Democrats are right to worry about inflation’s threat to Joe Biden’s presidency. But they need to learn the right lesson from our history: Overreaction can be fatal.
The last time inflation had a significant impact on U.S. politics was in 1979–1980, when Jimmy Carter’s mishandling of rising consumer prices elected Ronald Reagan president and ushered in 40 years of conservative dominance of American political life.
Prices were accelerating then because of supply constraints in specific markets. Gasoline rose in response to turmoil in the Middle East, including revolution in Iran. Food costs were driven up by a catastrophic failure of the Russian grain harvest.
But conservatives and centrist Democrats portrayed rising prices as a problem of overall “excess demand,” caused by government social spending and cheap money.
With our economic ideology still stuck in the shadow of Ronald Reagan, more effective responses to inflation are even further beyond the pale. Temporary price controls like Nixon’s are unimaginable, as are efforts to use the presidency to shame corporations into restraining prices, as John F. Kennedy did with the steel industry in 1962.
This leaves Biden having to bet that by next November, supply-side shocks to price levels will have dissipated. This is actually the most likely scenario. So most of all, he needs to resist being panicked into “doing something” that will make things worse.
In the meantime, he and the Democrats should do what Jimmy Carter didn’t: launch an aggressive educational campaign to explain what is driving prices upward. The Democrats’ explanation of COVID bottlenecks, and more specifically a fragile supply chain damaged by 40 years of hollowed-out industrial policy and corporate profiteering, is more accurate and easier for voters to understand than the more abstract and ideologically driven tale of government overspending.
It has the added advantage of clarifying the importance of Biden’s Build Back Better plan, which in its specifics remains popular and includes programs that could make the economy more efficient and less vulnerable to future supply-side shocks.
Biden can legitimately argue that his fight against COVID, and yes, his government spending, are already restoring the economy’s health. Unplugging those life supports now will not only deflate demand and set back workers’ recent gains, but will also re-disconnect supply chains, making them much harder to repair the second time around.
That’s bad economics. And with the fascist Republican right—far more dangerous than Reagan was—waiting in ambush, it’s potentially catastrophic politics.
I couldn’t agree more.