I fear your argument is a bit too subtle and complex for the median voter, but I think the distinction you make between the level of prices and the rate of inflation gets to the heart of the matter. What consumers see at the gas pump or in the grocery aisles is prices that are markedly higher than pre-pandemic and pandemic-era levels. They blame Biden for this. The current rate of inflation is just an abstract concept, nowhere near as tangible as current price levels. For reasons you explain, higher prices are due mainly to a post-pandemic surge in inflation resulting, in part, from supply chain disruptions, including a sharp increase in oil prices due to Western sanctions against Russian oil and gas in response to the Ukraine invasion. (I’m less certain about your argument that excessive fiscal stimulus played a role, but even if it did, the stimulus was necessary to kick-start an economy that was moribund during the pandemic). Powell and Biden have managed to bring current inflation down (though not as far as the Fed would like) without a ‘hard landing’,and indeed, while unemployment remains low and real wages are improving. Still, consumers feel the sting every time they buy gas or groceries, and this will continue to be a drag on Biden’s reelection prospects, probably through November. Of course, Trump won’t bring down prices, either, but again, that’s just another abstraction at this point. I think Biden can make a strong positive case for reelection even apart from the scarier aspects of another Trump term. But it will be a heavy lift.
Bob, I am very concerned that people like you and David Brooks yesterday have bought the current reactionary view about inflation. With all that is happening in the world in Ukraine and the Middle East, we ought to be spending more not less. It is clear from very recent history that if the Fed wants higher rates, it can engineer them, and if it wants lower rates, it can that too. I think we want lower rates so that the parts of the economy that are growing only slowly up. The inflation of the 70s was an oil price inflation. It went away, not because vulgar was a magician, but because the price of oil stopped rising. The great inflations of fairly recent history, like in Germany after World War I took place when a government had to pay to keep a restive of population, 2 million men released from the army, quiet. The serious inflation that we have now is sectoral, in healthcare, public utilities, and housing where inflation is being driven up by Fed policies designed to do the opposite. I’d love to talk to you about this. Best Paul.
You might know that oil prices in the US went from $1.35 a barrel in 1970 to $35 in 1980. When they stopped rising, the inflation stopped. It had precious little to do with Paul Voelker. In my view vulgar gets the credit because the Monetarists want the Fed to always have a foot on the brakes. Paul
Thank you for this article. I understand the concerns about the political impact of the electorate’s perception of inflation. I think the concerns about inflation come from its cumulative impact. Yes, inflation is down to around 3% year over year, but the cumulative impact since 2020 is approaching 20%. Once the inflation “cat” is let out of the bag, it is very hard to get under control, as we learned in the 1970s. The Volcker “cure” was effective, but VERY painful. Hopefully, it won’t be as painful this time, but there will be political pressure, regardless of who’s President, for the Fed to ease interest rates before achieving its stated goal of inflation at 2% annually. Going from 3% to 2% will be hard and take time. Easing too fast leaves us susceptible to annual inflation rebounding to well above 3%, and making the eventual cure even more painful. I’m an admitted inflation hawk. We’ll see what the effects of the recent law in California requiring fast food franchises to pay a minimum wage of $20 per hour. I think that will cause more pain than relief. Time will tell. Thank you again for your article and encouraging discussion.
I fear your argument is a bit too subtle and complex for the median voter, but I think the distinction you make between the level of prices and the rate of inflation gets to the heart of the matter. What consumers see at the gas pump or in the grocery aisles is prices that are markedly higher than pre-pandemic and pandemic-era levels. They blame Biden for this. The current rate of inflation is just an abstract concept, nowhere near as tangible as current price levels. For reasons you explain, higher prices are due mainly to a post-pandemic surge in inflation resulting, in part, from supply chain disruptions, including a sharp increase in oil prices due to Western sanctions against Russian oil and gas in response to the Ukraine invasion. (I’m less certain about your argument that excessive fiscal stimulus played a role, but even if it did, the stimulus was necessary to kick-start an economy that was moribund during the pandemic). Powell and Biden have managed to bring current inflation down (though not as far as the Fed would like) without a ‘hard landing’,and indeed, while unemployment remains low and real wages are improving. Still, consumers feel the sting every time they buy gas or groceries, and this will continue to be a drag on Biden’s reelection prospects, probably through November. Of course, Trump won’t bring down prices, either, but again, that’s just another abstraction at this point. I think Biden can make a strong positive case for reelection even apart from the scarier aspects of another Trump term. But it will be a heavy lift.
Bob, I am very concerned that people like you and David Brooks yesterday have bought the current reactionary view about inflation. With all that is happening in the world in Ukraine and the Middle East, we ought to be spending more not less. It is clear from very recent history that if the Fed wants higher rates, it can engineer them, and if it wants lower rates, it can that too. I think we want lower rates so that the parts of the economy that are growing only slowly up. The inflation of the 70s was an oil price inflation. It went away, not because vulgar was a magician, but because the price of oil stopped rising. The great inflations of fairly recent history, like in Germany after World War I took place when a government had to pay to keep a restive of population, 2 million men released from the army, quiet. The serious inflation that we have now is sectoral, in healthcare, public utilities, and housing where inflation is being driven up by Fed policies designed to do the opposite. I’d love to talk to you about this. Best Paul.
You might know that oil prices in the US went from $1.35 a barrel in 1970 to $35 in 1980. When they stopped rising, the inflation stopped. It had precious little to do with Paul Voelker. In my view vulgar gets the credit because the Monetarists want the Fed to always have a foot on the brakes. Paul
Thank you for this article. I understand the concerns about the political impact of the electorate’s perception of inflation. I think the concerns about inflation come from its cumulative impact. Yes, inflation is down to around 3% year over year, but the cumulative impact since 2020 is approaching 20%. Once the inflation “cat” is let out of the bag, it is very hard to get under control, as we learned in the 1970s. The Volcker “cure” was effective, but VERY painful. Hopefully, it won’t be as painful this time, but there will be political pressure, regardless of who’s President, for the Fed to ease interest rates before achieving its stated goal of inflation at 2% annually. Going from 3% to 2% will be hard and take time. Easing too fast leaves us susceptible to annual inflation rebounding to well above 3%, and making the eventual cure even more painful. I’m an admitted inflation hawk. We’ll see what the effects of the recent law in California requiring fast food franchises to pay a minimum wage of $20 per hour. I think that will cause more pain than relief. Time will tell. Thank you again for your article and encouraging discussion.