The Bulls Are Running, But a Bear Is Lurking

In political circles, small as they are, the argument of late has been over whether or not 2004 is a déjà-vu -all-over-again of 1972. As political writers repeat past the point of tedium, Presidential campaigns are decided by the voters’ sense of economic well-being. Liberal or reactionary, they’ll vote for the incumbent if they’re feeling flush and kick him out if they’re not. It’s the economy, stupid-last time, this time, every time.

That certainly was true in 1972. When Richard Nixon ran for re-election that year, he made sure that the country was basking in the sunshine of prosperity. With the help of Arthur Burns, the then chairman of the Federal Reserve Board, he flooded the country with money. The government’s printing presses poured out vast numbers of dollar bills that fluttered down on almost everyone.

Everybody rolled around in the green stuff and voted for Nixon. Then 1973 came along, bringing with it a hellacious inflation that scarred a generation of American politicians-to say nothing of what the inflation did to ordinary people. Interest rates rocketed into the heavens, the housing industry went just as far and fast in the other direction, and the nation went through a decade of stagflation (as the unhappy combination of rising prices and a stagnant economy was called). Things were so miserable that Jerry Ford, the chap who followed Richard Nixon into the White House, went around distributing “WIN” lapel buttons to anyone goofy enough to wear one. WIN stood for “Whip Inflation Now,” and sporting one had about the same relationship to bringing ever-rising prices down as wearing a flag lapel pin has on winning the war against terrorism.

Now comes the déjà-vu -all-over-again part. The first nine months of last year, George W. Bush and Alan Greenspan-the Arthur Burns of this era-couldn’t print money fast enough. In the last quarter they tapered off, but, since there’s a lag between printing the money and the economy getting its jolt from monetary Kickapoo Joy Juice, the timing ought to have been right for the voters to be in a good mood come Election Day. Certainly the stock market has gotten ever more perky, and if some of the other figures are not quite as good, the general mood is that it’s coming up dollars for everybody.

Assuming we will be feeling no economic pain when we stagger to the ballot boxes this November and re-elect the Christ-loving incumbent, how will we be feeling about the middle of 2005? Will we be happily bingeing or déjà vu –ing as we begin to be walloped by a mammoth inflationary punch? That is what some people see waiting for us.

Of course, you can find other experts of an opposite opinion in two shakes of a lamb’s tail. The administration has shipping containers full of economists who will tell you that is not how things are going to unroll. The America of 30 years ago is so different from the one we’re living in that the same actions which brought on the inflationary surge of the Nixon period may not have the same consequences now. In 1970, America was burdened with a gigantic, rusting industrial establishment, the inefficiencies of which had not yet become obvious. This noncompetitive industrial plant was unable to answer the rising inflationary tide with cost-cutting and increases in productivity. It merely moaned, wallowed and flopped. By decade’s end, so many companies had collapsed, disintegrated or imploded that the phrase “rust belt” was born.

Now it’s all different. The productivity increases of capital and labor have astounded even the glass-half-full crowd. If that weren’t enough to exercise downward pressure on prices, a huge amount of what we buy and use is made abroad and sold here at what seem to be ever-lower prices. The Asian nations on whom we most depend for merchandise are unfazed by a slipping or potentially inflationary dollar: They continue to hold their exchange rates steady and thereby keep their prices low. The net effect has been to keep prices of domestic manufactures low, even if it has forced companies who never dreamed they would do it to move their operations thousands of miles away from home. Cost, as a factor in American business life, is now as relentless as it was in the last half of the 19th century. In Nixon’s day, business was sloppy and cost-unconscious.

The classic definition of how inflation works is too many dollars chasing too few goods, but in our present circumstances, it may be that, regardless of how many dollars are printed here, there are Asian manufacturers who will match each dollar with more merchandise. If so, then maybe-though Mr. Bush and Mr. Greenspan have inundated the country with money via the printing press, tax cuts, rebates and deficit spending-there still will not be the inflation you would have bet on in the past.

The old adage among conservative economists is that there is no such thing as a free lunch. But in our time, when somebody is proclaiming a new revolution in commerce, technology or culture every week, can we have lunch without paying for it? That seems to be the White House’s supposition. You can buy stuff and buy stuff and buy stuff and, when the bill comes in at the end of the month, just say: “Charge it.”

That doesn’t always work for individuals. Credit-card delinquency rates are at record levels. Collectively, as a nation, we are not paying for what we buy. That being the case, every month we go deeper into debt-a situation that did not really obtain in Nixon’s time. Those who are selling us good, cheap stuff, which we can’t pay for, are letting us have it on the cuff. They buy our bonds, government and private, to make up the difference between what we buy from them and what we are able to sell to them. Not only do they lend us money, but they do so at rock-bottom interest rates-which makes you wonder what they get out of it.

Both as creditors and desperately needed customers, they are sometimes able to extract from us technology transfer and manufacturing know-how that helps them expand their industrial base: vide the recent sale of airliners by Boeing to China. To close the deal, the increasingly troubled American company had to agree to build important parts of the airliner in China, thus training a future competitor in how this exceedingly complicated work is done.

One cost of buying so much so cheap and on credit is American helplessness as it sees one industry after another depart for other places. The last few years have seen the decimation of the textile industry; now it’s the automobile-parts industry which is telling the mother country farewell. Not only are the big companies, controlled by Ford and G.M., removing themselves to the Orient, but small manufacturers of the kind that heretofore have seldom picked up and moved abroad are doing the same.

Yet with money abounding, the background noise you hear this election year is not the great sucking sound, but the great munching of America eating its lunch. Since nothing is as it was, there is no basis for predictions drawn from history. Maybe the waiter will show up with a bill, or maybe America will continue to eat for free.