and Republican Presidential candidate Ronald Reagan shake hands after debating
in the Cleveland Music Hall in Cleveland. (Madeline Drexler/AP)
Stagflation, energy crises, and ‘malaise’.
Zachary Halaschak
Inflation at highest since 1981; here’s what the government can and can’t do!!
The last time prices were increasing this quickly was in 1981 when Ronald Reagan was president, interest rates were near record highs, and the United States was embroiled in the Cold War. The country has changed significantly since the Great Inflation of the 1970s and 1980s, and today’s inflationary bout is much different — but there are some similarities between now and 1981, the last time inflation hit 8.5%.
INFLATION WAS COMING DOWN IN 1981
The inflation more than four decades ago was much more severe than it is now.
Inflation peaked in the spring of 1980 at a jaw-dropping 14.8% and subsequently began declining.
Desmond Lachman, a senior fellow at the American Enterprise Institute, pointed out that the inflation of the 1970s and 1980s was different than today in the level of severity and how much pain consumers experienced.
By 1981, inflation had been running above 2%, often much higher, for 15 years.
The U.S. experienced multiple recessions and stagflation — that is, the combination of high inflation and high unemployment, a situation that top economists at the time had thought to be impossible.
Today, in comparison, the country is coming off nearly a decade in which inflation mostly ran below the 2% target set by the Federal Reserve. And unemployment, at 3.5%, is very low by historical standards.
THE FED IS TAKING THIS ROUND OF INFLATION MORE SERIOUSLY
While Lachman believes the Fed is doing too little too late (and predicts a recession as a result), the central bank is still acting on tamping down inflation faster than it did in the Great Inflation.
INFLATION MEANS BIGGER BILLS FOR GROCERIES, GAS, AND RENT – HERE’S THE BREAKDOWN
“This thing is similar in the sense that they have let inflation get out of control, but they [are] dealing with it at a much earlier stage than they dealt with it in 1979,” Lachman told the Washington Examiner about the U.S. response to current inflationary pressures.
In 1979, President Jimmy Carter appointed Paul Volcker to lead the Fed. In order to tame the excruciatingly high inflation, Volcker acted decisively and with a heavy hand, aggressively jacking interest rates up until they crested at more than 19% in 1981.
The economy had a hard landing as a result of the sky-high interest rates.
Now, Fed officials say they are working to raise interest rates and shrink the central bank’s balance sheet to slow spending and limit inflation.
Lachman, though, said the Fed should have learned the lessons of the Great Inflation better and moved more quickly to tighten monetary policy.
Indeed, throughout most of 2021, while inflation was inching up, Fed Chairman Jerome Powell consistently messaged that the growing prices were merely “transitory” and that inflation would naturally tamp back down as the economy improved. That did not occur, and by the end of last year, Powell and other Fed officials acknowledged they were dropping the label from their assessments of the situation.
ENERGY WAS A MAJOR PROBLEM THEN AS NOW
The causes of the Great Inflation are varied, but one was the Iranian hostage crisis and subsequent oil shock.
After the Iranian Revolution in 1979, Carter announced that the U.S. was halting all incoming shipments of Iranian oil, nearly 10% of U.S. imports, to drive home the point that Iran’s oil would not be a consideration in freeing the hostages.
In a parallel move, Iran also announced an oil boycott for shipments to the U.S.
Further fueling the energy crisis was the war between Iran and Iraq that ignited in 1980. Oil production from both major exporters dropped precipitously and further contributed to the global supply shock.
Similarly, today, supply chain snarls created by the pandemic have combined with the
war in Ukraine to raise energy prices, which have soared about a third over the past year.
Ultimately, the Great Inflation and today’s inflation are attributable to excess demand created by excess government spending and too-loose monetary policy. But supply-side disruptions are more of a factor in rising prices today, said Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program.
“The prevalence of the supply-side component is more dramatic today than it was back then,” he told the Washington Examiner.
HIGH INFLATION HELPED BRING REAGAN INTO OFFICE
The country’s scorching inflation in the late 1970s was one of the main factors that cost Carter the 1980 election. Parallels can be drawn between Carter’s situation approaching the 1980 election and Democrats staring down this year’s midterm elections (and presumably President Joe Biden’s bid for a second term in 2024).
Driven by frustration with inflation — which Carter himself — acknowledged in a 1979 address subsequently known as the “malaise” speech,” and the perceived failure of the U.S. response to the hostage crisis, Reagan trounced Carter in a landslide and won a whopping 489 Electoral College votes to the sitting president’s 49.
Right now, the Senate is evenly divided, and the House has only a slight Democratic majority. Republicans smell blood in the water and, as in the 1980 election, are already using the country’s too-high inflation as a cudgel against Biden and the Democratic agenda. Polling indicates it is likely that the GOP wrests control of Congress.
A major difference between the political landscape in the 1980 election and now is that while inflation is soaring, Biden is not dealing with as weak of an economy as Carter faced. Biden has leaned heavily on the gains the economy has made (outside of the higher prices) to push back on his GOP critics.
The unemployment rate ticked down to 3.6% in March, a more aggressive drop than expected and the lowest level since right before the COVID-19 pandemic struck, when it was resting at about 3.5%. The unemployment rate has ticked down nearly every month over the past two years.
Additionally, the economy added 431,000 jobs in March after two back-to-back months
of explosive growth. Monthly job growth has averaged 562,000 jobs over the past three months. New jobless claims are also hitting multi decade lows. Still, polling indicates
that inflation is the top economic concern for voters.
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Manchin Build Back Better is Dead.
WASHINGTON — The Build Back Better Act was destined to fail.
Maybe the White House and Democratic leaders misplayed what could have been a winning hand, albeit one with no margin for error, and jeopardized the centerpiece of
their agenda.
Or perhaps rank-and-file Democrats, coupled with unanimous Republican opposition, gummed up the deal-making process in a way that Joe Biden the candidate said he was uniquely suited to surmount, but in practice as president could not. NBC News spoke to more than a dozen people involved with the legislation, and conflicting theories emerged about who is responsible for President Joe Biden’s lost legislative agenda.
The enduring tension looms over quiet discussions between the White House and congressional Democrats on a dramatically scaled-back bill, with finger-pointing about who’s to blame for the failure of the larger bill amid uncertainty about what, if anything, might actually pass ahead of November’s midterm elections.
The White House blames it on the difficulties of uniting the slimmest of Democratic majorities, including a 50-50 Senate, and media framing of the initial legislation. Moderate Democrats blame progressives for fueling unrealistic expectations. Progressives blame moderates for working against Biden. Some blame Senate Majority Leader Chuck Schumer or Sen. Joe Manchin of West Virginia. Other Democrats say leadership made a tactical error by splitting off the infrastructure bill.
And still others fault Biden and his team, saying they erred in branding Build Back Better as a big, bold, once-in-a-generation — read: expensive — piece of legislation and by trying to, as one Democrat put it, “placate everybody.” Another Democrat placed fault with the current polarized political climate, saying: “It’s the process.”
John LaBombard, the former communications director for centrist Sen. Kyrsten Sinema, D-Ariz., said part of the problem was a mismatch between “sky high” expectations and narrow margins. Democrats’ thin majorities in the House and Senate necessitated the votes of moderates who “did not campaign on big, bold, radical, progressive change,”
he said, citing Sinema, Manchin and Rep. Stephanie Murphy, D-Fla. “They’re not going to be rolled,” LaBombard said. “When we raise expectations and fail to meet them, we leave our supporters disenchanted and disappointed.”
Some Democrats, including in the administration, conceded early on that the initial
$3.5 trillion Build Back Better Act was less a realistic legislative endgame and more a blueprint of the president’s priorities — a mixture of his campaign pledges and measures aimed at drawing a contrast with Republicans It was a starting point for negotiations,
they said. But that’s not how it was sold to the public.
LaBombard, who left Sinema’s office in February to become senior vice president at the public affairs firm ROKK Solutions, said the decision to “focus on how many trillions of dollars of taxpayers’ money is going into a bill” that needed to pass on a party-line basis was not “a strategy designed to earn support from our caucus’s moderates,” even if it had “meritorious and important policies.”
Build Back Better Bust: Massive Spending Halted
After months of negotiating, the legislation was trimmed to about $2 trillion to meet the demands of centrists in both chambers and passed the House in November. Then it came to a screeching halt in December when Manchin announced his opposition to the bill.
There is now a quiet effort underway to pass some version of the president’s agenda under a legislative process known as reconciliation, which allows Democrats to circumvent Republican opposition and pass a bill along party lines. Officials said Steve Ricchetti, counselor to the president, and Louisa Terrell, the White House director of the office of legislative affairs, are having conversations with Democrats on Capitol Hill. That effort, however, has hardly been central for Congress so far this year, as the focus has been on Russia’s war in Ukraine, funding the government and confirming a Supreme Court nominee.
Democrats also expect to pass the CHIPS Act and an election security measure in coming weeks. And officials are quick to argue that even without Build Back Better, the president’s legislative accomplishments are significant — from $1.9 trillion in Covid relief to $1 trillion infrastructure bill.
“The President’s focus is on the path forward: on following unprecedented job creation he’s delivered with an economic plan for the middle class that fights inflation for the long haul, cuts the cost of prescription drugs, child care, and energy while taking on the climate crisis, and further reducing the deficit,” White House spokesperson Andrew Bates said in response to this article.
The president’s defenders also push back on the notion that he and his top aides tried too hard to please everyone in the party, pointing out that he’d pressed upon Democrats that everyone was not going to get everything they wanted.
Apart from Manchin, the one individual that seems to get the most blame is Schumer.
A senior House Democratic aide pointed to Schumer’s decision last summer — amid negotiations on a $3.5 trillion bill — to for months to not share with the White House or Speaker Nancy Pelosi a letter from Manchin, dated July 28, in which he said he would not support a bill that cost more than $1.5 trillion.
“He knew where Manchin was and he didn’t say a damn thing,” the aide, clearly still frustrated, said of Schumer.
“At the same time the House and Senate cut a stupid deal to come up with budget reconciliation at $3.5 trillion, when Chuck Schumer knew that wasn’t going to happen.
Tax and Spend DemocRats Always Gets Us in Trouble Times.
The senior House Democratic aide also criticized the White House legislative affairs operation.
Asked for comment, a Schumer spokesman referred to the majority leader’s recent remarks to reporters that there are “ongoing discussions” with Manchin and others,
and that reconciliation is still “a high priority” for Democrats.
Other people close to Schumer say he kept it secret because he was trying to change Manchin’s mind. Schumer allies note that Manchin’s views have shifted along the way
and question whether he ultimately even wanted to support the package.
“It was always going to be a tough needle to thread in a 50-50 Senate,” said Matt House,
a consultant and former communications director to Schumer. “It was made tougher by having the 50th vote seemingly uninterested in finding a path to voting yes.”
Biden tried to rebrand his Build Back Better agenda in his State of the Union address in hopes of one last shot at a bill. The White House’s hope was that the new approach would make Biden’s legislative goals clearer and less likely to turn off Americans who are wary of big, expensive bills. The president said his plan now focused on four things: lowering the cost of prescription drugs, energy and child care, and raising taxes on Americans making more than $400,000 a year.
But residual distrust and frustration on all sides hangs over the process. The White House was furious with Manchin when he backed out of negotiations in December, as were progressives who said it was exactly what they feared after Biden and Democratic leaders made the decision to break off physical infrastructure funding and pass it separately. (Moderates say they — and Biden — ran on working with Republicans and this was their opportunity.)
Indeed, despite the current attempt to salvage some of the president’s agenda, there is a recognition among Biden’s team that “their big legislative days are behind them,” another Democrat close to the White House said, given the window for passing legislation ahead of the midterms closes in just a few months and Republicans are expected to pick up seats in November.
Manchin has kept the door open to supporting a narrower bill that includes tax revenues, prescription drug savings and climate change funding. But he’s not the only Democrat the White House could struggle to get on board. And many Democrats say in retrospect the West Virginia senator’s $1.5 trillion legislative framework was far more sweeping than anything Biden might get now. “If you look at the old Manchin deal: every progressive would love to have that back,” said one Democratic operative with prominent clients
in the party.
To tackle inflation could hurt Biden’s campaign, Chuck Todd says (today.com)
“Meet the Press” moderator Chuck Todd (“Eating Crow”) joins Willie Geist on Sunday TODAY to talk about how the immigration crisis at the border, inflation and the war in Ukraine are affecting his poll numbers. Todd says it’s ironic that tax hikes, higher interest rates and more immigrant labor are what it would take to tackle inflation because they “couldn’t be a worse thing to campaign on.” Chuck Todd 2020 Election Night Coverage – Joe Biden’s energy policies will prolong the current crisis, oil and gas executive says.
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