The Commerce Department reported today that the high-flying U.S. economy with a 6.7% rate of growth in the U.S. economy for the first half of this year crash landed in the third quarter (July-September) with an anemic rate of just 2 percent.
What the new report shows is that the supply chain disruptions – getting productions from the plants and the cargo ships to the retail customers – is creating havoc. Car sales, for example, were way down because of microchip shortages. Many grocery stores now have empty shelves of produce and vegetables.
This slow growth rate comes at a time when inflation has hit its highest level in more than a decade at 5.6% and consumer confidence in the economy has tumbled.
All of this is a bit reminiscent of the economy of the 1970s. Anyone remember the term stagflation?
Those under the age of 40 probably don’t even know what that is – and they’ve certainly never experienced it up front and personal.
Here’s the official definition from Investopedia: Stagflation is characterized by slow economic growth, which is at the same time accompanied by rising prices (i.e. inflation)."
The last time we saw this phenomenon was in the 1970s during the era of presidents Nixon, Ford, and Carter. Years of persistently high inflation triggered a surge in unemployment. That then led to the term "misery index." The sum of the inflation rate and the unemployment rate. It exceeded 18% in Carter’s last year in office.
And then it was…Jimmy we hardly knew ye. With the economy sagging, Carter lost a landslide election to Ronald Reagan.
The lesson here is straightforward: Stagflation is the ultimate curse for politicians.
How bad is it now?
Inflation, which had been relatively tame for 40 years, has been a cascading problem in Biden’s first ten months in office. The Consumer Price Index suddenly galloped from less than 2% in the Trump years to between 5 and 6% for the past four months and the cross your fingers hope by the Federal Reserve Board and the White House that the sticker-price rises at the grocery store, the restaurant and the gas station were only "transitory" have melted away like an ice cream cone on an August afternoon.
To be fair to Biden some of that steep rise in prices was bound to happen due to the depressed prices during 2020 – the pandemic year. As consumer spending popped like a cork from a champagne bottle when lockdowns ended and the economy returned to normal there was a natural demand response to reopening.
But nearly every Biden policy has made inflation and the economic slowdown worse. The absurd $1.9 trillion blue state bailout bill passed in March marinated the economy with hundred dollar bills as if dropping like confetti from helicopters.
Worse yet has been the expansion of welfare programs like food stamps and unemployment benefits (not tied to working). These free cash and benefit programs incentivized workers to stay out of the workforce and collect government payments that when added all up could be the equivalent of a $75,000 a year job in many states. The big surprise was that the labor force shrunk and companies had 11 million jobs they couldn’t fill.
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