Wednesday, November 5, 2008

Inflation and the New President

The Wall Street Journal Online (paid access) has an editorial about the racial and economic implications of the presidential race. WSJ notes:

>"While Mr. Obama lost among white voters, as most modern Democrats do, his success is due in part to the fact that he also muted any politics of racial grievance... The Democratic temptation will be to interpret this victory as a mandate for renewed liberal government. Republicans hope they do. The last three times the Democrats won this kind of victory -- in 1964, 1976 and 1992 -- they overreached and suffered big losses two years later...

>"We'd note in particular that Mr. Obama ran as a tax-cutter for '95% of workers,' promising tax rates 'less than they were under Ronald Reagan.' This is only one of the ways that the skillful candidate was able to disguise the details of what was the most left-of-center Democratic agenda since the early 1970s. The exit polls showed that among the 70% of voters who believe their taxes will go up under Mr. Obama, 55% voted for Mr. McCain. Democrats raise taxes in a recession at their peril..."

The cause of the economic decline that led to the Democratic victory, in WSJ's view, goes:

>"back to the causes of the housing bubble. Republicans -- specifically, Mr. Bush's Federal Reserve nominees and Treasury Secretaries -- forgot about the value of money. They failed as stewards of the dollar, unleashing a credit mania and panic that collided in colossal bad timing with a Presidential campaign."

The response of Henry Paulson and Ben Bernanke has been more spending and more monetary expansion. Barack Obama was elected not by the lower income strata, who were less friendly to him than anticipated, but by those earning over $75,000 who are concerned about their 401ks.

The Democratic response will be to increase the money supply even further. This will enable them to boost the stock market, reduce financial pressure and possibly make possible their policy goals. The result will be inflation. If the Democrats choose to act like conservatives, which the Journal proposes, then the stock market will fall and there will be somewhat less inflation, although the fundamentals for a large inflation are already in place. Moreover, the real estate market may have a lot more to fall, resulting in "stagflation".

I am not a fan of either Republicans or Democrats but view the Republicans as the lesser of two evils. The public remains committed to the current Progressive regime, which subsumes both parties, and can expect poor economic performance, increasing income inequality and reductions in freedom regardless of who is in power.

1 comment:

quid said...

big government just takes money out of circulation >. given the multilier effect it is a drain on the economy >. trickle down or trickle up big government just limits economic possibilities and therefore freedom