Cautionary Tales About Inflation and Politics
Jimmy Carter, Joe Biden, Donald Trump, Venezuela, Argentina and Inflation
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I visited Argentina at a time of high inflation in the early 1980s. The Coca-Colas I’d order at the hotel went up in price just a couple of days after I got to Buenos Aires. By the end of the trip, I was paying the equivalent of almost $4 per soda, about $12 in today’s dollars.
That’s what out-of-control inflation will do. Thank God I had a per diem.
Argentina’s inflation back then was nothing compared to the hyperinflation that exploded in Venezuela in 2016. It continues today and is one of worst the world has ever seen.
When Venezuela's prices were skyrocketing at their fastest pace in 2019, they were doubling every 14.8 days.
Imagine what that meant. If a Venezuelan hesitated then to buy a $30,000 car, it could cost $32,000 the next day, or $60,000 two weeks later!
Inflation in the U.S. right now, while bad by American standards, is not in the same universe as Venezuela’s. The U.S. is also not even in the ballpark of what I saw in Argentina some four decades ago.
In fact, the worst yearly inflation in the U.S. in the past century only reached 13.3% in 1979.
Fortunately, Americans aren’t facing even that, at least not yet. The government report released on Friday showed that consumer prices jumped 6.8% over the past year.
However, the inflationary reality is worse than those numbers indicate. Since inflation started soaring early this year, the consumer price index has risen at an annual rate of 8%. Over the past two months, it's even uglier. Prices are up at an annualized 10.8% rate. The U.S. hasn't seen anything like that in more than 40 years.
Jimmy Carter was president then. Carter only won 49 electoral votes when he tried to get reelected. Ronald Reagan claimed ten times more electors, 489, in one of the most lopsided presidential elections in history. Inflation and the economic malaise it helped generate were major factors.
Is the current inflation rate “A Dagger Aimed at Democrats – and the Biden Presidency,” as Rich Lowry suggested in a New York Post op-ed? For once, the Post’s customary hyperbole might be no exaggeration.
Anyone who goes to a supermarket or a gas station understands that inflation is slamming American families. In fact, the typical American family has seen costs surge by $4,000 over the past year, according to calculations by Jason Furman, a Harvard economist and former Obama aide.
While wages are rising, they are not doing so fast enough to keep up with inflation. According to the Bureau of Labor Statistics, real average hourly earnings decreased 1.9% from November 2020 to November 2021. (Real wages are the income of individuals when adjusted for inflation.)
Is Inflation Biden’s Fault?
The causes of the current inflationary cycle are too long to list here. Many are beyond Biden’s control, as the world recovers in fits and starts from the COVID pandemic.
But do you really think that matters to the average voter who is seeing prices soar?
Uh … no.
Polls prove it. Only 37% of Americans approve Biden’s handling of the economy, according to a CNBC All-America Economic survey released last week.
Even if inflation is tamed by late next year, as Federal Reserve Chair Jerome Powell predicts, the damage may have already been done for the midterms.
The CNBC survey shows Republicans leading Democrats by a 44%-34% margin when asked which party they prefer to control Congress, a historic 10-point advantage.
The Real Clear Politics poll average of the “2022 Generic Congressional Vote” is less dramatic, but it still gives Republicans a 45.5%-42.2% lead over Democrats.
Is the Biden Administration Making Things Worse?
The administration has hurt itself by failing miserably in its messaging.
First, the White House tried to pull the wool over our eyes by claiming inflation was transitory.
Then, the Biden folks tried to convince the American people that another huge spending bill will lower inflation. If you believe that, I have a bridge in Brooklyn to sell you.
Folks, inflation feeds on too much money chasing too few goods and services.
And, if a spending bill were going to lower inflation, why weren’t they making that argument until now, after months of trying to get Congress to pass the spending bill?
Back to South America
Venezuela provides another cautionary tale involving inflation, the economy, and the return of a populist leader to office.
In 1988, Venezuelans elected Carlos Andrés Pérez president, ten years after his first presidency. They seemed to only remember the good times during the charismatic politician's first term in the late 1970s, when Venezuela benefited from a drastic surge in oil prices that triggered an economic bonanza.
Voters ignored the Pérez government’s tremendous corruption, which led to excessive borrowing. Pérez’s successor declared in his inaugural speech that he had inherited a “mortgaged country.”
The financial crisis that ensued came back to bite Pérez a decade later in his second presidency. High inflation and other poor economic conditions led to coup attempts. Venezuelans, no longer flush with cash, became less tolerant of Pérez corruption and impeached him, removing him from office.
Another populist leader became prominent in one of the failed attempts to overthrow Pérez. His name? Hugo Chávez. A few years later after Pérez's exit, Venezuelans elected the socialist demagogue Chávez to the presidency.
We all know the catastrophe that has since befallen what was once one of the world’s richest countries.
So What?
I admit that the differences between the U.S. and Venezuela are far greater than the similarities. And the parallels that do exist are highly, highly unlikely to lead the U.S. down such a chaotic path. But I also would have told you there was no way this country would ever see something like the 1/6 attack on the Capitol.
Still, Democrats have their own history, the Carter years, to remember.
James Carville’s “the economy, stupid,” has become cliché, but that makes it no less meaningful. For individuals, having a job may be the most important aspect of the economy, but inflation and being able to afford life’s necessities is likely a close second.
Both sides should learn from history, even that of other countries, to avoid being condemned to repeat it.
Cover photo: Gasoline prices displayed at a gas station in Los Angeles, Calif., on Nov. 23, 2021. California has had the highest gas prices in the nation, recently breaking a record set in 2012.
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