How many Democrats does it take to cause inflation?
My first economic essay was written in 1978 regarding the oil crisis and inflation. The commonality with today is that a few men can cause inflation. Another similarity is that each episode was preceded by a dramatic increase in government spending, followed by a rise in oil prices. One did not cause the other; they had separate causes.
The inflation in 1978 was caused by Lyndon Johnson, Tip O'Neill, Jimmy Carter, and Moammar Gaddafi. Gaddafi only acted like a Democrat by raising taxes, as you shall read below.
When Lyndon Johnson's Great Society took hold in 1968, social spending (health, education, and welfare) was about $80 billion. By 1974, health and welfare alone had risen to $265 billion. There was no budget high enough for Tip O'Neill's Congress. By 1980, that budget was $405 billion. In late 1980, after Jimmy Carter lost the election, he proposed a budget of $495 billion, which defeated Ronald Reagan's proposal of $465 billion. Democrats claimed that the $30-billion difference was a $30-billion cut in spending for the poor by Reagan. They used that canard for the next eight years. Reagan's defeated proposal, to match inflation, would have been a 15-percent increase.
In 1970, our cost of oil, after delivery, was $1.65 per barrel. OPEC exporters were matching our demand, though they were nearing their export capacity.
In May 1970, a bulldozer broke a pipeline near the Persian Gulf, and the spot market price of oil temporarily touched $6.00 until the pipeline was repaired. Moammar Gaddafi of Libya noticed this and called Armand Hammer of Occidental Oil for a meeting. Gaddafi imposed a tax that matched the spot market price spike, and Occidental's cost tripled.
Armand Hammer emerged from that meeting saying, "The Western world will never be the same again." Other OPEC members began imposing taxes. By the first oil crisis in 1976, OPEC members had imposed an approximate average $6.00 tax, taking the cost to about $8.00. During the second crisis in 1978, they imposed another tax of about $5.00, raising the delivered cost to about $13.00 per barrel.
Then Jimmy Carter added the windfall profits tax. The price leaped to $37 in 1980, the year he imposed the tax. A tax on profits applies leverage to price increases.
Unfettered capitalism had delivered oil for $1.65. Taxes increased the price twenty-two times. Inflation peaked at just over 15 percent.
Today we have a similar economic scenario: an enormous increase in government spending and rising oil prices. For this, we can blame President Obama, Anthony Fauci, Governor Newsom of California, Major Garcetti in L.A., and President Biden.
Government spending soared when President Obama took office. Add up the cost of the Afghan and Iraq wars over five years of the Iraq War, triple it, and that is less than what Obama spent in his first 90 days. Don't believe it? You may recall that President Bush requested war funding each year, and Democrats played politics for at least a month each time. In the first partial year, there was no request (they performed operations with the existing budget). The next year, they asked $85 billion, then $80 billion three years in a row, and an extra $40 billion for the surge. That is $365 billion for both wars over five years.
President Obama created the $787-billion stimulus in his first week, and some weeks later revived the remaining TARP money of $370 billion in money that President Bush had discontinued. That $1.157 trillion was more than three times the five-year cost of wars. Then Obama added an $813-billion stimulus for each of the next four years, plus two years of Q.E. spending at $200 billion each. That is a lot of inflation fuel, ready to ignite.
The spark was provided by Fauci's shutdowns. Many states shut down, and Democrat governors maintained their shutdown for about four months. It should be obvious that if we shut down about a fifth of our factories for four months, it will create a shortage of usable goods. That is when prices started to accelerate, after three decades of moderation. Demand was not about to slow, so it went overseas via Amazon, which exposed an exacerbating problem at the Port of Los Angeles.
We can thank Governor Newsom and Major Garcetti for the clogged port in L.A. They are responsible for the nation's most strict regulations imposed upon truckers. There are not enough truckers willing or able to clear the port.
Truck engines must meet California's strict emission standards, and by the end of this year, most trucks built prior to 2010 will not be allowed on the road. There are no accommodations for truckers and no truck parking. Trucks may no longer be parked on residential streets. They must find industrial parks, and even there, drivers may not idle their engines for more than five minutes. This leaves many of them with no heating or cooling systems in their cabs. Many truckers refuse to serve west of Las Vegas.
Enter President Biden. It has been said that his mask mandate reduced the national truck force by at least ten percent. The mandate was also required for driver licensing and renewal.
Biden also ignited the dramatic oil-price increase. In his first month, he shut down nearly every source of oil within his jurisdiction. On January 20, when he took office, our domestic production of oil was at the highest in our history at 13,100,000 barrels per day. Within a month, it plunged to 9,700,000.
Inflation is off and running.
There is a lesson to be learned here. Most economists blame the money supply for inflation. Clearly, that is unjustified. The excessive money supply existed years before inflation occurred. A bloated money supply provides the fuel of demand, but inflation requires a spark on the supply side — an excess of cost or reduced supply of usable goods.
The spark is preventable and most times curable after ignition. But do you believe that Democrats will reverse their policy decisions? Good luck with that. Perhaps that is why Milton Friedman simply demanded that we restrict the money supply, rather than drill more at home and reduce oil taxes. It was an emergency, and there was no time for politics.
Restricting the money supply by raising interest rates to strangle the economy is like choking the patient rather than treating the ailment.
We should at least keep in mind the cure: fire Fauci and replace him with someone to end these ridiculous and unnecessary pandemic regulations. Grant truckers an exemption from onerous regulations. And reverse Biden's restrictions on domestic oil production.
But good luck with that. We will no doubt choose to choke the patient.
James T. Moodey is a retired entrepreneur, author, and economic essayist. His recent book, The Ladder Out of Poverty, successfully determined why the poverty rate has not declined since the Great Society promised to end poverty.
UPDATE: The original version of this post failed to state that the number of barrels on Biden's watch were actually calculated in the 1000s. That error has since been corrected.