I’m not sure I buy the argument that Alfredo Ortiz is making in his post at RealClearPolitics—that Joe Biden is the contemporary reincarnation of Jimmy Carter but he does cite some concerning indicators:
Last week, the Philadelphia Federal Reserve’s Manufacturing Prices Paid Index reached its highest level since March 1980, when Carter was in office. Numerous other indicators, including rising bond yields and elevated commodity prices, suggest high inflation is coming. The latest Empire State Manufacturing Survey shows input prices rising at the quickest pace in almost a decade.
Even liberal economists such as Larry Summers worry that the recent $1.9 trillion spending package, ostensibly for COVID-19 relief, may “set off inflationary pressures of a kind we have not seen in a generation.” According to Patricia Mosser, a former Fed economist and now a Columbia University professor, “Uncertainty about medium-term inflation is very high right now.”
Under Carter, America suffered double-digit inflation, significantly hurting the middle class, savers, and creditors. Small business owners were forced to rapidly raise prices just to try to maintain their bottom lines, alienating customers and making budgeting a nightmare.
Since Biden was elected, average national gas prices have skyrocketed, increasing by about 40% to nearly $3 a gallon. Biden’s strong opposition to traditional energy, reflected by policies such as ending the Keystone XL pipeline, rejoining the Paris climate agreement, and banning drilling on public lands, has contributed to this pain at the pump.
There’s a pretty reliable inverse correlation between retail gas prices and U. S. economic growth. Nonetheless, I don’t think that Joe Biden is that much like Jimmy Carter. I tend to assess presidents based on foreign policy and my take on Carter was that he was trying to manage U. S. foreign policy on the basis of moral suasion alone which, unfortunately, is a doomed prospect in this fallen world. There are lots of other differences. Joe Biden is a lawyer; Jimmy Carter an engineer. Carter was a Washington outsider; Biden’s the consummate insider. Carter is an Annapolis grad and served in the Navy; Biden has no military experience. I see few indications that Biden’s foreign policy will be much like Carter’s. The opposite if anything.
I don’t believe that presidents have much to do with U. S. economic growth other than as cheer captains. For that you should look to the Congress which does, indeed, influence the U. S. economy.
There’s a pretty reliable inverse correlation between retail gas prices and U. S. economic growth.
An industrial economy is power dependent, and increased power costs result in unavoidable price increases. Since the purpose of an industrial economy is to reduce or eliminate manual labor, wage increases cause automation advances.
Most of the inflation of the 1970’s was primarily caused by the Arab oil embargo. The increased fuel prices cascaded through the economy, and while wage increases were a factor, they were primarily due to the increased cost of living.
It cost more to plow the field. It cost more to purchase the fertilizer (petro-chemical). It cost more to harvest the field. It cost more to transport the crops to the processing plant. It cost more to process the loaf of bread. It costs more to purchase the bread bag (petro-chemical). It cost more to transport the loaf of bread to the supermarket, and it cost more to heat, cool, and light the store.
Presto, the price of a loaf of bread increases. Wash and rinse.
Inflation is a monetary phenomenon primarily affecting asset prices. Consumer price are primarily a function of costs, and while initial demand may affect prices, consumer prices increase because the costs increase.
Simply, increasing the money supply does not affect the demand for bread because a person cannot begin consuming more bread because he/she can buy more. Luxury good prices are more demand sensitive, but that is due to a restricted supply.
Still, this is primarily a short term affect. An iPhone shortage will increase iPhone prices, but moreso, it will increase Android demand. Without an artificially induced shortage, most luxury good price increases will be dampened by alternate products.
Asset price increases have some affect on costs, but it is mostly limited to building new production facilities. For owned production assets, the increased price does not necessarily affect costs, but for leased assets, there could be increased costs. Due to lease agreements, the effect is not necessarily immediate.
Increasing asset prices and wages can be offset much more easily than increasing power costs. This is why Westinghouse chose coal over windmills or workers on treadmills to turn his generators. He wanted to sell power to more than three people.
(To my PE Investor friend, I did not use the “f” word, but in any case, there was no “pop literature” involved.)