Democrat Jimmy Carter presided over an inflation rate that increased from 6.5% in 1977 to nearly 8% in 1978 and over 11% in 1979. In the winter of 1980, the inflation rate hit 18%, very close to Wattenberg’s 20% trigger line. As a matter of fact, there was a moment in the summer of 1980 when the inflation rate hit a record 22%. With prices soaring, Carter was forced to allow Federal Reserve Chair Paul Volcker to sharply raise interest rates, thus guaranteeing a recession just in time for his 1980 re-election campaign. Carter ended up with the worst of both worlds: simultaneous rising inflation and unemployment, dubbed “stagflation” (economic stagnation plus inflation). Not exactly a winning hand. Combined with 8% unemployment that summer, the “misery index” reached 30%, the highest since the Depression of 1929-32.
The net result of this stagflation was a 14% reduction in the average family’s income in 1979-80, thus allowing Ronald Reagan to ask the devastating question in the debate: “Are you better off than you were four years ago?” For most Americans, the answer was no. In November of 1980, Reagan — who had twice before been rejected by Republicans for their nomination — won a 44-state landslide and Republicans won control of the U.S. Senate for the first time since 1954.
The historical record is clear: rising inflation rates are disastrous news for Democrats, leading directly to defeat. Samuel Lubell called inflation the Democratic “breaking point.” In his survey of Democratic neighborhoods that were trending Republican in the early 1950s, Lubell found that:
The anger against rising prices and higher taxes was as violent among low income voters as in the middle class. With this anger over inflation went a resentment against all forms of government spending.
Among working class voters, Lubell noted that the combination of rising costs plus higher taxes “had the effect of a wage cut, pushing them below the getting-along margin.” Lubell also wrote words that leap off the page more than 50 years later:
Inflation brings stiffened opposition to all government spending: It lifts the political prestige of business, which is associated in the public mind with economy and opposition to government.
In short, high inflation turns many moderate voters into temporary fiscal conservatives. Sounds like the 1980s to me.
Besides generally angering the middle class, rising prices turn off the working class elderly who physically cannot take another job to make ends meet. They also depress the turnout of the urban poor, who live either on fixed incomes or low wages. For example, Hubert Humphrey lost the 1968 election to Nixon by less than 1%. Black turnout in the Northern cities was down compared to four years earlier and the loss of these normally Democratic voters cost Humphrey dearly in states like Illinois, Ohio, New Jersey, and Missouri. In 1980, low turnouts from inner-city voters turned what was heading toward a narrow five or six point Republican victory into a landslide. Every study by the Census Bureau has shown that higher income people have higher voting turnout. Inflation just makes the gap worse by alienating the poor.
Inflation also massively disrupts the Democratic coalition, because the middle class demands spending restraint while liberals oppose budget cuts in “people programs.” One reason Ted Kennedy challenged President Carter for the Democratic nomination in 1980 was a fight over social spending. The intra-party bloodletting almost guaranteed Carter’s defeat.
Since rising prices create a cruel dilemma for Democratic presidents, the best way to deal with it is to make sure it doesn’t start in the first place. Like war in central Europe, there are no good options once it starts. Fed Chair Bernanke told a Capitol Hill hearing on March 1 that he “remains unwaveringly committed to price stability,” which is good news for President Obama. With turmoil in the Middle East and continuing above-average unemployment, the last thing he needs is an inflation crisis.
In 2010, Juan Williams surveyed President Obama’s potential opponents and found them wanting, describing a “Republican wasteland” that would likely lead to an Obama landslide in 2012. But if the misery index crosses 20% and starts heading for 30% as it did in 1932 and 1980, Republicans could nominate unliked candidates and still carry over 40 states.
For the good of the nation and the political health of the Democratic Party, let’s hope that inflation, like another 1970s phenomenon, is as dead as disco.