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.
muckdog,
Afraid to dive deep into what?
I don’t think anyone is arguing that the country is not still fairly evenly divided. But Kerry is now ahead in almost every single national poll. That can’t be good news for Bush, especially when conventional wisdom says that the undecideds will break for the challenger as election day looms near.
I’m not sure how you can say his message isn’t ‘selling well’ when he’s ahead in the polls, and when we’re still in the middle of summer with a lot of people still not paying much attention. I think a lot of people haven’t taken the opportunity to hear John Kerry’s message yet.
These “message readjustments” in the Bush campaign, to me, are reassuring signs that they know they’re in big trouble. They are trying to bend their tin ear to what the bulk of the electorate are telling them, but: “many call you the elite – I call you my base”.
The “base” – big business owners – was distressed during the boom because high employment led to what Greenspan called “wage pressure”. Wage presssure!?!?! I nearly fell over laughing! Those darn employees gettin’ uppity agin! Askin’ fer more money, th’ greedy bastards! W can only satisfy them by keeping unemployment high. This strategy, if he was able to do anything about it at all, seems to have worked too well! Since the economy failed to rebound “because” of tax cuts for the wealthy (I’m in the top 7% income bracket and they didn’t cut MY taxes that much), what then is the republican message? I don’t think more of the same is gonna cut it…
That WSJ journal article is in conflict with a piece in Barrons this weekend, citing Bureau of Labor Statistics regarding who is participating in the recovery. Most of the jobs are higher-wage jobs, according to the BLS.
Because Bush’s economic medicine did turn around the economy. The economy is surging ahead at the fastest rate in over 20 years.
What’s different now is global competition and the emergence of biotechnology and health care as the booming domestic industry, and the increasing supply of lower-wage technology workers overseas.
Bush should be talking about the expanding economy, AND the need to continue to improve.
I don’t think the Kerry misery message is selling well. Despite all the bad news for Bush, movies and op-ed spinning, the polls are even. And Kerry didn’t get much of a bounce from picking Edwards. Which is very strange indeed. Usually the challenger has a pretty big bump. Not Kerry.
Afraid to dive deep into that one?
Great article but… WHY ISN’T KERRY DOING ANYTHING?!
http://www.thenation.com/doc.mhtml?i=20040802&s=phillips
Kevin Phillips has written a very good article about how Kerry can beat Bush. It is refreshing, and backed up by historical precedent. Well worth the read.
That’s fast. AP today:
“”You’re probably here thinking I’m going to spend most of the time attacking my opponent,” Bush told the crowd. “I’ve got too much good to talk about.”
The president hardly mentioned Democratic rival John Kerry while contending that a second Bush term in the White House would extend the programs of tax relief and education reform enacted in the past four years. ”
This is off topic but I wanted to get your comments since you guys are so insightful. I live in one of the battleground states, SouthWest FL. Lately we are being bombarded by negative ads from the Bush campaign blasting Kerry. These ads are numerous not only on TV but on local radio as well. I’ve noticed that the new ads don’t feature a male narrator with a sarcastic tone but a female narrator who sounds sincere yet concerned. It is weird to hear a Bush ad on our local “oldies” radio station placed between Buffalo Springfield’s “There’s Something Happening Here” and The Beatles’ “Revolution”. These ads WILL have an effect on some people and the Kerry campaign needs to do something. I have a suggestion. Let me know if you think its a good one. If its not; let me know this too. After all, this is how we learn.
Kerry/Edwards should combat these ads by running their own ad (particularly on Radio) decrying the general negative nature of the Bush ads and the distortions and lies contained in them. I know it would be impossible to run an ad addressing all of these distortions but they should run a general ad urging the public to be wary of what they hear in these negative Bush ads. They should also direct the public to an easy source where they can read the truth about Bush’s allegations and see the explanations for certain allegations: such as why Kerry voted against the so-called Laci Peterson bill.
Perhaps the public could be directed to johnkerry.com where a PROMINENT link could be placed on the homepage addressing the lies and distortions of the Bush ads. Or better yet…Perhaps they could be directed to a new website: adlies.com or something. I hope you understand what I am suggesting. Kerry needs a way to fight this negative advertising beyond just a 10 second sound bite on MSNBC. Most people probably wouldn’t even visit the website BUT, Producing just one major ad that attacks the Bush campaign for going way overboard with the negative attack ads will accomplish at least 3 objectives:
1) It will instill in the public consciousness a doubt when they hear the myriad negative Bush ads.
2) It will demonstrate that Kerry is not just going to sit down and take it but he is FIGHTING BACK! He can even stay on the “high road” and keep running positive ads. His only negative ad will be an ANTI-negative ads ad!
3)It will offer the people a source to find the truth if they desire.
I can hear the end of the ad in my head right now:
(A sincere but concerned female voice)” Please visit JohnKerry.com now and click on the link, “AdLies” to see just how untrue and distorted the Bush Campaign’s negative ads have become. You will be glad you did.”
It would also be nice if we could make it clear that Bush has not lowered taxes at all. He has lowered tax rates. We are taking less taxes right now, but only because we are running unprecedneted deficits (not really, but nominally, and with the demographic sistuations they really are unprecedented).
However, in order to reduce taxes we need to reduce the amount of money that the government requires to run. On that count, Bush has masively raised taxes, and offers only empty rhetoric to do anything other than that.
We really should be pointing out that Bush has not lowered the tax burden, simply shifted it.
Sounds like someone with no real solutions telling his client — “hey, this message is doing great numbers for them, let’s co-opt it and use it ourselves”. Imitation = sincerest form of flattery, and all that. Or, more accurately, “watch what they do, then steal what works and make it your own!”
Yes, there are always going to be those drawn to the Republicans’ message about taxes. There are many people who are Republicans based almost solely on the tax issue, so I don’t see why they would ever stop harping about cutting taxes.
That said, the last polls I’ve seen on this issue stated a majority of people would rather do things such as have universal health insurance, pay down the debt, and fix social security even if it meant not getting tax cuts.
So while this strategy gives the Republicans a definite advantage among a certain segment of the population, I agree with Ruy in that I don’t think it’s something that would miraculously bring a bunch of undecideds into the fold.
I would be hesitant to imply that the Republican strategy of offering more tax cuts as a panacea for our economic concerns will not work, especially because it is “more of the same.”
Anecdotally, I know many moderates/independents who are swayed by the “tax cut” message every election year — that is, until you explain what goes with tax cuts, namely cuts in social spending and ballooning deficits.
Only if Kerry-Edwards can respond quickly to any discussion of further tax cuts by pointing out Bush’s promise to halve the deficit in five years, and pointing out the dissonance between the two proposals, can they effectively counter this very popular message.
That said, there is polling evidence that when you ask Americans about upper-Income taxes specifically, they tend to think that the rates are probably too low versus too high by 63% to 9%.
http://www.pollingreport.com/budget.htm
(Scroll down on the April 2004 Gallup poll)
Today’s Wall Street Journal has this article you may want to check out. Headlined:
“Affluent Advantage: So Far, Economic Recovery Tilts To Highest-Income Americans — They Gain More, Spend More; With Job Market Rising, Will Others Feel Rebound?”