Stagflation Redux
Economic growth is sluggish. In the first quarter of 2011, the economy grew at about 1.8%. Unemployment remains high, and it is coming down at an infinitesimal rate. Ask any recent college graduate. There are hardly any jobs to be had. We are also told that the inflation rate is 2.7% with core inflation at 1.2%, but that hides a crucial fact.
Remember Jimmy Carter back in the late 1970? Well that is where we are right now. Niall Ferguson, who knows a thing or two about money, points out that the manner in which the Bureau of Labor Statistics measures inflation has been “improved” some twenty-four times since 1978. By the standard that was used in Carter’s day, inflation right now exceeds 10%.
If you doubt that inflation is now in the double digits, go fill your car with gas. I did so with my 1991 Toyota Corolla (which is not a muscle car) three hours ago. The total cost was a painful $35.92. I paid over $4.00 a gallon – twice what I paid back when Barack Obama became President.
If that leaves you unimpressed, consult the person in your household who buys groceries. Or fire up Quicken and check your expenditures on food over the last couple of years. Ours went up something like 30% between 2009 and the present. You can either believe the official statistics or you can believe your own lying eyes.
There is a method to this madness. The current yardstick for inflation is designed to filter out energy costs and groceries – which are volatile. It aims at isolating the price increases that persist. But in the current environment this is misleading. We are not apt to get wage inflation in a time of high unemployment. Nor are we apt to see housing costs soar at a time when hundreds of thousands of houses are in foreclosure. Ben Bernanke thinks that he therefore has a free hand and can, in effect, print money wildly without there being an inflationary consequence. Commodity and grocery prices prove that he is wrong. Misled by the measuring stick that he has employed, he has ushered us into a new era of stagflation.
And here is the kicker. Everyone senses it. Consider the following which I lifted from Glenn Reynolds three days ago:
RIGHT TRACK OR WRONG TRACK: 21% Say U.S. Heading in Right Direction, A New Low.
Also: Four in 10 approve of Obama’s handling of economy; marks all-time low.
UPDATE: Obama Approval At Lowest Level Ever In Pennsylvania, Quinnipiac University Poll Finds. “President Obama, who carried Pennsylvania 55 – 44 percent in the 2008 election, is underwater mostly because of his deterioration among independent voters, who disapprove of his performance 57 – 37 percent, compared to 50 – 46 percent approval in February.” But he’s even losing Democrats.
ANOTHER UPDATE: Reader Bill Archer writes:
As a PA resident I can attest to the sea change in attitudes towards Barack Obama here.
It’s public, it’s palpable and it’s entirely due to inflation.
It’s astonishing to me that a bunch of guys who are supposed to be so smart think that women aren’t going to the grocery store and leaving in a state of shock, disbelief and, occasionally, panic.
And a Democrat who frightens women cannot win anything. Period.
I just started playing a sort of instant citizen poll at stores. It began a week or so ago at Sams’ Club:
I was in one of THOSE lines and ended up chatting with a well dressed middle aged woman with a cart half full of grocery items.
I made mention of the fact that while I didn’t normally make the hike to Sams’ that with prices going up I figured I had to make the effort.
She exploded: Prices are sky high, she’s feeding three kids, eating store brands and sale items but can’t afford to stock up, on and on.
Then the lady in front of HER piped in: if prices keep going up she doesn’t know what she’ll do, their budget is already at the breaking point, trying to keep a daughter in college, off she goes.
Then a man in the next line over heard them and HE jumped in: this is ridiculous, Washington is killing us, economy broken, he’s off to the races.
I thought maybe this was just a coincidence, so I’ve started the same conversation in store lines twice more in the past week and it’s exactly the same: people are frightened and EVERYONE wants to talk about it out loud.
The interesting thing to me is that everyone used to be very reluctant to speak out in public against Obama. You were always afraid some leftie whackjob would hear you and tear into you. You know what I mean.
But now the gloves are off, people are freaking out and Obama can raise FIVE billion dollars for his campaign and organize until the cows come home and call everyone in the country a racist until he turns blue but it’s not going to convince anyone that they’re not paying an arm and a leg for half a cart worth of food.
There is no more basic thing to people, and it’s off the hook.
I don’t see how the Republicans could possibly mess this up. Then again, after a lifetime of watching them do just that, if there’s way they’ll find it.
Indeed. They don’t call ‘em the stupid party for nothing. But yeah, it’s hard to hide inflation. Unemployment only hurts the unemployed; EVERYONE feels inflation.
Everyone does, in fact, feel inflation. Politically, this suggests that I may well be right in recently suggesting here, here, here, and here that there is a political landslide in the offing. Barack Obama may go down in the history books alongside Herbert Hoover. Stagflation is not going to abate between now and the second Tuesday in November, 2012. And in the interim the misery index is going to rise.
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Aug '10
Re: Stagflation Redux
yeah but why should we care Obama is John Wayne !
Sep '10
Re: Stagflation Redux
I think (hope) you are right. My question is this: When will the main stream media turn on him? I mean, don't they have to sooner or later? If they keep viewing Obama through rose colored glasses, and the rest of us poor slobs keep paying more and more at the pump and the grocery store, wouldn't that finally end what little credibility they have left? Without credibility, who will buy their newspapers or listen to their broadcasts? How then could they stay in business?
I really believe the key to beating Obama, liberals, and Rhinos, and to turning the country back to its Constitutional principles, is the end of the main stream media as we know it. Until we can have a real and fair debate in this country, I have no real hope for its redemption.
Jul '10
Re: Stagflation Redux
If a Tree Falls in the Forest; and CBS, ABC, NBC, CNN, MSNBC, the NYT, and WaPo don't report it, Does it make a sound?
YES!
Simply put, people are going to believe their Lying Eyes. And, in spite of the MSM and Obama Admin's best efforts, most folks are going to figure that it all traces back to things Obama Has, and more importantly, Has NOT done.
There is an old saying, Don't 'relieve yourself' on my leg and tell me it's raining.
May '10
Re: Stagflation Redux
I don't know, fervently held beliefs die hard out here in the San Francisco Bay area (so this probably can be discounted somewhat as an indicator of national attitudes).
I just got home from the grocery store myself. A bunch of celery, $2.45. A single green bell pepper, about the same. A two pound can of house brand coffee around $10.50. The cheapest gas that I know of is $4.19/gal.
Yet, in the store I conversed with a very nice man of about 60; a careful shopper on a fixed income. We carped about the high prices and his union dropping his health care. His final diagnosis? You guessed it: Bush did it!
If we can't make an argument to persuade this man and others like him, we're going nowhere but down, I fear.
Dec '10
Re: Stagflation Redux
I'm suffering bipolar mood swings on this topic several times a day. I'm very optimistic about Republicans' chances at the polls in 2012. But I fight despair that the country might not survive the next 18 months economically. And then what? Does 2012 still matter or is it too little too late?
Jul '10
Re: Stagflation Redux
The Democrats gained a lot of traction in 2006 and 2008 wailing about the "failed policies of the past".
Republicans need to craft a simple, compelling message about the failed policies of the present. If they cannot do that, they deserve to lose.
Feb '11
Re: Stagflation Redux
What’s frustrating the heck out of me is that by Keynesian economics, stagflation was supposed to be impossible. I’m just a layperson at this, so I’d be happy to be corrected by a more erudite Ricocheteer. My understanding is that Keynes said that inflation would generate demand which would drive employment up. So you could have high unemployment or high inflation, but not both. The 1970s was a clear refutation of that. Yet here we are again after two gov’t stimuli and low interest rates all part of an effort to do what they can’t possibly do – generate jobs.
To paraphrase Murdock, if Keynesianism is dead, why won’t it lie down? It keeps coming back like a monster in a bad movie. How many times must a theory be disproven before it’s buried at sea?
(When you have an answer for that, ask me about Freud some time.)
Apr '11
Re: Stagflation Redux
NGDP growth is still about 5%/annum, or a bit below. So 10% inflation would imply that real income is falling about 5% per year, or rising 8 percentage points below trend. That's much more consistent with a deep recession --- similar to the economy a year or two ago --- than with even a faltering recovery. So unless nominal income growth is being grossly understated for some reason, it's highly unlikely inflation is either.
May '10
Re: Stagflation Redux
The MSM is ideologically committed; Obama is their long-awaited champion. They will never turn on him, thick or thin.
Jul '10
Re: Stagflation Redux
Keynes operated on what I would call Backwards Logic.
Have you ever noticed the devistation tornadoes cause in Mobile Home Parks?
According to Keynes, if you were to outlaw the manufacture and sale of Mobile Homes, there will be No More Tornadoes.
May '10
Re: Stagflation Redux
Paul, it is rapidly becoming much, much worse than stagflation. In the 70s stagflation we did not have federal debt = 100% of GDP, with many state situations even worse. We did not have $70 - $100 Trillion in unfunded entitlement liabilities. If something can't continue, it won't. If Congress does not act forcefully now to bring spending under control, I believe the Carter era to be an unrealistically optimistic forecast. Just wait until QE2 ends in June and interest rates start upwards, despite the Feds best efforts. I think when we get there (July?, Sept? Oct?), if there is no unified and credible Congressional action (extremely doubtful), then things are going to get a lot more "interesting" than they are currently.
You think sentiment is bad now, hold on to your hat. This is not going to be fun.
Re: Stagflation Redux
Kenneth: The Democrats gained a lot of traction in 2006 and 2008 wailing about the "failed policies of the past".
Republicans need to craft a simple, compelling message about the failed policies of the present. If they cannot do that, they deserve to lose. · May 3 at 8:26pm
Precisely.
Re: Stagflation Redux
Kervinlee
The MSM is ideologically committed; Obama is their long-awaited champion. They will never turn on him, thick or thin. · May 3 at 9:02pm
They are trapped. He owns the African-American vote, which is so large a percentage of the Democratic base that o one can hope to beat him for the nomination. I would not be surprised, if he were to lose in 2012, to learn that he is going to run again in 2016.
Re: Stagflation Redux
Steve MacDonald: Paul, it is rapidly becoming much, much worse than stagflation. In the 70s stagflation we did not have federal debt = 100% of GDP, with many state situations even worse. We did not have $70 - $100 Trillion in unfunded entitlement liabilities. If something can't continue, it won't. If Congress does not act forcefully now to bring spending under control, I believe the Carter era to be an unrealistically optimistic forecast. Just wait until QE2 ends in June and interest rates start upwards, despite the Feds best efforts. I think when we get there (July?, Sept? Oct?), if there is no unified and credible Congressional action (extremely doubtful), then things are going to get a lot more "interesting" than they are currently.
You think sentiment is bad now, hold on to your hat. This is not going to be fun. · May 3 at 10:26pm
You may well be right. Consider what happens if the interest we have to pay on the national debt goes up dramatically, as it certainly will before long.
Aug '10
Re: Stagflation Redux
Albert Fuchs: What’s frustrating the heck out of me is that by Keynesian economics, stagflation was supposed to be impossible. I’m just a layperson at this, so I’d be happy to be corrected by a more erudite Ricocheteer. My understanding is that Keynes said that inflation would generate demand which would drive employment up. So you could have high unemployment or high inflation, but not both. The 1970s was a clear refutation of that. Yet here we are again after two gov’t stimuli and low interest rates all part of an effort to do what they can’t possibly do – generate jobs.
To paraphrase Murdock, if Keynesianism is dead, why won’t it lie down? It keeps coming back like a monster in a bad movie. How many times must a theory be disproven before it’s buried at sea?
Great question. The answer is self-delusion. Like Marxism, the idea that we all can have equal outcomes and "fairness" in life is persistent, and no amount of failure will convince its proponents. Keynesianism has never worked either, but it still holds out the Utopian promise.
If Paradise is real, it can only come from God.
Aug '10
Re: Stagflation Redux
Until world markets turn on us and stop buying treasuries and stocks, we'll be able to limp along. Either world markets are incredibly stupid or purposefully holding us up, because they're afraid of what will happen if they don't (probably a combination of both).
When they stop, the collapse will be swift. The whole political equation will change in the blink of an eye.
May '10
Re: Stagflation Redux
Paul -- If you really want to tap the zeitgeist, never mind the Corolla, try filling up a minivan. I came very close to $90 recently and I have no doubt that come November 2012 I am going to be staring at a pump that has three-digits.
May '10
Re: Stagflation Redux
Paul, When the Japanese ended their QE, in very similar conditions, the equity market tanked 50% & still has not recovered. Interest rates, as you point out, reverting to normal levels, add $100s of Billions to the current account. I think we have passed the tipping point & the alternatives ahead are between really bad to horrible to perhaps really hard to contemplate. Of one thing I am relatively confident: the next 10 years, and perhaps 20, are going to present our kids with challenges that are not entirely dissimilar to those faced by our parents in WW2........not in terms of human life, but in the quality of that life.
Maybe we still have time to handle our issues as responsibly as Canada did hers (I don't think so), but if there is no concerted Bi-Partisan action now, the doo doo is going to be bottomless.
Mar '11
Re: Stagflation Redux
Kenneth: The Democrats gained a lot of traction in 2006 and 2008 wailing about the "failed policies of the past".
Republicans need to craft a simple, compelling message about the failed policies of the present. If they cannot do that, they deserve to lose. · May 3 at 8:26pm
Some Repubs are hitting the message sorta right, but they do have a talent for snatching defeat from the jaws of victory.
Under Carter, we had Reagan waiting in the wings for 4 years. Reagan's arguments in 1976 didn't change in 1980, and he was there voicing them in the interim. I just don't see a clear leader here and I'm terrified we're going to get another Dole, McCain, or Ford.
I want to be optimistic about this, I really do. I agree with prof Rahe that the signs are good for our side, but our side has some major deadweights on it and a squishy center that won't stand up and defend itself. Wish I could feel better about our prospects.
Re: Stagflation Redux
That's precisely what my wife, who drives our minivan, tells me.