Ghost of Stagflation

Just as President Biden and his allies on the left are pushing for lower interest rates, the economy is flashing a proverbial “check engine” light — slowing growth and stubborn price increases. It means, Chase’s Jamie Dimon warns, that “stagflation is on the list of possible things” that could hit the economy. “You should be worried,” he adds, in remarks today, adding that he is “a little more dubious than others” that a soft landing is in the cards. Mr. Dimon’s concerns certainly look newsworthy, in light of this morning’s inflation data showing prices are rising far higher than the central bank’s 2 percent target. Prices rose 2.7 percent over the prior year, a slight uptick compared to last month, when they advanced 2.5 percent, according to the personal consumption expenditures price index. The point is that the rate of inflation is not subsiding, while the level of inflation remains painfully high.With a fiat currency, one can never recover the purchasing power one loses to inflation. Under the gold standard, average prices would sometimes rise, sometimes fall but show little net movement, up or down, over the long sweep of years. Inflation’s uptick comes as American consumers are already irate, the AP reports, over the fact that “food, rent, gas and other necessities” all cost some “20 percent to 30 percent higher” than four years ago.This is the context in which Democrats, the New York Times reports, are urging Mr. Biden get more aggressive about inflation. Not by cutting spending or lowering taxes, both of which would help alleviate the pressure on prices. Instead, members of Mr. Biden’s party want him to “push the Fed to cut interest rates.” After all, they contend, “sky-high mortgage rates” and other borrowing costs are “threatening President Biden’s chances at a second term.”The problem, the Times adds, is that “the central bank, which was expected to cut rates early in 2024, is now unlikely to start reducing them anytime soon.” This has left-leaning economists like Joseph Stiglitz of Columbia fuming. The failure to get inflation down to the Fed’s 2 percent target, he tells Bloomberg News, is “not a big deal.” He adds that the recent wave of inflation “has been tamed,” and a range between 3 percent and 4 percent would be fine.The economic Nobelist reckons “a little inflation is good for the economy” and can be “helpful in reallocating resources,” whatever that means. This echoes Paul Krugman’s view, from earlier this year, that the Fed should be unafraid to start lowering rates to help Mr. Biden’s reelection bid because “the war on inflation is more or less over, and we won.” One Democratic pollster wants Mr. Biden to make a “public spectacle” by demanding the Fed act.“Voters at least knew Trump didn’t like when interest rates went up,” Evan Roth Smith explains, noting it was a political benefit to draw “political distance between himself” and the Fed. Mr. Trump felt free to describe Fed officials as “boneheads,” the Times reports, when the central bank failed to cut interest rates. In today’s economic climate, though, Mr. Biden’s liberal advisers overlook the potential for inflation to worsen if rates are cut prematurely.Mr. Dimon says that if stagflation strikes again, “it would not be as bad as it was in the 1970s.” That was the decade after President Nixon severed the link between the dollar and gold, ushering in years of price increases and sputtering growth. In 1975, the AP notes, “inflation topped 10%” and the “unemployment rate peaked at 9%.” That put paid to an orthodoxy called the Phillips Curve, which held that it was either unemployment or inflation.The term itself, though, originated in Britain in 1965, when a Conservative MP, Ian Macleod, condemned the socialist economic policies of Labor as “the worst of both worlds — not just inflation on the one side or stagnation on the other, but both of them together.” Macleod added that “We have a sort of ‘stagflation’ situation and history in modern terms is indeed being made.” Mr. Biden’s economic policies, however, show history can repeat itself.This editorial has been revised from the Bulldog.

Ghost of Stagflation

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