Saturday, June 15, 2024

The Plan: Part 2: The Biden Inflation: What Happened?

 

"The central bank's rate policies over the next several months could also have consequences for the presidential race."


We begin with a picture of the Biden inflation -- the blue line in the image below:

Figure 2.1: The Biden Inflation

The blue line shows the Consumer Price Index (CPI) since June 2019. On the right, the plot window extends out to 2025 so the rise-and-fall of the Biden inflation is more or less centered on the graph. Dots on the blue line indicate monthly values for the CPI. Bigger gaps between dots indicate bigger changes in the rate of inflation.

The gray line that runs low from early 2020 to early 2022, and then rises, is the Federal Funds rate, the interest rate used by the Federal Reserve to keep inflation under control. The Fed raises the interest rate to slow the economy when prices start increasing at an unacceptable rate. The Fed lowers the interest rate when it wants the economy to grow faster.

The red line at the 2% level on the graph shows the Fed's 2% inflation target. The target is the maximum "acceptable" level of inflation. The rate of inflation varies, of course, but until 2021 inflation varied around the 2% level and was not generally seen as a problem by the Fed or in the news.

I stopped the red line short to make the graph less cluttered. The Fed still loves the 2% target.

The dashed red line shows that since June 2023 the rate of inflation has "stabilized" at a 3.3% annual rate. That could change tomorrow; I don't predict. But the past 11 months -- and as of 12 June, the past 12 months -- show inflation running near the 3.3% rate consistently. That is not something we hear in news reports and such:

  • CNN's "Facts First" of 14 May 2024 makes it sound as if inflation is still on the increase:

    The March 2024 inflation rate ... was about 3.5%, up from about 3.2% the month prior.

  • On 15 May 2024, Andrew Ross Sorkin showed up at Morning Joe to talk about inflation. The April data was just out. Sorkin said the monthly rate of inflation was 0.3%.[2]

    "This is only one month's data," Sorkin warned. "We should not assume that it represents a trend."

Sorkin is right, of course: We should not assume that one month's data represents a trend. And yet his statement is nonsense. It was Sorkin who gave us one month's data. The BLS comes out with a new number every month. If Sorkin looked at the numbers instead of ignoring them, maybe he would see a trend. 

To me, the recent trend -- the dashed red line -- looks flat and stable at something over 3% annual. That's higher than the Fed's 2% target. But the monthly numbers indicate that inflation has been stable for a year now, with prices rising about 3.3% a month, give or take.

3.3% per month is a lot. But it's less than the inflation that we had from April of 2021 to May of 2023. And it is not really a lot more than 2%.

NOTE 2: The 0.3% number sounds low because it represents change-from-previous-month data. It is more common to speak of the change-from-year-ago rate, based on twelve monthly rates compounded. For example, the 3.5% and 3.2% noted by First Facts are change-from year-ago values.


The Fed Was Behind the Curve on Raising Rates

There are three dates to remember: March 2020, March 2021, and March 2022.

March 2020: Covid. The Fed lowered the interest rate to zero because Covid was upon us.

March 2021: Powell warned that inflation "moderately above 2 percent" was coming.

March 2022: One year after Powell warned of inflation, and with the annual rate of inflation at 8.5%, the Fed decided it was time to start raising the interest rate.

Consider that whole two-year period, from March of 2020 to March of 2022. We had two straight years with interest rates at zero, stimulating the economy out of a pandemic stupor. At the one-year mark, the Fed chairman warned that inflation was on the way. Then -- a year after that warning, and with inflation at an outrageous 8.5% -- the Fed decided it was time to begin raising interest rates, to fight inflation.

 

Two more dates to remember: June 2022 and June 2023.

June 2022: The Fed finally decided to start raising interest rates in March 2022. Three months later, in June 2022, inflation peaked. By July it was coming down. The economy did not wait. The economy responded within three months. It was the Fed that dragged its feet.

June 2023: Exactly one year after it peaked in June 2022, inflation hit a hard bottom at 3.0% in June of 2023. It bounced back up to 3.7% in August of that year, then settled down to around 3.3%. It is almost as if the economy found a "natural" inflation target, to go along with the natural rate of unemployment.

Since June 2023: The average of the 12 annual rates of inflation, from June 2023 to May 2024, is 3.3%. The highest of the 12 annual rates is 3.7%; the lowest is 3.0%. And Excel shows a linear trend line that slopes ever so slightly downward, suggesting that future rates will be lower. But I don't predict.


The Fed Is Behind the Curve on Lowering Rates

There is one more date worth noting.

August 2023: For two months after inflation hit the hard bottom in June 2023, the Fed continued to raise interest rates. Since August, the interest rate has remained unchanged at 5.33%. The most recent reading, for May 2024, is still unchanged at 5.33% -- high enough that inflation is trending ever so slightly down.

Low interest rates encourage economic growth but can stimulate inflation. Raising rates reduces inflation but can slow the economy. The unemployment graph at FRED shows gradual increase in 2023 and 2024. Unemployment is rising. That being the case, interest rates are probably too high.

It is difficult to see much detail in the FRED graph because of the Covid recession and 2020's monster increase in unemployment. To get a closer look, I brought the data since 2022 into Excel, and looked at the trend since January 2023:

Figure 2.2:  The Rate of Unemployment, Detail View, Jan 2022 to April 2024
Linear Trend Line based on Jan 2023 to April 2024
Trend Line extended to December 2024
The small red dots indicate the data used to calculate the trend.
Source Data: https://fred.stlouisfed.org/graph/?g=1oeJn
View the Excel File at DropBox

The detail view makes it clear: The rate of unemployment shows increase since early 2023. As I figured it, if the trend continued, the rate of unemployment would reach 4% in September 2024 (before the November elections) and likely go above 4.1% in December. But FRED came out with updated data before I came out with this post. FRED now shows unemployment already at 4% as of May 2024, after the 7 June data release. 

The one area where the Fed has not stalled economic progress is in letting unemployment go up. But of course that means it has dragged its feet when it comes to reducing interest rates to prevent recession.

MoneyWatch of 12 June 2024 reports:

The central bank's rate policies over the next several months could also have consequences for the presidential race. Though the unemployment rate is a low 4%, hiring is robust and consumers continue to spend, many voters have taken a dour view of the economy under President Joe Biden. In large part, that's because prices remain much higher than they were before the pandemic struck in 2020.

It's good they bring up "consequences for the presidential race" but at this point we are late in the election interference game. It was the Fed's refusal to raise interest rates above zero for a year that allowed inflation to rise to 9% and did such damage to Biden's shot at re-election. And when you look at how the Fed dragged its feet for so long without raising interest rates at all, it becomes obvious that the delay was almost certainly a scheme of planned election interference.

Now, when interest rates should be coming down, the Fed is dragging its feet again while unemployment rises. At some point, it will be too late to prevent the approaching recession. Don't let that happen. And don't let anyone get away with it.

Summary

In March of 2020, to support our economy and keep it growing, the Federal Reserve reduced interest rates in response to Covid. One year later, in March of 2021, Jerome Powell issued a warning: Inflation is coming!

Another year passed, and during that year the predicted inflation came to pass. In March of 2022, after a full year of rising inflation, the Fed at last started to raise interest rates. Within three months of that first increase, inflation peaked and started to fall. Within three months.

The economy has been responding in a timely manner; the Federal Reserve has not.

This is why the inflation was as bad as it turned out to be: because the Fed chose not to respond until inflation had been rising for a year. The Fed could have nipped inflation in the bud, but failed to do so. It failed to respond in a timely manner.

If that's not bad enough, we now have a follow-up problem: Interest rates are high, and they remain high even though inflation is far down from the peak. Once again, the economy has responded promptly, and the Fed has not.

The economy responded promptly, with inflation falling to 3% by June of 2023, and settling down since that time to a trend that is comparable to a 3.3% inflation target -- as the graph up top shows. But the Federal Reserve has not responded by reducing interest rates, not even once in the year since June 2023. The Fed is again dragging its feet.

Interest rates must come down so that a recession can be avoided. But the Fed appears to be prepared to wait until the recession is upon us in full force, and only then will it be ready to reduce interest rates.

Jerome Powell has said over and over again in the past year that the Fed is waiting for inflation to come the rest of the way down to the 2% target. So far, inflation has continued to behave as if the target is 3.3%. But the Fed continues to hold out for 2%, and continues to hold interest rates high.. So our economy continues to move toward recession.

THROWBACK: Part 2: The Biden Inflation: What Happened?


Hi. Art here.

I renamed this series of posts from "Throwback" to "The Plan".

I'm keeping the 'throwback" link for this message,

and moving the content to a new link. The new link is

https://econcrit.blogspot.com/2024/06/the-plan-part-2.html

If you share the link, please share the new one!

 

After a day or two, I will keep the above message and delete the content below.

 

 

"The central bank's rate policies over the next several months could also have consequences for the presidential race."


We begin with a picture of the Biden inflation -- the blue line in the image below:

Figure 2.1: The Biden Inflation

The blue line shows the Consumer Price Index (CPI) since June 2019. On the right, the plot window extends out to 2025 so the rise-and-fall of the Biden inflation is more or less centered on the graph. Dots on the blue line indicate monthly values for the CPI. Bigger gaps between dots indicate bigger changes in the rate of inflation.

The gray line that runs low from early 2020 to early 2022, and then rises, is the Federal Funds rate, the interest rate used by the Federal Reserve to keep inflation under control. The Fed raises the interest rate to slow the economy when prices start increasing at an unacceptable rate. The Fed lowers the interest rate when it wants the economy to grow faster.

The red line at the 2% level on the graph shows the Fed's 2% inflation target. The target is the maximum "acceptable" level of inflation. The rate of inflation varies, of course, but until 2021 inflation varied around the 2% level and was not seen as a problem by the Fed or in the news.

I stopped the red line short to make the graph less cluttered. The Fed still reveres the 2% target.

The dashed red line shows that since June 2023 the rate of inflation has "stabilized" at a 3.3% annual rate. That could change tomorrow; I don't predict. But the past 11 months -- and as of 12 June, the past 12 months -- show inflation running near the 3.3% rate consistently. That is not something we hear in news reports and such:

  • CNN's "Facts First" of 14 May 2024 makes it sound as if inflation is still on the increase:

    The March 2024 inflation rate ... was about 3.5%, up from about 3.2% the month prior.

  • On 15 May 2024, Andrew Ross Sorkin showed up at Morning Joe to talk about inflation. The April data was just out. Sorkin said the monthly rate of inflation was 0.3%.[2]

    "This is only one month's data," Sorkin warned. "We should not assume that it represents a trend."

Sorkin is right, of course: We should not assume that one month's data represents a trend. And yet his statement is nonsense. It was Sorkin who gave us one month's data. The BLS comes out with a new number every month. If Sorkin looked at the numbers instead of ignoring them, maybe he would see a trend. 

To me, the recent trend -- the dashed red line -- looks flat and stable at something over 3% annual. That's higher than the Fed's 2% target. But the monthly numbers indicate that inflation has been stable for a year now, with prices rising about 3.3% a month, give or take.

3.3% per month is a lot. But it's less than the inflation that we had from April of 2021 to May of 2023. And it is not really a lot more than 2%.

NOTE 2: The 0.3% number sounds low because it represents change-from-previous-month data. It is more common to speak of the change-from-year-ago rate, based on twelve monthly rates compounded. For example, the 3.5% and 3.2% noted by First Facts are change-from year-ago values.


On Raising Rates the Fed Was Behind the Curve

There are three dates to remember: March 2020, March 2021, and March 2022.

March 2020: Covid. The Fed lowered the interest rate to zero because Covid was upon us.

March 2021: Powell warned that inflation "moderately above 2 percent" was coming.

March 2022: One year after Powell warned of inflation, and with the annual rate of inflation at 8.5%, the Fed decided it was time to start raising the interest rate.

Consider that whole two-year period, from March of 2020 to March of 2022. We had two straight years with interest rates at zero, stimulating the economy out of a pandemic stupor. At the one-year mark, the Fed chairman warned that inflation was on the way. Then -- a year after that warning, and with inflation at an outrageous 8.5% -- the Fed decided it was time to begin raising interest rates, to fight inflation.

 

Two more dates to remember: June 2022 and June 2023.

June 2022: The Fed finally decided to start raising interest rates in March 2022. Three months later, in June 2022, inflation peaked. By July it was coming down. The economy did not wait. The economy responded within three months. It was the Fed that dragged its feet.

June 2023: Exactly one year after it peaked in June 2022, inflation hit a hard bottom at 3.0% in June of 2023. It bounced back up to 3.7% in August of that year, then settled down to around 3.3%. It is almost as if the economy found a "natural" inflation target, to go along with the natural rate of unemployment.

Since June 2023: The average of the 12 annual rates of inflation, from June 2023 to May 2024, is 3.3%. The highest of the 12 annual rates is 3.7%; the lowest is 3.0%. And Excel shows a linear trend line that slopes ever so slightly downward, suggesting that future rates will be lower. But I don't predict.


On Lowering Rates the Fed Is Behind the Curve

There is one more date worth noting.

August 2023: For two months after inflation hit the hard bottom in June 2023, the Fed continued to raise interest rates. Since August, the interest rate has remained unchanged at 5.33%. The most recent reading, for May 2024, is still unchanged at 5.33% -- high enough that inflation is trending ever so slightly down.

Low interest rates encourage economic growth but can stimulate inflation. Raising rates reduces inflation but can slow the economy. The unemployment graph at FRED shows gradual increase in 2023 and 2024. Unemployment is rising. That being the case, interest rates are probably too high.

It is difficult to see much detail in the FRED graph because of the Covid recession and 2020's monster increase in unemployment. To get a closer look, I brought the data since 2022 into Excel, and looked at the trend since January 2023:

Figure 2.2:  The Rate of Unemployment, Detail View, Jan 2022 to April 2024
Linear Trend Line based on Jan 2023 to April 2024
Trend Line extended to December 2024
The small red dots indicate the data used to calculate the trend.
Source Data: https://fred.stlouisfed.org/graph/?g=1oeJn
View the Excel File at DropBox

The detail view makes it clear: The rate of unemployment shows increase since early 2023. As I figured it, if the trend continued, the rate of unemployment would reach 4% in September 2024 (before the November elections) and likely go above 4.1% in December. But FRED came out with updated data before I came out with this post. FRED now shows unemployment already at 4% as of May 2024, after the 7 June data release. 

The one area where the Fed has not stalled economic progress is in letting unemployment go up. But of course that means it has dragged its feet when it comes to reducing interest rates to prevent recession.

MoneyWatch of 12 June 2024 reports:

The central bank's rate policies over the next several months could also have consequences for the presidential race. Though the unemployment rate is a low 4%, hiring is robust and consumers continue to spend, many voters have taken a dour view of the economy under President Joe Biden. In large part, that's because prices remain much higher than they were before the pandemic struck in 2020.

It's good they bring up "consequences for the presidential race" but at this point we are late in the election interference game. It was the Fed's refusal to raise interest rates above zero for a year that allowed inflation to rise to 9% and did such damage to Biden's shot at re-election. And when you look at how the Fed dragged its feet for so long before without raising interest rates at all, it becomes obvious that the delay was almost certainly a scheme of planned election interference.

Now, when interest rates should be coming down, the Fed is dragging its feet again as unemployment rises. At some point, it will be too late to prevent the approaching recession. Don't let this happen, and don't let anyone get away with it.

Summary

In March of 2020, to support our economy and keep it growing, the Federal Reserve reduced interest rates in response to Covid. One year later, in March of 2021, Jerome Powell issued a warning: Inflation is coming!

Another year passed, and during that year the predicted inflation came to pass. After a full year of rising inflation, the Fed at last started to raise interest rates in March of 2022. Within three months of that first increase, inflation peaked and started to fall. Within three months.

The economy has been responding in a timely manner; the Federal Reserve has not.

This is why the inflation was as bad as it turned out to be: because the Fed chose not to respond until inflation had been rising for a year. The Fed could have nipped inflation in the bud, but failed to do so. It failed to respond in a timely manner.

If that's not bad enough, we now have a follow-up problem: Interest rates are high, and they remain high even though inflation is far down from the peak. Once again, the economy has responded promptly, and the Fed has not.

The economy responded promptly, with inflation falling to 3% by June of 2023, and settling down since that time to a trend that is comparable to a 3.3% inflation target -- as the graph up top shows. But the Federal Reserve has not responded by reducing interest rates, not even once in the year since June 2023. The Fed is again dragging its feet.

Interest rates must come down so that a recession can be avoided. But the Fed appears to be prepared to wait until the recession is upon us in full force, and only then will it be ready to reduce interest rates.

Jerome Powell has said over and over again in the past year that the Fed is waiting for inflation to come all the way down to where it fits the 2% target. So far, inflation has continued to behave as if the target is 3.3%. But the Fed continues to hold out for 2%, so our economy continues to move toward recession.

Tuesday, June 11, 2024

The Plan: Part 1: Nixon, for Context


Rule of thumb: If a first-term president's term ends with a good, strong economy, he gets a second term. 

 


In "How Richard Nixon Pressured Arthur Burns: Evidence From the Nixon Tapes" Burton A. Abrams writes: 

In Nixon’s 1962 book, Six Crises, he recounts that Arthur Burns called on him in March 1960 to warn him that the economy was likely to dip before the November election. Nixon writes that Burns “urged strongly that everything possible be done to avert this development. He urgently recommended that two steps be taken immediately...”

Their idea was to improve the economy enough that Vice President Nixon would win the election and take his turn as President when Eisenhower's second term was up. Today this would be called "election interference." No steps were taken. 

Abrams continues:

Herbert Stein, who was a member of the Council of Economic Advisers from the start of Nixon’s [first] term and became chairman at the start of 1972, confirms that Nixon blamed a modest rise in the unemployment rate as one of the reasons he lost the 1960 election.

Thus our rule of thumb. Again, Abrams: 

Evidence from the Nixon tapes, now available to researchers, shows that President Richard Nixon pressured the chairman of the Federal Reserve, Arthur Burns, to engage in expansionary monetary policies in the run-up to the 1972 election.

Here, the election interference appears to be driven by Nixon. In their 1960 encounter, it seems to have been Burns's idea. At least, that's how Nixon remembered it for Six Crises.

In both cases, 1960 and 1972, the plan was to improve the economy enough to keep the incumbent (or his party) in power. There is something almost heartwarming about Nixon's interference, because in both cases the idea was to improve the economy. Both times, however, the interference was conceived as a way to assure the election (or re-election) of Nixon. Both times, Nixon was engaged in election interference intended to benefit Nixon.

 

From "Nixonomics: How the Game Plan Went Wrong" by Rowland Evans, Jr. and Robert D. Novak, in Atlantic Monthly, July 1971[1]:

During that difficult decade after his defeat in 1960, aides and close friends had heard Nixon say privately time after time that had President Eisenhower only taken his and Arthur Burns's advice early in 1960 and moved rapidly toward stimulating the economy, he -- not Jack Kennedy -- would have been elected President. The implication, not quite stated flatly, was that Richard Nixon, if he had the power, would never again go into a presidential election with the economy in a state of deflation.

Note 1: As reprinted in Stabilizing America's Economy (The Reference Shelf, Vol. 44 No. 2); edited by George A. Nikolaieff.

Evans and Novak show Nixon fully committed to election interference.

More dirt on Nixon, this from the "Federal Reserve Chairman" section of Wikipedia's article on Arthur Burns:

Nixon later blamed his defeat in 1960 in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968, Nixon named Burns to the Fed Chair in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.

Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed. Burns's relationship with Nixon was often rocky. Reflecting in his diary about a 1971 meeting attended by himself, Nixon, Treasury Secretary John Connally, the Chairman of the Council of Economic Advisors, and the Director of the Bureau of the Budget, Burns wrote:

The President looked wild; talked like a desperate man; fulminated with hatred against the press; took some of us to task – apparently meaning me or [chairman of the Council of Economic Advisors, Paul] McCracken or both – for not putting a gay and optimistic face on every piece of economic news, however discouraging; propounded the theory that confidence can be best generated by appearing confident and coloring, if need be, the news.


Wikipedia also includes a detail which seems to have been omitted from All the President's Men, the great Alan J. Pakula movie starring Robert Redford and Dustin Hoffman:

At the Watergate break-in of 1972, the burglars were found carrying $6300 of sequentially numbered $100 bills. The Fed lied to reporter Bob Woodward as to the source of the bills. Burns stonewalled Congressional investigations about them and issued a directive to all Fed offices prohibiting any discussion of the subject.

Watergate was just one more example of Nixon tampering with elections. That time, however, it did not include improving the economy. Watch the movie. Watch All the President's Men

Improving the economy as a form of election interference might seem by comparison a good idea. But when winning the election intrudes on economic policy, the economy will lose every time. And the incidental considerations, like lying to Bob Woodward, stonewalling Congress, and prohibiting discussion are but a Nixon Sampler of the damage created by such manipulations.

By the way, Richard Nixon and Donald Trump were pen pals.

 

 

In The Emerging Republican Majority (1969), Kevin P. Phillips identifies "the two principal architects" of the emerging Republican majority: Richard Nixon and John Mitchell. Among that emerged group, then, Nixon's sleazebag behavior is apparently seen as worthy of emulation.

 

 

From Wikipedia's "Arthur F. Burns" article:

Burns served as Fed Chairman from February 1970 until the end of January 1978. He has a reputation of having been overly influenced by political pressure in his monetary policy decisions during his time as Chairman[13]...

Footnote 13 reads:

Bartlett, Bruce (2004-04-28) "(More) Politics at the Fed?", National Review

There is this link:

http://www.nationalreview.com/articles/210446/more-politics-fed/bruce-bartlett

That link is broken. This one works:

https://www.nationalreview.com/2004/04/more-politics-fed-ridhancock/

The link turns up "(More) Politics At The Fed?" at National Review,  attributed to RIDHANCOCK. (Bruce Bartlett is acknowledged in a note below the article. I will refer to the article as the Bartlett article.)

The Bartlett article says:

Nixon wanted to keep monetary policy loose in order to make sure the economy was robust going into the election. This led to the imposition of wage and price controls in August 1971.

That paragraph concludes: 

While everyone knew they would not work for long, the controls reduced inflation enough to keep monetary policy expansive through November 1972, which was all that mattered.

Now, that sounds like Nixon: Getting elected was be-all and end-all.

 

The Bartlett article (dated April 28, 2004) opens with this paragraph:

Rising inflation and interest rates, although still low by historical standards, are starting to get the attention of economists. It is becoming harder and harder to find an economist who doesn’t think the Federal Reserve needs to tighten monetary policy soon. However, Fed officials continue to say that unemployment, low capacity utilization, and strong productivity growth argue against tightening at this time. They may be right. But one cannot help but suspect that politics is also playing a role.

Once you see election interference in Nixon, it is easy to see elsewhere.

The article concludes with these thoughts:

The reason this [Nixon/Burns] history is relevant today [2004] is because the Fed is under increasing pressure to tighten monetary policy. While there is no evidence of White House pressure to keep monetary policy easy, one can assume that it will not be displeased if the Fed avoids tightening before Election Day.

Fed Chairman Alan Greenspan is well respected and no one believes he would knowingly use monetary policy for political purposes. However, the longer he waits to tighten monetary policy, the more people are going to ask whether politics is playing a role.

Once you see it in Nixon, you see it everywhere.

Bartlett (or RIDHANCOCK) was aware of Nixon's willingness to use economic policy for political gain. Because of rising inflation and an unresponsive Fed, Bartlett grew concerned about election interference in the era of George W. Bush and Alan Greenspan. Not that there was evidence of interference. But inflation was rising, and interest rates were not. Bartlett saw the possibility of election interference, and he couldn't look away. 

I can respect that.

 

If you go looking, you can find tales of Nixon and Burns in many places. The other day I came upon three that I had not seen before. They broaden the picture substantially. Here is a quick look:

At AP News, 12 May 2022:

The chronically high inflation of the 1970s has been attributed, in part, to political pressure that led the Fed to forgo steep rate hikes under Presidents Lyndon Johnson and Richard Nixon.

At AP News, 31 May 2022:

In the early 1970s, President Richard Nixon pressured Fed chair Arthur Burns to lower interest rates to spur the economy before Nixon’s 1972 reelection campaign. Nixon’s interference is now widely seen as a key contributor to runaway inflation, which remained high until the early 1980s.

At Business Insider, 11 March 2024:

Richard Nixon pressured the Fed to keep interest rates low before his reelection, which helped cement the disastrous inflation of the 1970s. Ronald Reagan got the message to the central bank on his wants during his presidency, getting his chief of staff to tell then-Fed Chair Paul Volcker not to raise rates ahead of his reelection campaign. Volcker wasn't planning to raise rates anyway. In recent decades, however, most presidents shied away from saying much, until Trump.

Good article, that last. 


This all leaves me wondering about Donald Trump, Fed Chairman Jerome Powell, and the Biden inflation. 

I have no evidence that Trump and Powell talk the way Nixon and Burns talked. I have no evidence that Powell's March 2021 announcement (inflation is coming) was a coded message to administered-price setters to start raising prices. I have no evidence that the Fed's year-long delay before raising interest rates (March 2021 to March 2022) was somehow part of a Republican plan to take Biden down. I have no evidence. That doesn't mean it didn't happen.

Was the post-pandemic inflation created, weaponized, and used by Republicans in an attempt to defeat Joe Biden? Even if this question is spread only by rumor and innuendo, it could still have powerful consequences for the November election: The rumor shows the 2021-2024 inflation to be Trump's fault rather than Biden's. And the inflation has hit Trump supporters -- has hit us all, really -- hard in the pocketbook.

THROWBACK: Part 1: Nixon, for Context


Hi. Art here.

I renamed this series of posts from "Throwback" to "The Plan".

I'm keeping the 'throwback" link for this message,

and moving the content to a new link. The new link is

https://econcrit.blogspot.com/2024/06/the-plan-part-1.html

If you share the link, please share the new one!


After a day or two, I will keep the above message and delete the content below.

 


Rule of thumb: If a first-term president's term ends with a good, strong economy, he gets a second term. 

 


In "How Richard Nixon Pressured Arthur Burns: Evidence From the Nixon Tapes" Burton A. Abrams writes: 

In Nixon’s 1962 book, Six Crises, he recounts that Arthur Burns called on him in March 1960 to warn him that the economy was likely to dip before the November election. Nixon writes that Burns “urged strongly that everything possible be done to avert this development. He urgently recommended that two steps be taken immediately...”

Their idea was to improve the economy enough that Vice President Nixon would win the election and take his turn as President when Eisenhower's second term was up. Today this would be called "election interference."

No steps were taken. Abrams continues:

Herbert Stein, who was a member of the Council of Economic Advisers from the start of Nixon’s [first] term and became chairman at the start of 1972, confirms that Nixon blamed a modest rise in the unemployment rate as one of the reasons he lost the 1960 election.

Thus our rule of thumb. Again, Abrams: 

Evidence from the Nixon tapes, now available to researchers, shows that President Richard Nixon pressured the chairman of the Federal Reserve, Arthur Burns, to engage in expansionary monetary policies in the run-up to the 1972 election.

Here, the election interference appears to be driven by Nixon. In their 1960 encounter, it seems to have been Burns's idea. At least, that's how Nixon remembered it for Six Crises.

In both cases, 1960 and 1972, the plan was to improve the economy enough to keep the incumbent (or his party) in power. There is something almost heartwarming about Nixon's interference, because in both cases the idea was to improve the economy. Both times, however, the interference was conceived as a way to assure the election (or re-election) of Nixon. Both times, Nixon was engaged in election interference intended to benefit Nixon.

 

From "Nixonomics: How the Game Plan Went Wrong" by Rowland Evans, Jr. and Robert D. Novak, in Atlantic Monthly, July 1971[1]:

During that difficult decade after his defeat in 1960, aides and close friends had heard Nixon say privately time after time that had President Eisenhower only taken his and Arthur Burns's advice early in 1960 and moved rapidly toward stimulating the economy, he -- not Jack Kennedy -- would have been elected President. The implication, not quite stated flatly, was that Richard Nixon, if he had the power, would never again go into a presidential election with the economy in a state of deflation.

Note 1: As reprinted in Stabilizing America's Economy (The Reference Shelf, Vol. 44 No. 2); edited by George A. Nikolaieff.

Evans and Novak show Nixon fully committed to election interference.

More dirt on Nixon, this from the "Federal Reserve Chairman" section of Wikipedia's article on Arthur Burns:

Nixon later blamed his defeat in 1960 in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968, Nixon named Burns to the Fed Chair in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.

Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed. Burns's relationship with Nixon was often rocky. Reflecting in his diary about a 1971 meeting attended by himself, Nixon, Treasury Secretary John Connally, the Chairman of the Council of Economic Advisors, and the Director of the Bureau of the Budget, Burns wrote:

The President looked wild; talked like a desperate man; fulminated with hatred against the press; took some of us to task – apparently meaning me or [chairman of the Council of Economic Advisors, Paul] McCracken or both – for not putting a gay and optimistic face on every piece of economic news, however discouraging; propounded the theory that confidence can be best generated by appearing confident and coloring, if need be, the news.


Wikipedia also includes a detail which seems to have been omitted from All the President's Men, the great Alan J. Pakula movie starring Robert Redford and Dustin Hoffman:

At the Watergate break-in of 1972, the burglars were found carrying $6300 of sequentially numbered $100 bills. The Fed lied to reporter Bob Woodward as to the source of the bills. Burns stonewalled Congressional investigations about them and issued a directive to all Fed offices prohibiting any discussion of the subject.

Watergate was just one more example of Nixon tampering with elections. That time, however, it did not include improving the economy. Watch the movie. Watch All the President's Men

Improving the economy as a form of election interference might seem by comparison a good idea. But when winning the election intrudes on economic policy, the economy will lose every time. And the incidental considerations, like lying to Bob Woodward, stonewalling Congress, and prohibiting discussion are but a Nixon Sampler of the damage created by such manipulations.

By the way, Richard Nixon and Donald Trump were pen pals.

 

 

In The Emerging Republican Majority (1969), Kevin P. Phillips identifies "the two principal architects" of the emerging Republican majority: Richard Nixon and John Mitchell. Among that emerged group, then, Nixon's sleazebag behavior is apparently seen as worthy of emulation.

 

 

From Wikipedia's "Arthur F. Burns" article:

Burns served as Fed Chairman from February 1970 until the end of January 1978. He has a reputation of having been overly influenced by political pressure in his monetary policy decisions during his time as Chairman[13]...

Footnote 13 reads:

Bartlett, Bruce (2004-04-28) "(More) Politics at the Fed?", National Review

There is this link:

http://www.nationalreview.com/articles/210446/more-politics-fed/bruce-bartlett

That link is broken. This one works:

https://www.nationalreview.com/2004/04/more-politics-fed-ridhancock/

The link turns up "(More) Politics At The Fed?" at National Review,  attributed to RIDHANCOCK. (Bruce Bartlett is acknowledged in a note below the article. I will refer to the article as the Bartlett article.)

The Bartlett article says:

Nixon wanted to keep monetary policy loose in order to make sure the economy was robust going into the election. This led to the imposition of wage and price controls in August 1971.

That paragraph concludes: 

While everyone knew they would not work for long, the controls reduced inflation enough to keep monetary policy expansive through November 1972, which was all that mattered.

Now, that sounds like Nixon: Getting elected was be-all and end-all.

 

The Bartlett article (dated April 28, 2004) opens with this paragraph:

Rising inflation and interest rates, although still low by historical standards, are starting to get the attention of economists. It is becoming harder and harder to find an economist who doesn’t think the Federal Reserve needs to tighten monetary policy soon. However, Fed officials continue to say that unemployment, low capacity utilization, and strong productivity growth argue against tightening at this time. They may be right. But one cannot help but suspect that politics is also playing a role.

Once you see election interference in Nixon, it is easy to see elsewhere.

The article concludes with these thoughts:

The reason this [Nixon/Burns] history is relevant today [2004] is because the Fed is under increasing pressure to tighten monetary policy. While there is no evidence of White House pressure to keep monetary policy easy, one can assume that it will not be displeased if the Fed avoids tightening before Election Day.

Fed Chairman Alan Greenspan is well respected and no one believes he would knowingly use monetary policy for political purposes. However, the longer he waits to tighten monetary policy, the more people are going to ask whether politics is playing a role.

Once you see it in Nixon, you see it everywhere.

Bartlett (or RIDHANCOCK) was aware of Nixon's willingness to use economic policy for political gain. Because of rising inflation and an unresponsive Fed, Bartlett grew concerned about election interference in the era of George W. Bush and Alan Greenspan. Not that there was evidence of interference. But inflation was rising, and interest rates were not. Bartlett saw the possibility of election interference, and he couldn't look away. 

I can respect that.

 

If you go looking, you can find tales of Nixon and Burns in many places. The other day I came upon three that I had not seen before. They broaden the picture substantially. Here is a quick look:

At AP News, 12 May 2022:

The chronically high inflation of the 1970s has been attributed, in part, to political pressure that led the Fed to forgo steep rate hikes under Presidents Lyndon Johnson and Richard Nixon.

At AP News, 31 May 2022:

In the early 1970s, President Richard Nixon pressured Fed chair Arthur Burns to lower interest rates to spur the economy before Nixon’s 1972 reelection campaign. Nixon’s interference is now widely seen as a key contributor to runaway inflation, which remained high until the early 1980s.

At Business Insider, 11 March 2024:

Richard Nixon pressured the Fed to keep interest rates low before his reelection, which helped cement the disastrous inflation of the 1970s. Ronald Reagan got the message to the central bank on his wants during his presidency, getting his chief of staff to tell then-Fed Chair Paul Volcker not to raise rates ahead of his reelection campaign. Volcker wasn't planning to raise rates anyway. In recent decades, however, most presidents shied away from saying much, until Trump.

Good article, that last. 


This all leaves me wondering about Donald Trump, Fed Chairman Jerome Powell, and the Biden inflation. 

I have no evidence that Trump and Powell talk the way Nixon and Burns talked. I have no evidence that Powell's March 2021 announcement (inflation is coming) was a coded message to administered-price setters to start raising prices. I have no evidence that the Fed's year-long delay before raising interest rates (March 2021 to March 2022) was somehow part of a Republican plan to take Biden down. I have no evidence. That doesn't mean it didn't happen.

Was the post-pandemic inflation created, weaponized, and used by Republicans in an attempt to defeat Joe Biden? Even if this question is spread only by rumor and innuendo, it could still have powerful consequences for the November election: The rumor shows the 2021-2024 inflation to be Trump's fault rather than Biden's. And the inflation has hit Trump supporters -- has hit us all, really -- hard in the pocketbook.

Friday, June 7, 2024

"Will Prices Drop?" -- 2½ pages from Irving Fisher

From Google Books, "Read free of charge". (I looked up temporary inflation.)

If it doesn't show up, click your "reload" button.

 

 


 

 

 



Saturday, May 18, 2024

Argument from authority

From Wikipedia:

Scientific knowledge is best established by evidence and experiment rather than argued through authority as authority has no place in science. Carl Sagan wrote of arguments from authority: "One of the great commandments of science is, 'Mistrust arguments from authority.' ... Too many such arguments have proved too painfully wrong. Authorities must prove their contentions like everybody else." Conversely, it has been argued that science is fundamentally dependent on arguments from authority to progress as "they allow science to avoid forever revisiting the same ground".

One example of the use of the appeal to authority in science dates to 1923, when leading American zoologist Theophilus Painter declared, based on poor data and conflicting observations he had made, that humans had 24 pairs of chromosomes. From the 1920s until 1956, scientists propagated this "fact" based on Painter's authority, despite subsequent counts totaling the correct number of 23. Even textbooks with photos showing 23 pairs incorrectly declared the number to be 24 based on the authority of the then-consensus of 24 pairs.

This seemingly established number generated confirmation bias among researchers, and "most cytologists, expecting to detect Painter's number, virtually always did so". Painter's "influence was so great that many scientists preferred to believe his count over the actual evidence", and scientists who obtained the accurate number modified or discarded their data to agree with Painter's count.

Economics is a minefield of Theophilus Painters. By comparison, the 30-odd years of Painter's dominance in zoology was a golden age.