Anytime there are economic pains felt across the nation the attempt to pin the blame on the occupant of the White House is the first action taken by the party out of power. Politically, I totally understand that phenomenon. Except in a few cases, however, that is not a logical way to view the factors that move the economy.
One instance of cause and effect between a president being reckless and the economic downturn which followed was in the 19th century. In 1832, Andrew Jackson ordered the withdrawal of federal government funds from the Bank of the United States, an institution he railed about and carped on endlessly. His actions are noted for what resulted during the Panic of 1837.
The consequences of the international implosion of so many aspects of numerous economies due to the pandemic were always going to be followed by some degree of inflation. Just based on the struggle to align all the parts of the supply and demand sectors would doubtless prove problematic. Regardless of who ruled in China, Germany, or Washington.
In the newspaper today a few solid paragraphs written by Josh Boak of Associated Press put some logic to the larger issue of inflation angst.
Consumers account for most U.S. economic activity, meaning they steer much of what happens with their collective choices. Their role tends to get overlooked in political speeches, which generally reduce the economy to talk about jobs, factories and other forms of production. Biden has gone so far as to say that his policies to promote port upgrades and domestic manufacturing will lower costs by improving production, a long-term fix to an immediate problem that can be reduced, simply, to demand exceeding supply.
“Fundamentally, the problem right now is the opposite of stagflation — it’s regular inflation driven by an economy operating at or even above its potential, with consumer demand outstripping the capacity of the economy,” Stevenson said. “I’m hoping that people stop digging into their savings and cut spending a little — not enough to slow the economy, but enough to slow the price increases.”
Stevenson also acknowledged that gas prices in particular might be driving the broader dissatisfaction, such that overall inflation could fall and do little to calm public anxieties so long as prices at the pump are high.
“Cars seem to be important to people’s sense of control and high gas prices for some might feel like losing your ability to just hop in your car and go where you want,” she said.
Despite the spike in prices, consumer spending increased faster than inflation during the first four months of this year. Whether consumers can maintain such robust spending will largely determine how the economy fares in the coming months.
I do not expect anything other than the continued political heat about inflation right through the midterm elections. Yes, if the GOP were in power the Democratic pols would be singing the tune the GOP now is using in races nationwide. None of that is shocking.
But it does underscore what I preach with frequency. Along with civics and history, our nation needs more time spent on economics education, too.