U.S. gross domestic product shrank 1.4 percent in the first quarter at the same time inflation continued to soar. For older Americans, that combination conjures memories of 1970s stagflation, a nightmarish combination of double-digit inflation, double-digit interest rates, soaring gasoline prices and persistently high unemployment. The entire economic mess got dumped on President Jimmy Carter’s lap after the 1976 election, even though it was neither his fault nor the fault of his predecessors, Gerald Ford and Richard Nixon.
Sometimes, global economic forces converge just like weather systems to create a perfect storm, and woe to the president who gets caught in it. The timing of the current storm couldn’t be worse for President Biden as he tries to minimize the damage Democrats are bracing for in this year’s midterm elections. Republicans can be expected to rub Biden’s nose in bad economic data, but voters would be wise to study up on the facts rather than rely on political spin.
Biden inherited an economy still in pandemic shutdown mode. Manufacturers abroad, like here, had sent workers home and curtailed production to halt the spread of the coronavirus. Consumer spending plummeted. Manufacturers sold off inventories to meet whatever demand there was. Fuel prices had plummeted because motorists also were staying home.
Suddenly, vaccines allowed Americans to return to work, the highways and the stores just as Biden was settling into the White House. A surge in demand for everything crashed against a production and cargo-transportation bottleneck. Americans returned to their cars just as domestic and foreign oil producers opted to restrict output. Pump prices skyrocketed.
Thus, inflation.
The decline in gross domestic product – in sharp contrast to the 6.9 percent increase in the first quarter of 2021 – reflects a decline in car sales because carmakers still can’t get the raw materials and microchips they need. Manufacturers, having reduced their inventories, now are struggling to meet consumer demand. So their sales are dropping.
Thus, stagnation.
Presidents Richard Nixon, Gerald Ford and Carter grappled for years with the combination of a global economic contraction, two punishing Middle East oil embargoes, tens of thousands of troops returning from Vietnam and too few jobs to employ them. Biden, just like Carter and Nixon, also faced significant public blowback from military debacles abroad: Nixon’s messy Vietnam pullout, Carter’s failed bid to rescue American hostages in Iran and Biden’s botched Afghanistan withdrawal.
There’s no easy way for presidents to spin bad economic news other than to make clear that there is a bright side – such as Biden’s reminder Thursday that unemployment rates haven’t been this low since 1970 – and to remind the public that presidents in free-market economies have minimal powers to halt inflation or force economic growth. But a one-term presidency and midterm pain awaits any leader who tries to shrug off these factors or ignore the strains faced by American consumers (and voters).
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