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.
W need young people and minorities turning out to vote. It’s good to see that the future has hope i’m 25 myself.
Just an observation: my 21 year old son said most of his friends from college are strongly anti-Bush and active in politics. However, he also hangs out with a large group of kids who went into blue-collar jobs after high school. Those kids are either pro-Bush or don’t care at all.
FWIW….
I don’t think Sully could ever bring himself NOT to vote for Bush. I’ve seen the way he almost breaks away and then comes rushing back for some reason or another.
I don’t really know about the others though.
By the way (a quick thought after scanning a number of well-known libertarian blogs):
Kerry/Edwards would be well advised to try to exploit the rift between social conservatives (who adore “Shrub” and “Right Wing Dick” no matter how much they screw up Iraq or the federal deficit) and libertarians. Most of the leading libertarian bloggers such as Andrew Sullivan, Jacob Levy and Dan Drezner are now leaning strongly towards voting for Kerry this year.
One nice soundbite in the current “values” flamefest would be for Kerry to publicly taunt the GOP for giving so much air time to Arnie, Rudy, John McCain as GOP convention speakers. Kerry should join forces with the Family Research Council(!) by saying the Bush Administration should show what its “values” are by giving a prominent place to guys like Ashcroft, Rick Santorum, Sam Brownback, Henry Hyde etc.. Wouldn’t it be great if the New York convention would primarily showcase bible-thumpers, homophobes and other intolerants… That was a major reason why Poppy lost the 1992 elections to Clinton; the GOP convention in Houston had to give lots of room to disgruntled social conservatives, and it scared away the moderates.
As an aside, I have always thought Ruy’s book about the “Emerging Democratic Majority” might not necessarily predict the future even if the demographic/cultural trends turn out to be correct. Doesn’t it make sense to assume the Republican Party only will start to favor socially moderate fiscal conservatives at the expense of social conservatives, when that happens? After all, Arnold Schwarzenegger, William Weld, Michael Bloomberg & Rudy Giuliani have all been successful in heavily Democratic states.
MARCU$
Well that’s great news, then. Remember: the GOP automatically benefits from a low turnout on election day plus mis-informed voters.
BTW, didn’t some polls indicate a shocking number of Americans actually believe WMDs *have* been found in Iraq and that they *were* used against U.S. troops during the invasion?? No — I am not talking about the single artillery shell containing sarin found so far. I am talking about the whole shebang that Cheney strongly “suggested” would be found in Iraq by now.
It is frustrating isn’t it? If many people can’t even tell Osama’s Afghanistan from Saddam’s Iraq, or fact from fiction in general, it’s little wonder “Shrub’s” $200-million hate campaign of mis-information is quite effective.
MARCU$
As the mother of three – ages 25, 22 and 18 – I can agree with Sean that the members of the younger generation I come into contact with are heavily involved in this year’s election. It’s a frequent topic of passionate conversation among them. This is no generic election to them – they feel their own future is in the balance.
I keep seeing the name Adam Parkhomenko showing up places. He is only 18 years old. He is the one who tried to get Hillary Rodham Clinton to run for President this year. Does anyone have any contact information for him? There is info about him here: http://www.google.com/search?hl=en&ie=UTF-8&q=Adam+parkhomenko
I fear that the disparity between those in the know and those not in the know will grow wider and wider in the 18-29 (though I think that’s a little too large of a lumping in my opinion).
Wonky kids are great but I really wonder if that’s a percentage which is growing.
As an 18-29 year old I don’t see too much wrong with some cyber-worshipping but then, as someone who has actually given money to political campaigns, and followed primaries since 2003, I am admittedly not a typical 18-29 year old.
The ignorance of 18-29-year-olds is, to judge from my not necessarily representative experience of living in a college town, not conspicuous by the standards of the American electorate. And I also see among them an undiminshed ability to analyze what information they do absorb. Most heartening, I’ve met a hell of a lot more wonky kids than I would have dreamed, a few years go, of existing in 2004. In the the late 1990s, we all pretty much expected a cyber-worshipping, materialistic Dark Ages to to descend when the Baby Boomers left the scene. It still might happen, but at least cautious optimism is justified now.
I predict, safely, I think, that voter participation among 18-29-year-olds this year will be at least 20 percentage points above its 2000 level, and I am willing to wager $100 that it will be 30 percentage points higher. Any takers can e-mail me to negotiate conditions:)
There was a poll that Amy Sullivan (of politicalaims.com) pointed to that showed some pretty uneducated folks out there… Though I guess it’s good that Democrats have a favourable party ID…