Get out the bell bottoms and the lava lamps. We are going back to the 1970s. This is not a new fashion craze. It is the new economic and international reality. The good news for Republicans: after the 1970s came Ronald Reagan.
On the domestic front we have at least temporarily given up emphasis on free markets and economic expansion. Instead, we are back to expanding government and running up a frightful tab. The debt is piling up, the Fed has the printing press going and the Chinese rightfully concerned we will inflate away our obligations.
On energy, regulatory schemes to increase energy prices and thereby decrease energy usage are now in fashion. We aren’t yet rationing gas by the last digit of car license plates, but cap-and-trade legislation and the pronouncement that carbon dioxide is a threat to the planet have a common goal: restrict carbon output and industrial activity.
Meanwhile, unemployment is edging higher and higher. Forty-six states have seen joblessness increase, the national rate is 8.5%, and more states will be joining those with double digit unemployment in the months ahead.
We therefore see the prospect of the infamous combination of high inflation and unemployment. Unfortunately, unlike the steely-eyed Paul Volker, who wrung inflation out of the system in the early 1980s, Ben Bernanke now is Fed chairman. And he seems to fashion himself not as the guardian of the money supply but as a policy maven. It therefore is questionable that he will, when necessary, apply the monetary brakes to stifle inflation, especially as he angles for appointment by President Obama to another term.