Economic Challenges: A Historical Perspective

Today's economic landscape bears a striking resemblance to the challenges faced in the 1970s under President Jimmy Carter and Federal Reserve Chair Arthur Burns.

In that era, inflation surged, federal budget deficits ballooned, energy prices skyrocketed, interest rates soared, and the nation was caught in a wage-price spiral. Unfortunately, Burns and Carter seemed paralyzed, leading to disastrous economic outcomes.

Fast forward to today, and we find ourselves grappling with persistent inflation, significant government budget deficits, rising energy costs, elevated interest rates, and the early signs of a wage-price spiral. It appears that Fed Chair Jerome Powell and President Joe Biden are mirroring the actions of Burns and Carter.

The energy crisis of the 1970s saw a dramatic increase in energy prices and gasoline shortages, which fueled overall inflation. Attempts at price controls failed to curb the inflationary trend, culminating in a recession in 1973 followed by a double dip recession in 1975. Burns, hesitant to raise interest rates, kept the Federal Funds Rate around 5%, contributing to excess demand and escalating inflation.

Instead of implementing measures to boost energy supply and lower prices, Carter urged Americans to conserve energy. His 1977 address, dubbed the "moral equivalent of war," called for reduced consumption, but ultimately failed to make a significant impact on demand.

Similarly, during the 1970s, labor unions demanded substantial wage increases to keep pace with rising costs. This prompted corporations to hike prices further, perpetuating the wage-price spiral.

Beginning in 2021, the combination of massive federal budget deficits and reckless monetary policy has driven inflation higher. Biden's administration, akin to Carter's, has increased annual budget deficits, while Powell, like Burns, has maintained low interest rates for an extended period.

How did the U.S. combat this challenge in the 1980s?

The turning point came when Paul Volcker replaced Burns as Fed Chair in 1979. Influenced by Milton Friedman’s Nobel-winning economic theories from 1976, Volcker implemented policies to control the growth of the money supply. He raised interest rates to unprecedented levels, acknowledging that inflation had hit 13.5% in 1980. Volcker believed that curbing demand would eventually alleviate inflationary pressures, though it also led to a severe recession with unemployment exceeding 10%.

Over time, high interest rates did succeed in reducing inflation to 3.2% by 1983.

In contrast, Biden has not taken steps to enhance domestic energy production. In fact, his policies have adversely affected both short- and long-term energy output. While it's true that oil production has increased since Biden took office, the numbers reveal a more complex story.

Before Biden’s presidency, the U.S. was producing 12.5 million barrels per day. Following his policy changes, production dipped to 11 million bpd. Currently, driven by higher prices, production has risen to 12.7 million bpd. However, if not for Biden’s cancellation of the Keystone pipeline, withdrawal of federal drilling leases, and the complications added to the permitting process, U.S. oil production could have surpassed 14 million barrels per day. This trajectory suggests Biden's policies are reminiscent of Carter's missteps.

Compounding the issue is Fed Chair Powell’s performance. In 2021, with a rapidly growing economy and unemployment nearing 3.5%, Powell maintained interest rates near zero and significantly expanded the money supply by purchasing $240 billion in government securities monthly. This surge in demand has contributed to rising inflation and the onset of a wage-price spiral. The challenge now lies in the long-term contracts with wage increases around 7%, which risk embedding inflation within the economy. Despite these warning signs, Powell, like Burns, has hesitated to raise interest rates.

We can only hope that these missteps do not lead to a severe recession comparable to that of 1980/81.

The first video titled "Embarrassing: Joe Biden stands on stage in silence after losing train of thought" highlights a moment where President Biden appears to struggle with his thoughts during a public address. This incident has sparked discussions about his cognitive state and its implications for his presidency.

The second video, "President Biden Makes a Quadrilateral Cancer Moonshot Announcement," captures Biden's announcement regarding an ambitious initiative aimed at tackling cancer, reflecting his administration's focus on health and research.

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