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.
> No one is talking about this, but I think
> something happened in Boston this week that not
> even Democrats understand. The Republican
> party’s worst nightmare has happened.
Funny you should say that! Take a look at the WEEKLY STANDARD’S [ http://www.weeklystandard.com ] take on the Demo convention. WS, of course, is the leading neoconservative weekly and reportedly favored reading among this Administration’s officials. Four WS pundits commented where the Democrats stand after the Kerry speech. Two (Jonathan V. Last and Christopher Caldwell) sound genuinely worried. The other two (editor William Kristol and Fred Barnes) voice cautious optimism that “Shrub” can win, e.g. because the Democrats now have officially agreed that the main theme should be military strength and patriotism.
Kristol also writes that the Administration should spend August making a *POSITIVE* argument why it deserves four more years (e.g. stressing the victories in Iraq and the overall success in the War on Terror), and that it should mostly ignore Kerry. I think this is a common-sense observation, since incumbents are judged by their track record and accomplishments anyway. But, as Fred Barnes points out:
“Bush long ago realized he couldn’t run a stay-the-course reelection campaign, standard for successful incumbents from Richard Nixon in 1972 to Ronald Reagan in 1984 to Bill Clinton in 1996. To win a second term, they relied on the accomplishments of their first term plus their popularity. That won’t work for Bush. Why? Because the electorate has changed, and Bush is too controversial.”
So the “electorate has changed?” This is BS. Pure and simple, the problem is this Administration doesn’t have much to brag about as far as “peace and prosperity” is concerned and the President isn’t particularly popular. Barnes just isn’t willing to say it directly, and I don’t think the strategy he proposes (use every tool in the arsenal to compare Bush favorably with Kerry) will work unless he can point to real accomplishments. Barnes’ second part — offer detailed plans and proposals for 2005-08 — does worry me a bit since Kerry was being intentionally vague in his own acceptance speech. Fortunately, I hear the Kerry team is working overtime to make its own detailed proposals — even relatively unimportant ones such as its space exploration policy.
MARCU$
No one is talking about this, but I think something happened in Boston this week that not even Democrats understand. The Republican party’s worst nightmare has happened. In unself-consciously embracing Kerry’s service both during and after the war, finally, after 35 years, the Democratic party has come to terms with the Vietnam War. Sure, it was over the top at times, but the enthusiasm was genuine.
There’s still a long road ahead bringing natural Democratic constituencies back ‘home’, but I think they’ve made a good start this week. While most Democrats don’t realize it, I strongly suspect Karl Rove does.
TheJew: I personally helped out (as a volunteer) with a good 100 or so of those Cuyahoga registrations over two days at the East 185th St Fair. We were pretty scrupulously non-partisan and didn’t harass anyone; they all came up to the table themselves. There were at least three or four other groups doing the same thing throughout the fair. Only one collector that I’m aware of was paid.
I’m sure if some group was daft enough to pay per-registration they got a lot of fake registrations. But we saw some impressive turnout of real registrations. If all the groups had about the same results as we did, with the rate being consistent over four days, I’d expect that around 1000 people from the area would fill out registration cards from that one event in a tiny corner of Cuyahoga County.
This is just my gut feeling, but it seems like the registration drives and the voters’ desire to register are really both starting to kick into gear. There is a huge push among the black community in particular (nearly 30% of the county, and 50% of Cleveland) to kick Bush out.
I’d be interested in a few more statistics from the Board of Elections, like what percentage of those 16,000 registrations turn out to be valid. I’m willing to bet that they have increased the number of real registrations by some incredible amount in the county, because from what I’m seeing people who’ve never voted before are itching to come out of the woodwork and vote.
Frenchfries, no question that the trend has definately been down. We also say “the trend is your friend” in stockbroker talk. http://www.tradesports.com and Iowa Electronic Markets are two other places that trade political futures and they had the same effect right after the convention. The futures markets are based on the “effecient market theory” which states that all available information about a particular market is factored in. In elections since 1988, the futures market have been the most accurate predictor of election results. In 2000, the Iowa electronic futures came within 1% of the correct result. I think it just another tool for prognosticators to talk and write about. The polls are all well and good and most have built in biases in them in one way or another(we’ve discussed this topic at length here!). I’m not saying the election is over either. We all know anything can still happen between now and the election, but I just thought is was interresting that after the convention, you’d think the Bush futures would have traded lower, but instead of that, they received a little bump. By the way, anyone out there who has an investment advisor that tells you which way they think the stock market is going should run from them. No one knows where the market will go. That’s one thing that I have learned.
I thought Kerry did well, as did Edwards, Clark, Sharpton (even tho’ he went off script) et. al. What each had was passion; and indignation that the right wing has divided this country, thrown away our moral compass and wrapped it all in a package of false patriotism.
Hopefully, F 9/11, the convention and a good look at what the Bush presidency has done to this country will open people’s eyes.
Well, Allan,
I’m not really into stockbroker knowledge, much less lingo. So please feel free to correct my liberal assessments if necessary.
But as far as I can see the Bush stock changed +1,3 points to 53.5, still pretty close to the all-year-low of 49 – and continuing a slide since january of about 25 points. Am I right? Oh, and the volume was 11.. Ahm, not really a boom, is it?
Yes, I would like to see numerical reviews of voter registeration efforts. This is one of the most important ground level efforts at this juncture in the campaign, and since most states cut off a month or so before the election (Lucky me, live in a state with same day registeratio) — if we don’t get it right in the next six weeks it will be sad. Apparently ACT is keeping track of some of their efforts. but I don’t see comparative data there.
I am particularly concerned about strategy for connecting with the “demographic group” that is supposedly the largest non-voter but Democraticly inclined one, Working Class Single Women. They have no union, no brand-lable clubs, no particular social haunts — so how does one “find” them and get them engaged? I tried to look at Kerry’s speech and some of the others through this lens, and I really have not encountered a message.
Otherwise, I thought the convention had a very good feel, and hope that the “good feeling” sticks through the month, and thus cements in place any bounce that was achieved.
I am sure Kerry is well read in military history. During the convention he used the sucessful strategy of Alexander the Great. Alexander would concentrate his attack at the point in the line that was most heavily fortified and difficult to attack. This was the last place the opposing army would expect an an attack and they would be caught unprepared.
Kerry has used the same strategy against the Bush camp. He attacked on their strongest points.
According to WKYC, a local TV station, the Cuyahoga County Board of Elections had 16,000 voter registrations dumped by various organizations this week. This was more than double the amount received all the rest of the year.
I don’t know what to make of these registration numbers in Cleveland. I do know that there was a gap of 177,000 between Gore and Bush totals in 2000, and that Cleveland has at least 244,000 people over eighteen in Cleveland who did not vote for president in the last election. Assuming those voters vote in the same proportions as other Clevelanders, we would need to get all of them to the polls in order to tip the balance.
I think I trust a decorated war hero more than a second rate “Cheer Leader”. Come to think of it he still is trying to be a cheer leader except he traded in his cheer leading skirt for a bomber jacket.
Any comments on Zogby’s latest?
Well the thing is, even if you want to go after Kerry for just being a generic senator, and his anti-war (vietnam) stances, you have to ask what was Bush doing during that same time? Running businesses into the ground, and partying seem to be the major accomplishments of pre-Governor Bush.
I’m not familiar with his gubernatorial record, but was there anything that he did while Texas Gov. that was heralded? In Texas, I’m given to understand that the Lt. Governor has a lot of the real power in regards to legislation.
So personally I’d rather have someone who was elected to the senate, than someone who did his level best to make the Texas Rangers into a joke.
That’s right, AS, Kerry is on the side of the Iraqi insurgents. Typical Republican BS. Republicans are for America Democrats are not, BLAH,BLAH, BLAH.
Two thoughts: First, why on Earth would Kerry want to make the campaign about his Senate career? There’s a reason so few Senators have been elected President — none since the ’60s. It’s just so easy to shoot at, what with all the complexities of legislating. Kerry’s not talking much about is isn’t avoidance or embarrassment. It’s called strategy and discipline. He’ll only do it if forced to.
And to Ruy re the Iraq plan: Is it just me, or would it be completely irresponsible from a national security point of view to commit a Kerry Administration to “bringing the troops home.” That gives the insurgents — murderers — in Iraq a direct stake in the outcome of the U.S. election: If Kerry wins, they get what they want; if Bush, they don’t. Come to think of it, wouldn’t that be terrible politics as well?
Hey Allan,
You’re in good company — the president wants to talk about Kerry’s senate record too.
My guess is that this is another non-starter. It may sound good to people already inclined to vote for Bush, but it doesn’t sound to me like anything likely to sway undecideds.
Andy,
I think most of the speech, from “I’m John Kerry, reporting for duty” through “I want to pray humbly that we are on God’s side” was a direct confrontation of George Bush and the Republicans, really taking the fight to them. John Kerry on the attack is very hard to square with John Kerry the flip-flopper, so it has a side effect of insulating him. But it looks like this campaign is taking the fight to the Republicans turf, and fighting very hard.
Great Speech, Brave Strategy
I really loved the speech and I thought it was great. Not just the words themselves, though they were very good, I thought his delivery was very powerful and, for him, perfectly animated.
Also, what really interests me is the strategic choice that the Kerry campaign has made as reflected in the convention in general and in his speech in particular.
To explain what I mean, let me mention what I though would be Kerry’s strategy last spring. Because of the Dukakis blistering in 1988 where he took round after round of rhetorical ordinance (clearly Kerry has me in a militaristic frame of mind), I assumed Kerry would stay off the defensive and aggressively fire negative accusations back. After all, Dukakis tried to “remain positive” and he got positively torched for his efforts. Furthermore, the Bush record is a “target rich environment” for a more aggressive strategy.
Yet, Kerry’s team is refusing to “fight the last war.” Instead, he is pursuing what I call the “insulation” strategy. The Kerry campaign is trying to impose upon the American voter a view of Kerry that is contrary-indeed completely incompatible-with the view the Bush campaign is trying to create. In answer to the Bush image of Kerry as a weak, soft waffler, Kerry is presenting the image of a courageous, fast-acting, patriotic hero. It will be very difficult for a voter to believe both images of Kerry. Either the voter will view Kerry as a weak kneed flip flopper or as a brave and decisive commander of troops. By repeating over and over again the true story of Kerry volunteering for Vietnam service, volunteering for hazardous duty, his personal bravery in saving the life of his men, acting cool and reacting quickly under fire, he is insulating himself from the Republican’s attack.
Originally, I thought that if the election was about whether or not Kerry was a flip-flopper he would lose. What the Kerry campaign is doing is changing this paradigm to a slight, but significant degree and saying this campaign will be about whether or not he is a war hero. That is a fight that Kerry can win.
I applaud him for not taking a knee jerk reaction to the Dukakis defeat. I hope Kerry wins, both for a myriad of policy reasons, but also I hope that he is able to demonstrate that a candidate can remain positive and be successful.
Andy
I know everyone is caught up in the moment, but you might want to check out the Presidential futures markets over at Intrade. Bush has received a two point bounce today. It’s a classic buy the rumor, sell the fact type of deal as we say in stockbroker lingo. I’m glad you guys enjoyed the speech. I didn’t hear much about his twenty year record in the Senate. I guess that doesn’t matter.
One thing that a friend of mine pointed out was that the decision of the networks not to do gavel to gavel or anything approaching it will limit the “bounce” obtained after the convention because there wasn’t as much exposure of the convention. Surprisingly few, if any, commentators have mentioned this. Dems should be talking about how the networks limited the coverage and therefore limited the size of the “bounce.”
I’d add just one thing Kerry’s speech did, that sounds so trivial but means something: it put him across as someone recognizably human. The media tendency to dismiss anyone without Clinton’s gift of personality as unworthy of notice can be annoying, but there are limits to public tolerance — surely the dismaying notion of listening to Mondale or Dukakis’ drones for four or eight years had a small but calculable effect on the electoral outcome (as did, clearly, Reagan and Clinton’s likable demeanors).
I’ve always thought Kerry was underrated by the press in this regard — in one-on-one encounters, even on Larry King, he’s demonstrably not robotic — but his campaign trail speeches have left too many with the “what a stiff” impression. Last night, from the very first, he was actively engaged with the delegates and voters. I think that, along with the many policy positionings you’ve already mentioned, will make it very hard for the Bush people to paint him as unacceptable election alternative — which seems to be, at this point, their sole campaign tactic.
Incidentally, did you note the weak GDP number today? If the economy gets worse as the year goes on, bush’s task will only get tougher.