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.
For Democrats there is no path for a Senate victory in 2022 either if things continue as they have.
Biden must go full economic populist from day one:
1. Wages. Bring up a vote on raising the minimum wage, but also establish a new framework for minimum wages in the United States. We need a clear differentiation between regions and inside regions between urban, suburban and rural areas. Bring up the minimum wage for professionals, administrators and executives too.
2. Place based development. Good jobs are concentrating in only a few neighborhoods in a few cities. The federal government must require corporations, starting with federal contractors, to spread jobs so that the working class, both white and non-white, has access to good quality jobs.
3. Follow up on executive action on prescription drugs.
4. Marihuana decriminalization, both legislative and executive-regulatory.
5. Instruct the Department of Justice to continue and expand anti-trust actions in the information technology sector.
6. Instruct the Department of Justice to begin anti-trust actions in the agriculture sector. Expand subsidies to agriculture as a consequence of trade wars, but require more production for domestic consumption.
Biden must also move to the right or center right on several issues:
1. Funding the Police. Get the Party behind a unified legislative and fiscal position that is easy to explain. Make sure this position can be implemented quickly everywhere from the biggest and most diverse cities to the smallest villages that Democrats control. Convince the most radical Democrats that this is the best position to have. Democrats can’t continue with the current messaging cacophony.
2. China. Keep Trump’s framework. Actually, pledge to deepen the decoupling.
3. Support national voter id and other changes to address even the slightest possibility of voter fraud.
4. Authoritarianism in Latin America. As foreign policy is within the President’s primary jurisdiction, develop a policy on how to deal with Nicaragua, Venezuela and Cuba, as well as Brazil, that puts the primary focus on human rights and democracy. Go beyond platitudes and appoint someone with an exclusive focus on this. Reject incrementalism in sanctions (either putting them in place or lifting them) though, it doesn’t work.
5. Immigration. Allow moderate immigrant groups to shape the Party’s position. This will inevitably lead to focus on comprehensive reform and a rejection of open borders. The Party should repudiate the concept of sanctuaries. The Party wouldn’t tolerate sanctuaries for racism, so why support sanctuaries where the law is not applied evenly. Defunding sanctuary cities should be contingent on passing comprehensive reform.
6. Israel, Iran, Palestine, Yemen, Saudi Arabia, Syria, Turkey and the Middle East and East Mediterranean. Keep Trump’s policy objectives. Biden’s original idea of partioning Irak shows he understands that final solutions are important. On Iran the point is basically about making it a better regional actor. No simple return to the previous nuclear framework. On the Middle East Peace Process the pressure needs to be kept up on Palestinians and repudiation of boycott movements against Israel. Palestinians should be both pressured and allowed to hold elections so that they can appoint a legitimate peace negotiator with Israel, which is what has been missing for more than a decade. Lebanon may also be about to flip. Saudi Arabia’s modernization needs to be supported, so no place for sanctions there. The Yemeni peace process is important but secondary to other objectives. The Syrian, Libyan and Iraq stabilization are more important and require real geopolitical vision. The US needs to intervene more on the Cyprus and Greek Aegean conflicts, so that Turkey can be at least partially appeased. The Armenians and Kurds problems need to receive more US attention with the US pressuring both to compromise in relation to their territorial ambitions.
7. Military spending, more and better.
8. Global warming. Push other countries to make more efforts. Continue supporting natural gas at home and its use abroad. Get other countries to stop using coal. Focus at home and abroad on electric cars. Develop a framework for a carbon tax at the border on imported goods just like the European Union is considering.
9. Crack down on higher education cost inflation.
The reason so many Democrats are mad as hell is because not only did the party underperform, but the polls we rely on for deciding things in primaries would also probably be wrong.
Late deciders once again broke for Trump though.
In the most fundamental way this election was an “its the economy, stupid” vote.
Losing with the white moderates in Maine. Losing with the white populists in Montana. Where are the Senate pickups we were promised?
Arizona already went through decades of Trumpism, just like California before it. Doesn’t mean the model is replicable in states with less Hispanic immigration or with immigration from Hispanics from Puerto Rico, Cuba, Venezuela, Colombia, etc.
Trump has done well even with Libertarians running pretty good in many states. Meanwhile the Green vote collapsed.
Democrats ran on covid and demeanor. Republicans ran against political correctness and on the economy.
The people who came out for Trump voted because they liked him.
The Democrats who came out again for Biden (many after not voting in 2016) voted for a diversity of reasons. The few Republicans who voted for Biden did it to stop Trump.
The Republican party is the minority party yet is more structurally strong now than in 2016. They have a clear path forward with America First and opposing all the myriad manifestations of toxic wokeness. Their path is clear as in Europe.
Gays will continue voting for Trump. Trump was bad on transgender rights but neutral on gay rights. Transgender rights are stuck because they are choosing the wrong framework to push for an incoherent agenda. More equal protection under the law and less culture wars on pronouns. The bathroom thing is unenforceable and easy to mock but transgender leadership is choosing moralizing.
The left is not anywhere near ascendant in the US.
30% of Puerto Rican in Florida voted for Trump, for example.
Florida voted to raise the minimum wage and to enfranchise ex convicts. It also reelected its Republican Governor, elected a Republican Senator and twice voted for Trump. Floridians who are moderate must have buyers’ remorse with their experience with Gillum. But the state is not reactionary or conservative.
If I was in Florida looking at how California closed Disneyland and Universal Studios taking away the livelihoods of all those Hispanic service workers and still having an epidemic and then considered that Democrats would also close Disney World and Universal Studios Orlando if voters let them I would have to balance competing ethical interests. When it comes to covid old people are voting out of self interest. It doesn’t mean their ethics are superior, as we see in all the other ways they vote.
2018 was overshadowed in 2020 by moralizing about masks and ambiguity over cultural issues.
Is it progress that in order to have the Squad speaking about things that will never become legislation we have to lose seats that are key to getting anything at all done? Loses in congressional and state legislative seats, including in New York, will soon tell us.
If Biden wins and loses the Senate it will be a good reminder that the Electoral College is not the only constitutional problem. Democrats had no ideas beyond filibuster reform (which would be moot) and ludicrous ideas about DC and PR as states.
Encouraging mail vote turned out to be an incredibly flawed strategy when it comes to perception. Even early voting in places like New York that don’t do an early count was a bit stupid.
Neither the Democratic party nor the left have paths forward.
1. The white suburban route requires moving a lot more to the cultural center and that wouldn’t pay dividends for a while.
2. A white working class route would be even more uphill as it would pit the suburban fiscal moderates against the working class populists.
3. The Bernie strategy of turning out disenchanted progressives has been twice disproven.
4. The identity politics BLM agenda doesn’t even have the support of many Black elected officials and is stuck even in the Bluest of cities, yet is incredibly divisive at the national level and in most key battlegrounds.
Black Democratic partisans made Biden the nominee. Dettached Black voters are another thing.
I suspect that the strategies of neither Biden nor Bernie would have worked.
The presumption that covid would only work against Trump I think was misguided. Covid also worked in his favor as people want to get back to work. The media fear mongering over covid may have backfired.
The Black, Hispanic and White working class male vote (including the gay vote) may have tipped further enough towards Trump to make the Republican party even more hegemonic in most of the states of USA.
Democrats’ historic mishandling of deindustrialization and China, silence over authoritarianism in Latin America and the ambiguity over defunding police all contribute to pushing at the margins just enough against Democrats.