Some economists are forecasting the nation will suffer from high inflation in the near future. This may be caused by massive federal stimulus funding, tariffs on commodities, post-pandemic economic resurgence, etc. Your columnists are old guys who remember the horrors of prices escalating on a frequent basis. We provide our geriatric recollections and the possible impact on politics.
For almost 40 years, high inflation of prices and interest rates has not been a serious problem. If it returns over the next several 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 remember the 1970s fondly for bell-bottoms, discotheques and groundbreaking television. But it was a time of oil embargoes and seemingly never-ending price increases. Inflation diminishes wages for middle- and lower-income families, while devastating their savings and assets. This corrosive effect generates emotions with voters and the impact on politics is illustrated through three presidents.
Most attribute the resignation of Richard Nixon from the Watergate scandal. But his public standing in 1974 was extremely low in the polls because inflation was raging at 11%. He could not survive both. While his pardon of Nixon was controversial, Gerald Ford faced the more daunting challenge of 10% inflation in 1975. This led to his 1976 loss, with Jimmy Carter claiming a “misery index” of high inflation and unemployment. Four years later, Carter was dispatched by Ronald Reagan as the inflation rate in 1980 was almost 14%.
Depending when inflationary pressures decay Americans’ wages and investments, history suggests reverberation in the midterm and possibly the general elections. The early 2020s may be remembered more than just for post-pandemic celebrations.
Webb: It sounds old-fashioned and boring to be worried about inflation. But high inflation in an overheated economy can be devastating. It’s a hidden tax. It reduces the value of savings and retirement nest eggs. The Federal Reserve response to high inflation usually means higher interest rates, which could tank the housing market and drive up federal debt payments to catastrophic levels.
The Biden administration is taking a monumental risk by flooding the country with “free” money while the economy is already booming after the pandemic. The resulting inflation and potentially higher interest rates could severely dampen economic expansion and needed job growth.
Some experts argue there’s nothing to worry about. They say today’s economy is different, that high inflation is temporary, and that price surges will decline once supply and demand are better balanced as manufacturing picks up and supply chains return to normal. Whether that is true or not remains to be seen.
But, clearly, whether inflation becomes a crisis or not, the historic blowout of borrowing, printing and spending money at the federal level is unwise. It not only is fiscally dangerous, it teaches incorrect principles — that there really is a free lunch and debt is no big deal.
Once people don’t fear or care about debt or deficits, and expect cradle-to-grave government services that they don’t pay for, we’re at that tipping point in a democracy where citizens have discovered they can vote themselves unlimited services without consequence.
But there always are consequences. Whether inflation soars right away or not, we simply cannot defy economic gravity forever. We’re headed toward a really dangerous place.
Most Utahns do not have a memory of an inflationary economy. So if one reappears, what are the local ramifications?
Pignanelli: Utah was especially hit hard during by the 1970s inflation because of reliance on a few industries. Today, our state is much more diverse economically, which will help absorb the impact. Utah’s largest economic sector, financial services, is focused on innovation, which may be of real benefit to not only survive, but perhaps flourish during this time.
The frustration with federal macroeconomic policies will trickle to down-ballot races. Because government largess is the likely target of blame, candidates who can distance themselves from overspending practices and offer alternatives will succeed. Many of the battles currently raging inside each party will be forgotten amid this turmoil.
Webb: With worst-case raging inflation, we could see a major stock market setback and the dreaded “stagflation” — a 1970s economic term that means persistent high inflation combined with high unemployment and stagnant consumer demand. That’s what destroyed Jimmy Carter’s presidency.
Those in power get blamed, so the misery also trickles down to state and local politics.
Could inflation provide any opportunities for politicians or new ideologies?
Pignanelli: Because of policies and beliefs, lefty progressives and devoted Trumpistas could be burdened by politicos with blame for inflation. This dynamic creates a ripe opening for visionary think tanks and party leaders to offer various economic and governance solutions that are practical and effective. A new age of rational thought is possible.
Webb: President Joe Biden will get plenty of blame if serious inflation occurs on his watch. But beware: Besides providing opportunity for innovative solutions, economic distress also provides fertile ground for rabble-rousers and extremists.