Joe Biden is a man beset with problems on all sides. His domestic agenda has stalled in Congress and is unlikely to be restarted any time soon. His foreign policy has been a disaster. Afghanistan has collapsed, Russia looks set to acquire portions of Ukraine, and China is making noises about possessing Taiwan. And, of course, the coronavirus still rages. It was irresponsible and foolish of President Biden to promise as a candidate that he would “shut down” the virus — how does one shut down a highly communicable disease? — but promise he did, and he has caught the blame.
But of all the problems plaguing his White House, the most dangerous is inflation. If unchecked, it could destroy his party’s prospects in the November midterm elections and perhaps beyond.
The recent reading of the consumer price index indicated that the annual inflation level of 7% is higher than any on record in 40 years. Forty years is an important number, for it means that the overwhelming majority of Americans have never experienced inflation at these levels in their adult lifetimes. The youngest voters in 1982 would be 58 today, meaning that those at their peak earning during the “stagflation” of the late 1970s and early ’80s would be about 80 years old. Most of us, in other words, have few personal memories of the phenomenon. This is why the study of history is so important, for it extends our knowledge of the past far beyond our own lifetimes and provides lessons on what to expect in the future.
And the lessons of history regarding inflation are clear: It can flare up unexpectedly, resist the efforts of policymakers to tame it, and in the worst cases not only undermine economic prosperity but degrade civil society itself.
The most extreme cases are, of course, exceedingly unlikely today, but they are worth noting to appreciate how dangerous the phenomenon can be. The American Revolution almost fell to pieces not because the British scored a series of smashing victories, but because of runaway inflation. Lacking the power to tax, the Continental Congress financed the war by printing dollars at a shocking pace. Prices skyrocketed, confidence in the government waned, and there were worries that the soldiers might mutiny. The downstream effects of wartime inflation contributed to Shays’s Rebellion (the uprising of Massachusetts farmers in 1786), which, in turn, led to the Constitutional Convention.
One might also consider the case of the French Revolution. By 1789, large swaths of French society were extremely displeased with the ancien régime, but one of the most potent were Parisian housewives who could not afford the ever-rising cost of bread. The Jacobins were able to harness their ill content for their radical purposes, resulting in the regicide of Louis XVI, the Terror, and the rise of Napoleon Bonaparte. After War World I, the Allied Powers imposed heavy penalties on the German government, which, when combined with the Great Depression, were more than the nation could handle. Ultimately, rampant inflation took down the Weimar Republic and brought about the rise of Adolf Hitler.
Of all the economic causes of social and political upheaval, inflation is matched only by the danger of rampant unemployment. Why? One reason is that at its essence, it functions as a kind of tax upon holding cash, which means it is often regressive in nature. The longer you hold a dollar, the less you can do with it. And so, it can burden those people who use most of their incomes for the sake of consumption. They must hold all their dollars until they spend them, meaning that their purchasing power goes down and down and down. And when people are no longer able to purchase the essentials of life, political radicalism is sure to follow.
Inflation can also act as a kind of mind virus that is spread from person to person. When you expect inflation to manifest or persist, you have an incentive to purchase goods and services sooner rather than later. The problem is that everybody has the same incentive, and if the quantity of goods and services remains fixed, prices will increase.
The United States, thankfully, has never experienced inflation in its worst instances. But we have perhaps gotten a taste for its radicalizing effect on politics over the last decade. Overall, inflation levels have remained extremely low since the early 1980s, but there are pockets of inflation — in higher education, for instance. Is it so surprising that young, educated people are espousing the radical ideas advocated by Bernie Sanders and Alexandria Ocasio-Cortez? The inflated price of college education has placed them under a mountain of debt that many of them can never hope to pay off fully. The idea of canceling the debts must surely sound appealing to them.
Ultimately, inflation is inextricably linked to the policies of the national government, especially in a country like ours, where the currency is not tied to precious metals such as gold or silver. On every dollar is emblazoned the symbols of the United States federal government. And if that dollar is suddenly incapable of purchasing as much, people know precisely whom to blame.
This is why Biden should worry. There is no way for him or his team to spin their way out of an inflation problem. They cannot pretend that it doesn’t exist because everybody experiences it every day. They cannot pretend that it is not the fault of the federal government, because the government alone oversees the currency. Likewise, blaming entanglements in foreign trade is a fool’s errand because the federal government has the exclusive power to regulate international commerce (and, anyway, most of our food is produced domestically).
And if in large doses inflation leads to political unrest and even revolution, in moderate doses, it makes people unhappy about their current circumstances and pessimistic about their futures. Inflation in the 1970s did not lead to a Jacobin Revolution, but it certainly contributed to the Reagan Revolution, as the country broadly rejected the New Deal/Great Society consensus that had dominated our politics since the 1930s.
Hopefully, policymakers will be able to get inflation under control. They claim they can, but then again, just a few months ago, they were promising inflation would be transient. We should likewise hope that, in an effort to curb inflation, the Federal Reserve does not take an aggressive course of monetary contraction, which could endanger the still-fragile economic recovery. When Fed Chairman Paul Volcker did that in the early 1980s, it cured the stagflation of the 1970s but also contributed to the nasty recession of 1982.
Politically, it’s unclear how seriously the Biden administration is taking the problem. It has acknowledged inflation’s existence but until very recently was still pushing for the Build Back Better agenda, which would have injected a massive amount of cash, in the form of new spending and social welfare programs, into the economy. And the White House wanted to do this after the coronavirus relief bill from early last year and the bipartisan infrastructure bill from the end of 2021. Likewise, it was only a few months ago when Ron Klain, Biden’s chief of staff, was dismissing inflation as a “high class problem.” Who knows what this administration, which to date has been erratic and slipshod, understands about the real world?
“Predictions are hard, especially about the future” is an old proverb (variably attributed to Niels Bohr, Mark Twain, and even Yogi Berra) that happens to be true. Who knows what 2022 will bring? Right now, the Biden administration is reeling, but administrations have been put on their heels before, only to find solid footing once more. One thing we can be sure of: If inflation is still around at elevated levels in November, Biden and his Democratic Party will get absolutely crushed at the ballot box. Inflation is not merely an economic problem; it is a kind of social pestilence, and voters will not hesitate to rebuke the president for failing to eradicate it.
Jay Cost is a visiting fellow at the American Enterprise Institute and a visiting scholar at Grove City College.
