Some economists predict that the country will suffer from high inflation in the near future. It can be caused by massive federal stimulus funding, commodity tariffs, a post-pandemic economic resurgence, etc. Your columnists are old fellows who remember the horrors of frequent price escalation. We provide our geriatric memories and the possible impact on politics.
For almost 40 years, high price and interest rate inflation has not been a serious problem. If he returns in the next few months, what could be the economic and political impact?
Pignanelli: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” – Ronald reagan
I fondly remember the 1970s for bells, nightclubs and revolutionary television. But it was a time of oil embargoes and seemingly endless price increases. Inflation lowers the wages of middle- and low-income families, while devastating their economies and assets. This corrosive effect generates emotions among voters and the impact on politics is illustrated through three presidents.
Most attribute the resignation of Richard nixon of the Watergate scandal. But its public position in 1974 was extremely low in the polls because inflation was raging at 11%. He couldn’t survive both. While his forgiveness of Nixon was controversial, Gerald Ford faced with the more formidable challenge of 10% inflation in 1975. This led to its loss in 1976, with Jimmy carter claiming a “misery index” of high inflation and unemployment. Four years later, Carter was sent by Ronald reagan the inflation rate in 1980 was almost 14%.
Depending on when inflationary pressures lower Americans’ wages and investments, history suggests a mid-term reverberation and possibly the general election. The early 2020s may not only remember the post-pandemic celebrations.
Webb: It seems old-fashioned and boring to worry about inflation. But high inflation in an overheating economy can be devastating. It is a hidden tax. It reduces the value of savings and retirement nest egg. The Federal Reserve’s response to high inflation typically means higher interest rates, which could push the housing market down and push federal debt payments to catastrophic levels.
The Biden administration is taking a monumental risk by flooding the country with “free” money when the economy is already booming after the pandemic. The resulting inflation and potentially higher interest rates could seriously hamper economic expansion and needed job growth.
Some experts argue that this is nothing to worry about. They say today’s economy is different, high inflation is temporary, and price spikes will subside once supply and demand are better balanced as manufacturing resumes and chains supply will return to normal. Whether this is true or not remains to be seen.
But, clearly, whether inflation becomes a crisis or not, the historic explosion in borrowing, printing and spending money at the federal level is reckless. Not only is this financially dangerous, but it teaches incorrect principles – that there really is a free lunch and that debt is okay.
Once people don’t fear or care about debt or deficits anymore, and expect cradle-to-grave government services that they don’t pay for, we are at that tipping point in a democracy. where citizens have discovered that they can vote themselves unlimited services without consequence.
But there are always consequences. Whether inflation skyrockets right away or not, we simply cannot defy economic gravity forever. We are heading for a really dangerous place.
Most Utahns don’t remember an inflationary economy. So if we reappear, what are the local ramifications?
Pignanelli: Utah was particularly affected by the inflation of the 1970s due to its dependence on a few industries. Today our state is much more economically diverse, which will help absorb the impact. Utah’s largest economic sector, financial services, is driven by innovation, which can be a real benefit not only for surviving, but perhaps for thriving during this time.
Frustration with federal macroeconomic policies will spill over into the ballot races. Because government largesse is the likely target of blame, candidates who can distance themselves from overspending practices and come up with alternatives will be successful. Most of the battles that are currently raging within each group will be forgotten in the midst of this turmoil.
Webb: With the worst-case inflation raging, we could see a major stock market pullback and dreaded ‘stagflation’ – an economic term from the 1970s that signifies persistent high inflation combined with high unemployment and stagnant consumer demand. This is what destroyed Jimmy Carter’s presidency.
Those in power are blamed, so the misery spills over into national and local politics as well.
Could inflation offer opportunities for politicians or new ideologies?
Pignanelli: Due to policies and beliefs, left-wing progressives and staunch Trumpistas could be weighed down by politicians with responsibility for inflation. This dynamic creates a ripe openness for visionary think tanks and party leaders to offer various economic and governance solutions that are practical and effective. A new era of rational thought is possible.
Webb: President Joe biden will get a lot of blame if severe inflation occurs on his watch. But beware: in addition to offering the opportunity for innovative solutions, economic distress also offers fertile ground for agitators and extremists.