Consumer Price Index for All Urban Consumers increased 0.6 percent in May on a seasonally adjusted basis after rising 0.8 percent in April. Over the last 12 months, the all items index increased 5.0 percent before seasonal adjustment; this was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008\u201d \u2013 From a press release by the Bureau of Labor Statistics in June 2021.<\/p>\n\n\n\n
As a Democrat, I hate to deliver bad news to President Biden. But I must warn my party of a looming potential economic\/political threat that could make the 2010 mid-term \u201cshellacking\u201d look mild. Preliminary indications are that the nation may be in for another bout of inflation.<\/p>\n\n\n\n
The historical record shows that when prices rise rapidly, voters blame the federal government and take out their wrath on the party of \u201cBig Government,\u201d i.e., the Democrats. Right now, most voters believe that the Covid-19 pandemic and continuing high unemployment are the nation\u2019s foremost problem. And many economists are more worried about \u201cdeflation\u201d (falling jobs, prices and incomes).<\/p>\n\n\n\n
But if inflation were to make an unwelcome comeback in the coming decade \u2013 especially when combined with already high unemployment \u2013 Republicans could win so big that they\u2019d finally complete the across-the-board political realignment Karl Rove dreamed of. And a bout of \u201chyper-inflation\u201d \u2013 over 20% \u2013 could wreck the Democratic Party for a generation.<\/p>\n\n\n\n
As the nation begins to reopen, it is obvious that businesses are raising prices to make up for revenue lost during the pandemic. The BLS press release quoted above showed that gas prices went up more than 50% this year and many economists and business reporters are worried that those higher costs will soon be included in higher prices of, well, nearly everything. Used cars are up by an astonishing 29%, while general travel costs increased by 11%. Also, bad weather and increasing global population are causing food prices to rise by 5% compared to last year, with the biggest increases coming in the last 90 days. In addition, wholesale prices for materials such as wood and metal products are up by over 30% since Jan. 1. The question is: Are these rising prices just a temporary blip or the start of a \u201cprice spiral\u201d like in the 1970s?<\/p>\n\n\n\n
\u2018Something going on\u2019<\/strong><\/p>\n\n\n\n Responding to the pandemic-induced recession, Federal Reserve Chairman Jerome Powell has pursued a policy of \u201cquantitative easing\u201d to lower interest rates and pump more money into the economy in order to reduce the unemployment rate. Most liberal economists, led by Paul Krugman, keep insisting that the recession and continuing high unemployment (as high as 14% last year) are more to worry about than the possible return of inflation.<\/p>\n\n\n\n But there are some worrisome signs out there. In his June 16 statement, Powell acknowledged \u201cupward pressure on prices from the rebound in spending, as the economy continues to reopen, particularly as supply bottlenecks have limited how quickly production in some sectors can respond in the near term\u201d and how inflation is now over twice as high as his stated goal of 2%. He also said that he believed that recently rising prices were temporary and there would a strong recovery in the jobs market by the end of the year.<\/p>\n\n\n\n Krugman and other liberal economists argue that the \u201ccore\u201d inflation rate, which excludes volatile food and energy prices, remains below 3%. Critics reply that the core measurement is irrelevant because everyone needs food and energy to survive. Wharton School professor Jeremy Siegel, who correctly called the high-tech booms and busts of the past generation, says: \u201cEvery inflation indicator is up significantly. \u2026 There\u2019s something going on out there.\u201d<\/p>\n\n\n\n So, some economists say that permanent inflation is coming, while others say that it is already here. Since I am not an economist by training, I can\u2019t answer those questions. Instead, what follows is a political history of the electoral effects of inflation.<\/p>\n\n\n\n Five times in the 20th century, Democrats presided over inflation crises \u2013 in the post-World War I election of 1920, in the post-World War II \u201cHad Enough\u201d Republican landslide of 1946, in the Korean War inflation of 1952, in the Vietnam\/Great Society inflation of the late 1960s and the Carter-era wage-price spiral of the late 1970s \u2013 and then lost the next election. We may soon find out if history is about to repeat itself.<\/p>\n\n\n\n