That 70s Show
Slow growth, persistent inflation, campus unrest...sound familiar?
Dig into the dismal 1.6 percent first-quarter growth figure announced today by the Commerce Department’s Bureau of Economic Analysis and the news looks even worse than the headline number. Where is the growth coming from? “The increase in real GDP primarily reflected increases in … state and local government spending,” the government press release said. “The increase in state and local government spending reflected an increase in compensation of state and local government employees.”
It's a good time to be a unionized state or local government employee. In the private sector, things are less rosy.
Meanwhile, the “core PCE”—a measure of inflation without food and energy—was up 3.7 percent, and the overall personal consumption expenditure price index was up 3.4 percent. More PCE data are coming tomorrow in the monthly release. Some of it can be dismissed as statistical sophistry—the imputed rent of owner-occupied housing, etc., money-management expenses rising along with asset prices—but not quite all of it.
Slow growth, stubbornly persistent inflation, campus unrest, war in the Middle East, military tension with Russia—it has echoes of the 1970s, when President Ford failed to win the 1976 election and President Carter failed to win the 1980 election. In a democracy, when the economy and the geostrategic situations sour, voters fire the incumbent president.
The numbers leave Federal Reserve Chairman Powell in a pinch. If he cuts rates, he risks unleashing worse inflation. If he keeps rates high or raises further, he risks sending economic growth negative, putting more pressure on regional banks, and worsening the federal budget situation by raising federal borrowing costs.
There’s still plenty of time between now and November, but unless Biden can get inflation down, growth up, and the Middle East war concluded, the probability is increasing that he’ll be cast aside the way Presidents Ford and Carter were.
Biden was first elected to the U.S. Senate in 1972, so he’s familiar with this 1970s history.
Back then, it was turned around by President Reagan, who, in his July 1980 speech accepting the Republican presidential nomination, spoke of “a great national crusade to make America great again.”
Recent Work: “Some Anti-Israel Protesters Are Paid” is the headline over an article I wrote for the Wall Street Journal about how Rockefeller Brothers and Soros funds are flowing to an entity that pays activists on college campuses.
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Full employment economy is a bit of a difference. Similarly, however, Middle Eastern countries may be making policy decisions to impact the election result.
I’ve wondered how 3.7% unemployment is reported when only 60% of the country “participates” in employment. Not counting retirees I think unemployment is closer to 15-20%. If you count the millions of new migrants, it could be higher.