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Posts Tagged ‘Stagnation’

Even though I recently praised him for his support of transportation deregulation, Jimmy Carter is widely considered to be a failed, one-term president.

Most people think his reelection prospects were doomed because of high inflation.

I suspect, however, that he was most hurt by falling levels of real income. And when I write “real income,” I’m referring to income after adjusting for inflation.

If you peruse the historical data from Table A-2 in the Census Bureau’s most recent report on income and poverty, you’ll notice that median household income (in 2020 dollars) dropped by nearly $2,000 between 1978 and 1980.

In other words, Carter may have survived double-digit inflation if incomes rose even faster than prices.

But that’s not what happened. Instead, we got rising prices and falling real income. This “stagflation” is probably the reason Ronald Reagan was elected, and the rest is history.

Moreover, history may be repeating itself.

Here’s a recent story from the Washington Post. I’ve excerpted the key passages, but all you really need to do is read the headline.

…the World Bank warned… Not since the 1970s — when twin oil shocks sapped growth and lifted prices, giving rise to the malady known as “stagflation” — has the global economy faced such a challenge. …“The risk from stagflation is considerable…,” said David Malpass, president of the multilateral development institution in Washington… Investors also could take a beating from a repeat of ‘70s-style stagflation. The S&P 500 stock index, already down more than 13 percent this year, could lose an additional 20 percent or more, according to a recent client note from Bank of America.

The World Bank mostly focused on the risks for the global economy.

But we are already suffering from stagflation in the United States, according to the Bureau of Labor Statistics.

Simply stated, 2021 was a terrible year for household incomes and the first half of 2022 has been even worse.

And I strongly suspect this is why Joe Biden has terrible poll numbers.

Ironically, The big uptick in inflation isn’t even Joe Biden’s fault. The Federal Reserve deserves the blame, mostly for what it did in 2020 before Biden became president.

That being said, Biden reappointed Jerome Powell, the Chairman of the Fed’s Board of Governors. By rewarding Powell’s failure, Biden is now in no position to deflect blame.

P.S. Rising prices and falling income under Jimmy Carter gave us Ronald Reagan, so bad policy indirectly led to a good outcome. As of now, it’s unclear if there’s a new version of Reagan to rescue us from today’s version of stagflation.

P.P.S. For readers who are not old enough to have experienced America’s national rejuvenation under Reagan, you can click here, here, and here to see “the Gipper” in action.

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I agree that Obama inherited a crappy economy, and I think it is silly to assert that he bears any responsibility for the severity of the 2007-2009 recession.

But it is very fair to hold him responsible for what’s happened since the recession ended. I’ve cited data from the Minneapolis Federal Reserve on both employment and gross domestic product to show that Obama has presided over the weakest recovery in the post-World War II period.

And I think it is fair to blame Obama for the economy’s anemic performance during that time, largely because his agenda of faux stimulus and Obamacare exacerbated the statist policies of Bush. In other words, he promised “hope” and “change,” but delivered more of the same.

Well, now that the election is over, even the Washington Post is willing to admit that Obama’s economic performance is dismal. Here’s a remarkable chart showing that growth is far below the average.

There are actually two very important conclusions to draw from this chart.

  • First, the economy has not recovered the lost output from the recession, which is a point made by Nobel laureate Robert Lucas. That’s bad news.
  • Second, it appears that the economy is now a lower-growth trend line. That’s worse news.

Indeed, I fear permanently lower growth is the legacy of the Bush-Obama years. We now have a substantially bigger burden of government spending, and things will get worse rather than better in the absence of real entitlement reform.

And we have a lot more cronyism and interventionism, which undermines economic efficiency. To make matters worse, Obama wants higher tax rates and more double taxation of saving and investment.

To be blunt, those are not the policies that create jobs and wealth.

Last century, a good rule of thumb was that the United States was about halfway between the high-growth, small-government economics such as Hong Kong and Singapore and the low-growth, big-government economies of Europe.

But as we move closer and closer to European-style economic policy, it should be no surprise that we get anemic European-style economic performance.

We know the recipe for growth and prosperity. But the political elite is oblivious or doesn’t care.

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