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Historically, Dems Pay Price When Inflation Hits

Worrisome indicators hint at a return of high inflation.

by
Patrick Reddy

Bio

April 10, 2012 - 12:00 am

As a Democrat, I hate to deliver more bad news to President Obama after the defeat of 2010. But I must warn my party of a looming potential economic/political threat that could make the 2010 “shellacking” look mild.

Preliminary indications are that the nation may be in for another bout of inflation. With gas prices up over 15% this winter due to the turmoil in the Middle East, many economists and business reporters are worried that those higher costs will soon be included in the price of nearly everything. In addition, bad weather and increasing global population are causing food prices to rise.

The historical record shows that when prices rise rapidly, voters blame the federal government and take out their wrath on the party of “big government,” the Democrats.  Right now, most voters believe that the recession and continuing high unemployment are the nation’s foremost problems. And many economists are more worried about “deflation” (falling jobs, prices, and incomes). But if inflation were to make an unwelcome comeback in the coming decade — especially when combined with already high unemployment — Republicans could win so big that they’d finally complete the across-the-board political realignment Karl Rove dreamed of. And a bout of “hyperinflation” — over 20% — could wreck the Democratic Party for a generation.

There are worrisome signs. CNBC conducted a survey of basic consumer products sold at Walmart (that nation’s largest retailer), and found prices increasing at an annual rate of 4% in the fall of 2010. “Inflation Rears Its Ugly Head” was the title of a recent editorial in Investor’s Business Daily, which noted:

America faces an equally serious but silent threat from within. Put simply, wholesale prices, often a trigger for consumer price rises, have taken off. In February, they rose at an 8% year-over-year rate. … There’s no easy way out. It starts with spending cuts and ends with the Fed turning off its money presses. If it doesn’t, and inflation takes hold, welcome back the ’70s.

Paul Krugman and other liberal economists argue that the “core” inflation rate, which excludes volatile food and energy prices, remains below 1%. Critics reply that the core measurement is irrelevant because everyone needs food and energy to survive.

So, some economists say that inflation is not on the horizon, while others say that it is already here but not accurately reported by government statistics. Others say it is here and will only get worse.

What follows is a political history of the electoral effects of inflation. Three times since the death of Franklin D. Roosevelt in 1945, Democrats have presided over rising prices and have been repudiated by the voters in the next election.

In the early 1950s, the costs of the Korean War helped cause the inflation rate to jump from an average of 1% in 1950 to nearly 8% in 1951. (All figures cited here come from the web site InflationData.com.) Combined with anger over the stalemate in Korea and various Truman administration scandals, Republicans — led by General Dwight Eisenhower — won the presidency for the first time since 1928, along a majority in both houses of Congress.

In 1964, President Lyndon B. Johnson defeated Republican Barry Goldwater with a record 61.1%. Political observers like Samuel Lubell (author of the prize-winning The Future of American Politics) wondered if we were in for decades of one-party Democratic governance. But the costs of the Vietnam War and LBJ’s “Great Society” programs helped push up prices from an average of 1% in 1964 to over 4% in 1968. Combined with anger over the stalemate in Vietnam, race riots, and anti-war turmoil, Republicans — led by Eisenhower’s vice president, Richard Nixon — narrowly won the White House just four years after being consigned to the ash heap of history.

After the Republicans lost the Watergate-influenced elections of 1974 and 1976, they were reduced to barely one-third of the seats in both houses of Congress. Many pundits wrote off the party’s future — The New Republic joked that “GOP” really meant “Groggy Old Party.” But Ben Wattenberg, a former speechwriter for President Lyndon B. Johnson, commented that there was “nothing wrong with the Republican Party that 20% inflation couldn’t cure.”

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.

Patrick Reddy is a political consultant and co-author of California After Arnold. He is now writing 21st Century America: How Suburbanites, Immigrants and High Tech Voters Will Choose Our Presidents.
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