by Dan Mitchell
Even though I recently praised him for his support of transportation deregulation, Jimmy Carter is widely considered to be a failed, one-term president.
Most people think his reelection prospects were doomed because of high inflation.
I suspect, however, that he was most hurt by falling levels of real income. And when I write “real income,”I’m referring to income after adjusting for inflation.
If you peruse the historical data from Table A-2 in the Census Bureau’s most recent report on income and poverty, you’ll notice that median household income (in 2020 dollars) dropped by nearly $2,000 between 1978 and 1980.
In other words, Carter may have survived double-digit inflation if incomes rose even faster than prices.
But that’s not what happened. Instead, we got rising prices and falling real income. This “stagflation” is probably the reason Ronald Reagan was elected, and the rest is history.
Moreover, history may be repeating itself.
Here’s a recent story from the Washington Post. I’ve excerpted the key passages, but all you really need to do is read the headline.
…the World Bank warned… Not since the 1970s — when twin oil shocks sapped growth and lifted prices, giving rise to the malady known as “stagflation” — has the global economy faced such a challenge. …“The risk from stagflation is considerable…,” said David Malpass, president of the multilateral development institution in Washington… Investors also could take a beating from a repeat of ‘70s-style stagflation. The S&P 500 stock index, already down more than 13 percent this year, could lose an additional 20 percent or more, according to a recent client note from Bank of America.
The World Bank mostly focused on the risks for the global economy.
But we are already suffering from stagflation in the United States, according to the Bureau of Labor Statistics.
Simply stated, 2021 was a terrible year for household incomes and the first half of 2022 has been even worse.
And I strongly suspect this is why Joe Biden has terrible poll numbers.
That being said, Biden reappointed Jerome Powell, the Chairman of the Fed’s Board of Governors. By rewarding Powell’s failure, Biden is now in no position to deflect blame.
P.S. Rising prices and falling income under Jimmy Carter gave us Ronald Reagan, so bad policy indirectly led to a good outcome. As of now, it’s unclear if there’s a new version of Reagan to rescue us from today’s version of stagflation.