Republicans and Inflation

Republicans and Inflation

by Doyle Ranstrom on Oct 18, 2022

One of the themes for the mid-term elections is inflation.  Republicans are blaming  Biden and Democrats for inflation.  Good political strategy, but does it make sense?  

First of all, I am not surprised one bit about current inflation.  My only surprise is how long it took to get here.  At the end of 2021 I wrote a commentary/blog on inflation potential.  Earlier in 2021, I led a class for OLLI [an adult education affiliate of U of AZ] on inflation.  

A little history on inflation.  In 1980 inflation was 13.33.  From 1978 through 1982 the total inflation was 59% or 9.7% annually.  The average annual inflation rate was about 6% from 1970 through 1989.  In recent years, the inflation rate has been very low.  The average annual inflation rate from 2011 through 2021 was 1.7%.  Many have believed high inflation rates are a thing of the past.  As we have seen in 2022, this is not true. 

If you look at the causes of inflation, you will find one cause is the demand for goods and services exceed supply.  This can be from consumers having more cash to spend increasing competition for goods, a breakdown in the supply chain reducing goods, or a combination of both.  Another cause is an expanding monetary policy which pumps cash into the economy in one form or another.  During the pandemic, we had all three take place.  

The above is all true, but what leads up to them.  I would suggest inflation has been inevitable for several reasons.  

One, increasing federal deficit.  From 2000-thru 2020 the Federal deficit went from $5.7 Trillion in 2000 to $27.2 Trillion at the end 2020.  During this twenty-year time period Republicans controlled the Presidency, 12 years, the House, 14 years, and the Senate, 10 years.  [For two years the Senate was divided equally between the parties.]. 

  • Republicans do not wish to acknowledge the increase in deficit under their watch, but the numbers do not lie.  Well Democrats may be the tax and spend party, Republicans are the borrow and spend party. 

Two, tax cuts.  During the above 20-year time period when Republicans cut taxes or revenue.  When a household or government cuts taxes and increases spending, it never is going to end well.  

  • During the Bush Presidency when Republicans also controlled Congress, the country declared war on first Afghanistan and then Iraq.  A study by the Watson Institute at Brown University updated in January, 2020 stated at that point the US Government had spent or obligated an estimated $6.4 Trillion on the wars.  The study also estimated that unless paid down, the interest on this debt alone would be over $8 Trillion by 2050.  
  • During the Trump presidency again with a Republican Congress, the US cut taxes while the deficit increased.  Keep in mind this was during a healthy economy.  A significant share of the tax cuts went to major corporations who often used the increase cash to buy-back their own stock which increased the market value of the stock which went primarily to the most wealthy Americans.  

Three, pandemic.  As stated by the author of the "Black Swan Event" Nassim Nicholas Taleb in a paper he co-authored on January 26th, 2020, warned the coronavirus could lead to a pandemic.  In an interview, he was quoted as saying governments “did not want to spend pennies in January; now they are going to spend trillions.”  In fact, the US under Republican leadership did spend trillions all coming from deficit spending.  

  • The Bush Presidency saw a pandemic a serious to our country as did the Obama Presidency.  In May 2006 the Homeland Security Council under President Bush prepared "National Strategy for Pandemic Influenza Implementation Plan".  The Obama Administration developed a “Playbook for Early Response to High-Consequence Emerging Infectious Disease Threats and Biological Incidents.”  In 2016 President Obama expanded the National Security Council to include the Directorate of Global Health Security and Biodefense.  The unit, which focused in large part on pandemic preparedness was disbanded early in the Trump Administration.  
  • In fact, the Trump Administration was behind in preparation and dealing with the pandemic from day one. In February, 2020 Trump tweeted “when we get into April, in the warmer weather—that has a very negative effect on that, and that type of a virus.”  In May, 2020 Trump tweeted “Coronavirus numbers are looking MUCH better, going down almost everywhere,”  In June, 2020  Trump tweeted the pandemic is “fading away. It’s going to fade away.”  At that time there 20,000 new cases daily in the US.  In July, 2020 Trump tweeted the pandemic is “getting under control.”  At that time there were about 50,000 new cases daily.  
  • Once the Obama Administration passed the "Affordable Care Act", Republicans in Congress continued to try and repeal it, even thought a majority of the US supported it.  What if the Republicans in Congress had pushed to prepare for a pandemic instead?  It would have been bipartisan and may have saved the country literally Trillions and avoided hundreds of thousands of death.  At that time, the US had the highest health care costs in the world, about $11,000 per capita.  Its even higher now.  A significant reason is Republicans lack of understanding of health care and the importance of public health.  The pandemic is a major reason for inflation and Republican leadership is generally responsible for our country's lack of preparation and response. 

Four, war in Ukraine.  Most us know former President Trump called Russian dictator Putin a "genius" for his invasion of Ukraine.  
US intelligence agencies concluded in 2016 that Russia supported the Trump candidacy for President with a state authorized campaign of cyber attacks and fake news stories planted on social media.  Trump also said "I knew Putin very well. I got along with him great. He liked me. I liked him".  

  • The Mueller’s Report detailed numerous contacts between Trump’s campaign and agents or allies of the Russian government.  Later Mueller emphasized that his team had not cleared Trump of wrongdoing and stated his investigators were unable to access key sources of evidence and were inhibited by false testimony.
  • The invasion of Ukraine by Russia has caused devastation the Ukrainian people and its economy.  It also is a cause of inflation because of the war's impact on energy supplies and costs along with food production and supplies.  Ukraine is called a "breadbasket" for a reason.  These problems are likely to get worse, not better in the near future.   
  • A hypothetical is never possible to prove.  But I often wonder if our former President had not had supportive relationship with Dictator Putin, would Putin still have felt empowered to invade Ukraine.  The economic and more important human costs of this invasion will last for years and be a factor in continuing inflation.  It is clear to me Republicans in general and Trump supporters in specific have some part in this tragedy.

As an independent moderate, I have not nor ever will belong to a political party.  I do not believe that inflation is solely a Republican problem.  There are a lot of factors which have contributed to the current inflation rates.  However, individuals who vote Republican thinking this will be the magic formula for ending inflation are ignoring twenty-plus years of history.  

For the record, I would suggest the steps to reduce inflation are already in place, increasing interest rates along, decreasing money supply, and improving supply train.  For example, average 30-year mortgage rates are about 7% today up from 3.27% at the beginning of the year.  

Who ever gets elected to Congress will have zero effect on inflation short-term.  Long-term if Republicans get control on Congress and in a couple years the Presidency, I suspect they will do what they have done the past twenty years, increase spending, cut taxes, increasing the federal deficit and send the bill to our children and grandchildren.

Today's inflation is a result of political party mismanagement for the last twenty-plus years.  Repeating the same mistakes will not solve the problem, but accelerate it.  

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