Stagflation – Another Blast from the Past

“History doesn’t repeat itself but it often rhymes” is a quote attributed to Mark Twain. In the political and economic world, this maxim is proving true, as we are witnessing today.

The misery index is one such bit of history, dating back not that far, to the Jimmy Carter presidency of the late 1970s. Calculated by adding the unemployment and inflation rates together, the misery index “measures the degree of economic distress felt by everyday people.”

It is currently just over 12 percent, and that’s being generous given how the government calculates inflation. More on that later. The misery index reached 15 percent just after COVID hit and the country locked down, closing businesses left and right. During the Carter era it topped 20 percent.

Former House Speaker Newt Gingrich was recently interviewed on Fox News and brought up the misery index along with another golden oldie, stagflation. This is a term first used in the 1960s in the United Kingdom, describing a period of a stagnating economy along with rampant inflation, hence the coined term.

Various definitions have been applied to stagflation. Investopedia describes, “Stagflation can be alternatively defined as a period of inflation combined with a decline in the gross domestic product (GDP).” Former Speaker Newt also used the term in his Fox News interview, tying them both together:

We lived through this with Jimmy Carter. It ended up being called stagflation and people ate it up. The unemployment rate and the inflation rate and turn it into the misery index by adding the two numbers together, we have a grave danger of being worse off in another year or a year-and-a-half than we were under Jimmy Carter.

Stagflation may be the anchor hanging on Democrat necks ahead of the November midterm elections. Real GDP contracted in the first quarter of this year by 1.4 percent, negative growth. The last such contraction was during the first half of 2020 when COVID shut down businesses, travel, restaurants, and life in general. Now America is post COVID and the economy should be booming. One more quarter of negative GDP puts us officially into a recession, something the Democrats will be delighted to showcase as they ask American voters to leave them in charge of the nation’s affairs.

Inflation, we were told by Federal Reserve Chairman Jerome Powell, was “transitory.” Just a mere blip, a temporary and minor spike in prices, much like calling the BLM riots in the summer of 2020 “peaceful protests.”

Economic realists pounced on Powell’s naïve assessment. “The characterization of inflation as transitory is probably the worst inflation call in the history of the Federal Reserve, and it results in a high probability of a policy mistake,” according to Allianz Chief Economic Advisor Mohamed El-Erian.

Inflation is calculated based on many assumptions of the costs of various goods and services, all plugged into complex formulas that would make any non-mathematician’s head spin. It is the change in cost of this basket of goods that determines the rate of inflation. Like any other formula, the maxim “garbage in garbage out” applies.

For example, energy is only 7 percent in relative importance in...

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