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 that it was the Obama campaign that injected race into the primaries. Why would the Clintons want to deliberately alienate African-Americans who have long been loyal to them and set up a situation where even if she gets the nomination she loses in the general because disgusted black voters stay home? And didn’t Obama just say something like he knows her voters will vote for him, but he doesn’t see his voters voting for her?
On the other hand, I would guess that there is a faction of the party who would love the scenario I just mentioned because then they could blame it all on the dreaded DLC. It’ll be all about how the Democrats lost again because we “forgot” our base and chose another “DINO”.
People,
Why are so many so sure that insertion of race into the Dem primaries was Clinton’s doing? Rep. Rangel in his interview with NYTimes said otherwise. See e.g. this disgusting (and obviously scripted and coded) rant by Obama’s national co-chair Jesse Jackson Jr, made the morning after NH: http://www.youtube.com/watch?v=eNrlSn7ndAA
Ed Kilgore explains with his usual clarity, why that might have been a risky, but possibly good move for Obama. Destructive for the Dems, of course, poisonous for all of us, but good for his nomination. Ed, I would be very interested in your opinion on who really started this particular ugliness.
Papadave,
I agree with your analysis. The Clintons are during a lot of damage to the Democratic party. Not only will Hillary’s name at the top of the ticket galvanize lots of GOP ers to the polls, but because of the race baiting she & Bill have engaged in many African Americans will likely stay home, if McCain is not at the top of the ticket as well. If McCain is at the top they will vote for him.
I think this Schneider analysis, while a few years dated, still applies to today and the Clintons have done irreparable harm to the Democratic party.
CNN’s Bill Schneider gave an almost textbook version of this line a couple years ago on CNN …
Judy, how dependent are Democrats on the African-American vote?
Without black voters, the 1992 and 1996 presidential elections would have been virtually tied, just like the 2000 election. Oh no, more Florida recounts!
What would have happened if no blacks had voted in 2000? Six states would have shifted from Al Gore to George W. Bush: Maryland, Pennsylvania, Michigan, Illinois, Wisconsin and Oregon. Bush would have won by 187 electoral votes, instead of five. A Florida recount? Not necessary.
Right now, there are 50 Democrats in the Senate. How many would be there without African-American voters? We checked the state exit polls for the 1996, 1998, and 2000 elections. If no blacks had voted, many Southern Democrats would not have made it to the Senate. Both Max Cleland and Zell Miller needed black votes to win in Georgia. So did Mary Landrieu in Louisiana, Bill Nelson in Florida, John Edwards in North Carolina, and Ernest Hollings in South Carolina.
Black votes were also crucial for Jon Corzine in New Jersey, Debbie Stabenow in Michigan, and Jean Carnahan in Missouri. Washington state and Nevada don’t have many black voters, but they were still crucial to the victories of Harry Reid in Nevada and Maria Cantwell in Washington.
Nebraska and Wisconsin don’t have many black voters either, but Ben Nelson would have lost Nebraska without them and Russ Feingold would have lost Wisconsin, too, in both cases by less than half-a- percent. Bottom line? Without the African-American vote, the number of Democrats in the Senate would be reduced from 50 to 37.
A hopeless minority. And Jim Jeffords’ defection from the GOP would not have meant a thing — Judy.
I fear (and fear is the right word) that the Clinton racialization strategy will backfire. The obverse of the notion that whites and latinos won’t support a candidate who is both actually black and is seen as the “black candidate”; is the possibility that blacks will not support a candidate whom they see as uniting those groups against them, in the general election. If the GOP were to nominate Giuliani or Romney, I think most black voters would hold their noses and vote for the Clintons no matter how offended they are by the Clinton’s marginalizing strategy. But it is now much more likly that the GOP will nominate McCain, and he is not associated with racial politics. The whole Clinton strategy assumes that black voters won’t have anywhere else to go no matter how much they are marginalized and taken for granted. But they just might stay home on election day, and if that happens no Democrat can win the White House back.