How to stop Stagflation now

 

The latest inflation data was released on June 10^th and the news is getting worse.   Prices increased 8.6% in May – the largest increase since the country started Christmas shopping in 1981. Making matters worse is the fact that the economy contracted by 1.4% in the first quarter of 2022.

For those of you who are new to this type of party – meaning you are under the age of 50 – this is called stagflation, and it is the worst of all economic developments.

Stagflation first reared its ugly head in the United States in 1971 and stayed there for over a decade.

Nixon tried wage and price controls (see Elizabeth Warren’s current call for the same) only to create shortages and black markets.

Jimmy Carter tried to spend his way out of trouble, only to see the ‘Misery Index’ - the sum of inflation and unemployment – reach a record that has never been broken.

Now it is Joe Biden’s turn to either look like a savior or share the dunce cap worn by his predecessors.

If he is serious about fighting stagflation – without seeing a Federal Reserve Bank created recession, do it for him – he needs to do just one thing.   That is, he must immediately take measures to increase the overall supply of goods and services in this country.  To do that, he must ignore his party, overturn Trump’s bad ideas and have the courage to be unpopular until non-inflationary economic growth reappears.

First, President Biden has to inform the climate change zealots that now is not the time to worry about how much ice is in the Artic in the year 2417.    He should announce, immediately, that permits for oil drilling on federal lands that have gathered dust for the past two years will be approved while all federal regulations that are currently rushing us towards a fossil fuel-free society will be tabled.     Notice that as gas prices have crept towards $5 per gallon, the oil companies are not acting like they used to.   In the past, high gas prices would have led to a flurry of production increases everywhere crude can be found. 

Not now.   Biden and his climate change minions have scared the oil and gas industry into sitting on proven reserves and barely budging the production needle.  He needs to tell them – yesterday – to drill, drill, drill.   This will help increase supplies, lower prices and offset what has been lost from Russia’s war against Ukraine.

Second, he needs to open the borders – and they need to be wide open.   There are currently over 2 million fewer immigrants in the U.S. than we would normally have because of Trump’s lousy understanding of the value immigration has in a modern economy. That, plus the slowdown that occurred during the height of the pandemic has created a terrible labor shortage that has fueled skyrocketing prices for homes, food and everything else.     We need more people and since Americans do not seem eager to go back to work, we need to get them from anywhere and everywhere.

Third, Mr. Biden needs to call off Donald Trump’s trade war with the planet and announce that there will be pressure on Congress to eliminate all tariffs on all goods that are produced in any country on the planet that wants to sell to us.   The elimination of tariffs would help offset a great deal of the supply-chain issues that have kept prices high and would create more competition, lower prices and economic growth.

Finally, while there is nothing Joe Biden can do to undo his inflationary $1.9 trillion stimulus package from 2021, there is a message he can send to Wall Street that would be helpful.   That is, that government spending – across the board – will be cut.  That means corporate welfare, social welfare and every other category in between in order to show some measure of inflation-fighting fiscal discipline.

If all this sounds like some ridiculous fairy tale that would never happen, well, that is true.

That is why many economists are now saying that this decade – yes, the decade – is going to look a lot like the 1970’s, minus the polyester and disco music.