by Mitch Kokai
Senior Political Analyst, John Locke Foundation
History withholds its wisdom from those who ignore its lessons. Forty years ago this month, the fiscal policy of President Ronald Reagan and the monetary policy of Federal Reserve Chairman Paul Volcker broke the back of the 20th century’s most destructive inflation, ushered in an economic expansion that effectively lasted a quarter of a century, and banished inflation—until now.
The buildup to the Great Inflation started in 1966, when Congress, at the urging of the Johnson administration, expanded funding for both the war in Vietnam and the War on Poverty. This “guns and butter” policy produced a double-digit surge in federal spending. By 1973 inflation was running at 8.7% and would average 9.2% for nine years—far surpassing average inflation of 3.3% between 1946 and 1972 and 2.7% from 1982 through 2019. …
… During the pandemic, total federal spending exploded as government spent in two years what it had spent in the three years before the pandemic. The Federal Reserve accommodated this fiscal explosion by buying or offsetting three-fourths of all the government debt incurred. The money supply expanded at the fastest rate in postwar history.
With inflation running at 9.1% and negative growth for the past two quarters, President Biden continues to press for massive increases in taxes and spending. Even though stimulus spending has ended, the Biden budget for fiscal 2023 calls for spending 30.2% more than the pre-pandemic 2019 nominal level. By executive order, regulatory appointments and antitrust actions, Mr. Biden has imposed the nation’s heaviest peacetime regulatory burden. He continues to attack big oil, big banks, big tech and big grocers and continues to search for price fixing, all policies that failed in the 1970s.
Mr. Biden is pursuing policies that are the exact opposite of the policies Reagan used to stop the inflation and revive the economy. Mr. Biden may think he can tax, spend and regulate America out of the inflation and recession. History suggests otherwise.