Thomas Mann of the Brookings Institution participated in an online chat on The Washington Post website yesterday, where he answered questions about Tuesday’s election results–many of them on the minds, I would imagine, of those who visit this site. All Mann’s answers are lucid and perceptive; I strongly recommend you checkout the transcript of his chat as an aid to your reflections on the election.
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Editor’s Corner
By Ed Kilgore
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July 21: Don’t Dismiss the Power of Inflation Politics
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.
I agree with Cugel: payroll tax reform is an idea that is long overdue. Dems should play it up big!
Ruy,
Maybe by losing the election we really won. Given Mann’s dead-on assessment, could anyone come outta this smelling good?
Q: What do you see as Bush’s biggest challenge over the next four years?
Mann: Coping with the consequences of his first term: staggering budget deficits, federal revenues at their lowest level as a share of the economy in a half century, intense spending pressure for defense and homeland security, a mess in Iraq with no happy ending in sight, and serious security threats across the globe, from North Korea to Iran, from loose WMDs to terrorist organizations with little sympathy or affection from the rest of the world.
I think Mann’s parallel with the 1920’s was pretty accurate. I myself have been struck by the parallels between Al Smith and Kerry: Northeastern moderate Catholic attacked for religious reasons. Moderate position on social issues (prohibition or gays/abortion) characterized as totally off the board. And the ’28 election was followed by the Roosevelt and the New Deal. Unfortunately it took the stock market crash and the depression to make it happen. The sad part isn’t that the Repubs will fall flat; it’s that there will be a whole lot of suffering before that happens.
Everyone should read this article from the New Democrat (the DLC blog):
http://www.ndol.org/ndol_ci.cfm?kaid=131&subid=192&contentid=253002
They point out all the advantages Democrats had this time and
This summarizes their conclusions:
“The second obvious problem for Democrats was a “reform gap.” Having lost control of every nook and cranny of the federal government during the last two elections, Democrats were perfectly positioned to run as bold, outsider, insurgent reformers determined to change Washington, and the public was ready to embrace such a message and agenda. While Democrats did made a strong negative case against Bush, we never conveyed a positive agenda for reform. Indeed, Democrats often reinforced the idea that the GOP was the “reform” party by trying to scare voters about every bad or deceptive Republican idea for changing government programs, instead of offering our own alternatives for reform. In the end, we relied on mobilizing voters who were hostile to Bush instead of persuading voters who were ambivalent about both parties, and about government. Since Republicans did have a simple, understandable message, it was an uneven contest: message plus mobilization will beat mobilization alone every time.”
. . . .
“There will be a powerful temptation for Democrats to simply go to the mattresses, fight Republicans tooth and nail, and hope for a big midterm sweep in 2006. That would be a mistake, just as it was a mistake to believe that Bush’s weakness would be enough to produce a victory in 2004. It’s time for Democrats to clearly stand for values, principles, and ideas that will earn us the opportunity to become the majority party of the future.”
This argument is right on the money! The one thing Kerry and the Democrats failed to do is to make a serious reform agenda the centerpiece of their campaigns. We desparately need to coalesce on a central reform strategy and beat it like an army mule come rain or shine — just as Newt Gingrich did starting in 1992. Remember the Contract on America?
We need something similar that all Democrats can rally behind and really push. One thing that we never seem to talk about is PAYROLL TAX reform. When was the last time you heard either party talk about how much $ are taken from your weekly paycheck in the form of payroll taxes? We need to oppose Bush’s idea of ending all taxation on unearned income with our own tax proposals that will help workers, not millionares — payroll tax relief. This issue divides the Republicans from their base. Let them explain how they’re for every form of tax cuts, except payroll taxes. We need to be explicit about this and hammer away despite all the ranting and lies about it from conservatives. Ordinary people would be with us on this.
But it can’t be point 32 of a 62 point plan. We would have to hit it hard and repeat it endlessly to force a national debate on this issue.
i think that if any one person in america is responsible for the election defeat, it is the mayor of san francisco. the gay marriage issue was handed on a silver platter to the right wing religious zealots and rove. and when you give rove something to work with he always makes the best of it. the issue brought out millions of right wingers who may not have come out. if the issue would have been put on the back burner untill after the election, kerry would have had four years to figure out how to deal with it.