A good friend who owns a large car dealership in the Dallas area recently told me that he typically has around 500 to 1,000 cars and trucks on his property. He now has 15. This is how serious the supply chain problem has become.
He said people buy cars above the price of the stickers. Usually you haggle over the price of a new car. Now you are haggling over the price.
But now the Commerce Department has reported that the soaring US economy, growing 6.5% for the first half of this year, crashed into the third quarter with an anemic growth rate of only 2%. Those lousy numbers come from before the supply chain crisis that surfaced in October.
At the beginning of the year, the Philadelphia Federal Reserve Bank forecast growth of 7%. So that’s quite a downgrade we’re seeing.
Sales of cars, for example, have fallen sharply due to the scarcity of microchips. The automakers also don’t have the metals they need to make the cars. Also, don’t try to buy a used car. These prices have increased by more than 20% in many parts of the country – even for clunkers. Many grocery stores now have empty shelves of produce and vegetables.
That means we are growing slowly while inflation is at 5.6%, its highest level in more than a decade. In addition, consumer confidence in the economy has decreased.
All of this is somewhat reminiscent of the economy of the 1970s. Does anyone remember the term stagflation? Those under 40 probably don’t even know what it is, and they sure have never seen it up close.
Here is Investopedia’s definition: “Stagflation is characterized by slow economic growth combined with rising prices (ie inflation).”
Years of persistently high inflation under Presidents Richard Nixon, Gerald Ford and Jimmy Carter triggered a rise in unemployment. This then gave rise to the term “misery index”. The sum of the inflation rate and the unemployment rate. In Carter’s final year in office, it exceeded 18%.
And then it was, “So long, Jimmy.” As the economy weakened, Carter lost a landslide election to Ronald Reagan.
The lesson here is simple: the witch’s brew of slow growth and higher prices is the ultimate bane for politicians.
Inflation, which was relatively tame for 40 years, was a cascading problem in President Joe Biden’s first 10 months in office. The consumer price index suddenly galloped from less than 2% in the Trump years to 5% and 6% in the past four months. The Federal Reserve Board and White House’s thumb-press hope that the sticker price increases in the grocery store, restaurant and gas station were only “temporary” melted like an ice cream cone on an August afternoon. Inflation is accelerating and Twitter CEO Jack Dorsey predicts hyperinflation.
Let’s hope he’s wrong, but there is no plan in Washington or the Fed to slow this down.
To do justice to Biden, some of the steep price increases had to come in 2020 due to the depressed prices. As consumer spending popped like a cork out of a champagne bottle after the lockdowns ended and the economy normalized, and the economy returned to normal, there was a natural demand response to reopening.
But almost every Biden policy has exacerbated inflation and the economic slowdown. The absurd $ 1.9 trillion bailout package for the blue state, passed in March, marinated the economy with $ 100 bills as if falling from helicopters like confetti. The University of Chicago’s Casey Mulligan said the expansion of welfare programs like meal stamps and unemployment benefits (non-work-related benefits) is paying people in many states up to $ 75,000 for not working a single hour.
Big surprise that the employment rate had fallen and companies had 11 million jobs they couldn’t fill. In the past month, nearly 200,000 people left the job market.
No wonder the Job Creators Network says small business optimism has rarely been less than it is today. When you treat profitable businesses like villains, the owners go into protection mode.
Why invest when Washington politicians are threatening to tax your earnings to pay your “fair share”? Profit-making companies are now demonized as enemies of the people in this new liberal crusade against growth. They keep forgetting that there are no jobs without an employer.
The income redistributionists who appear to be driving the Democratic Party’s agenda will soon learn that their economic doctrine called Modern Monetary, which posits that Congress can spend and borrow indefinitely, is a giant hoax. When the political class begins to raid corporate profits indiscriminately in the name of “fairness,” the profits and corporations begin to disappear.
So if Congress and the White House are afraid of the forces of stagflation as they should be, what should they do?
The first and most urgent step in curbing stagnation is to overcome Biden’s $ 4 trillion spending, tax, credit and money printing program.
This week’s GDP report is a five-tone siren warning that the Biden debt rage must stop now. Hopefully temporary stagflation will not turn out of control.
Stephen Moore is a Senior Fellow at the Heritage Foundation and an economic advisor at FreedomWorks. He is co-author of Trumponomics: Inside the America First Plan to Revive the American Economy.