more wounded, but it’s not leading the evening news. Fiascos like today’s might reverse that, especially once we’re past the conventions. I also think (and have heard from sources) that the round number “1000 dead” will get alot of attention from the press. It’s only a number, but those things register (As analogy: Carter had the horrible break of the first anniversary of the hostage-taking occurring right before Election Day 1980. It amounted to a media-sponsored tough negative ad right before voting).
68 people blew up today in Iraq. Yeah, no drama there.
Bush isn’t quite as vulnerable as he once was, now that there isn’t as much drama going on in Iraq. As for people talking about Kerry not re-defining himself, I don’t see why not. Gore wasn’t defining himself in the 2000 convention we he said “I want to show you who I truly am”–he was redefining himself, after everyone saying he was a dull robot. Kerry could actually give a speech as good as Edwards, provided that Edwards wrote it for him.
One or the other is outside the 95% confidence band
Here’s a data point for you: watching the network news, all that my wife heard about the convention was that Teresa Kerry-Heinz told a reporter to “shove it”.
Great coverage, eh?
Are you implying something? Do you think these results are not honest somehow, or simply that
this must be an outlier poll?
MSNBC reported the WAPO poll results because it builds viewer interest based on tension, because it is seen by conservatives as a liberal cable outlet and must therefore throw them bones and because MSNBC is tied in with Newsweek, which is also tied in with WAPO.
and why did msnbc decide to run with the poll showing kerry behind at the start of the DNC…not only did they hype the wapo poll on their site as the main headline but they wouldn’t shutup about it on TV either