Inflation: A return to the economy of the 1970s?
Get ready for “the most expensive Thanksgiving dinner in history,” said Alfredo Ortiz in RealClearPolitics.com. Last week, the U.S. Labor Department confirmed that runaway price inflation is back and threatening to cast the same dark shadow over the 2020s as it did the 1970s. Consumer prices have risen by 6.2 percent since this time last year, the largest year-onyear jump since 1990, with particularly paininducing spikes in such vital commodities as meat (up 14.5 percent), gasoline (up 50 percent), and heating oil, which is up a staggering 59 percent as we head into winter. President Biden did his best to sound empathetic this week, calling rising prices “worrisome.” But he helped fuel the problem back in March—pumping $1.9 trillion of Covid stimulus into an economy that was already rebounding—and there isn’t much he can do now to put out the fire. Nothing “destroys presidencies” like inflation, said Rich Lowry in Politico.com. Next year’s midterms were already looking like a bloodbath for Biden’s party, with his job approval rating sinking to a new low of 41 percent. “Large-scale forces beyond Biden’s power to fix” are driving prices up globally, but he and his aides didn’t help matters by spending months insisting that inflation was “transitory.” Last week’s figures, sounding ominous echoes of the 1970s, should be “a fire bell in the night for Democrats.”
“Don’t panic,” said Paul Krugman in The New York Times. The present moment looks less like the 1970s than like 1947, when the end of World War II triggered a massive surge in consumer demand much like the one that’s snarling supply chains and driving up prices today. At that time, inflation peaked at 22 percent. Then in 1948, prices dropped dramatically, as they likely will next year when consumers run out of stimulus cash and Covid-shuttered factories and warehouses fully reopen.
That optimistic view looked more plausible in the spring, said former Treasury Secretary Lawrence Summers in The Washington Post, but it’s “time for Team Transitory to stand down.” Prices are rising across all sectors of commodity goods, and when Biden appoints a Fed chairman and several other members of the central bank in early 2022, “containing inflation” should be priority number one. Labor shortages present another problem, said Yvonne Abraham in BostonGlobe.com. Americans quit their jobs in record numbers during the pandemic. This forced businesses to raise wages to woo replacements, leading to higher prices for the goods those businesses produce. If workers demand even higher wages to keep pace with those higher prices, we’ll be in the “dreaded wage-price spiral” that really did define the 1970s.
Remember the big picture, said John Cassidy in NewYorker.com. Inflation is occurring globally for the best of reasons: Governments avoided the “all-out collapse” of their economies by directly putting money into people’s pockets. Then vaccines arrived quickly, causing consumer demand to rebound with unexpected speed. Uncertainties remain, but as the pandemic recedes and people again spend money on travel, entertainment, and other services instead of just goods, the inflation outlook is “far from hopeless.” Biden’s fate depends on it, said Jonah Goldberg in the Los Angeles Times. If prices are still rising when the midterm congressional elections arrive next year, voters will be in a bad mood, and “Democrats will probably be swept from office.” If inflation lasts into 2024, Biden is doomed to join Jimmy Carter in the “one-termers’ club.”