Back to the 70’s


Jonathan Reisman

Last week’s economic reports revealed that President Biden has apparently found a DeLorean time machine, equipped with a Chinese made flux capacitor, and returned America to the 1970’s. The recent near doubling of gas prices was the first clue, but an inflation rate of 5.7%, double the average of the last 40 years, confirmed it. I expect that the President will assign Kamala to combatting inflation, and she can recycle Gerry Ford’s “WIN- Whip Inflation Now” campaign to add to her portfolio of Kabuki policies that do nothing to solve whatever problem she is assigned to manage, but do provide political theatre and cover.
Inflation has three sources- excess demand, restricted supply and self-fulfilling inflationary expectations. The excess demand can be traced to the fiscal and monetary policies of the last 20 years. Government spending and deficits under Congress and Presidents of both Parties has steadily increased- the only post WWII federal balanced budget/surplus was achieved under Newt Gingrich and the Clinton/Bush 43 transition. Spending under Biden/Pelosi/Sanders/the Squad is on steroids, and as the country emerges from the Fauci/Pandemic recession, demand is surging.
Monetary policy has been similarly expansionary, with low interest rates since 9/11 and, since 2009, the Federal Reserve’s “Quantitative Easing” policy where the Fed continuously injects liquidity and stimulates spending by steadily buying up all the bad mortgage securities that were created by the expansion of affirmative action policies to the housing mortgage business. Giving mortgages to people who couldn’t pay it back was a Clinton/Democrat initiative that led to the housing bubble and collapse and the Great recession of 2008. You might consider it a cautionary example of where reparations, socialist policies and the racialist “equity” policies championed by the left will take us, but I have been reliably informed that such thinking leads to domestic extremism, racism and white supremacy. I expect to be reported to the FBI and NSA under their snitch and surveillance programs. That is also an example of our return to the past- just google “COINTELPRO.”
In addition to amped demand from fiscal and monetary policy, supply constraints from the pandemic, excessive reliance on China and federal unemployment compensation policies that incentivize unemployment over working have also contributed to the recent inflation surge.
After initially stating that inflation would not be an issue, Secretary of the Treasury Yellen and Federal Reserve Chairman Powell have amended their analysis to suggest that the inflation will only be transitory and short-lived. Supposedly, things will return to “normal” by 2022, although there is little reason to believe that fiscal and monetary policy stimuli will abate and reduce demand. The supply chain chokeholds may abate. OPEC might be nice to us because Joe and Kamala asked them to be. However, the biggest concern is self-fulfilling inflationary expectations. Once people begin to expect inflation, it tends to create behavior that ensures continuing inflation and a self-fulling prophecy. It was built up inflationary expectations in the late 70’s that led to high interest rates, stagflation and misery. It takes a steep recession and significant economic misery to wring inflationary expectations out of the system.  Fed Chairman Paul Volcker engineered that recession and misery in the early 80’s and it was painful if ultimately worth it to wring the inflation and inflationary expectations out of the system.
Inflation reduces the value of people’s liquid assets, principally cash. It redistributes income from savers and lenders to borrowers, who get to pay back loans with devalued dollars that purchase less. President Biden, Bernie and the Squad have been unable to find a path to cancel a significant portion (or all) student debt, something they promised to do. Inflation does it on the installment plan, pays off their base while supposedly only hurting evil lenders, domestic extremists (Republicans) and racist white supremacists. This inflation will not be either transitory or short-lived. Maybe Kamala can find a WIN button on e-bay before the price skyrockets.
Jon Reisman is an associate professor of economics and public policy at the University of Maine at Machias. His views are his own. Mr. Reisman welcomes comments as letters to the editor here, or to him directly via email at [email protected].

Related Posts
No image
DCP Announces July 17 Opening for Heating Assistance Appointments; Unveils Mobile HEAP Teams
Back to the 70’s
WCCC Raises Awareness for Child Abuse Prevention Month this April
Back to the 70’s
Dead River Bike Drawing Winner