Congress And This Economy
On January 3, 2021, one hundred Senators and 435 Representatives began the 117th United States Congress. Two weeks later, Joseph Biden was sworn in as the 46th President. Today, we, the voters, have the opportunity to decide whether they have been successful in guiding our diverse country.
Today one-third of the Senate and all of the House of Representatives will stand for election. While each candidate may have their preferred project or issue, we will look at the “Pocketbook” issues. We’ll take an objective look at the big economic picture.
James Carville, then President Bill Clinton’s campaign manager, famously said that in all elections, it’s the economy that determines the outcome. “It’s the economy, stupid,” he replied when asked what would win that Presidential election. And his advice has been followed every year since, except for this year.
If you’ve noticed, most incumbents rarely mention the economy. They’ll gladly talk to you about anything else, from climate change to health insurance. But it’s almost impossible to get them to talk about the economy. And that should tell you all you need to know about current monetary conditions.
So, let’s step back and see how today’s economy compares to what these Senators and Representatives inherited on January 3, 2022.
The nation was recovering from the Covid-19 economic lockdown. The economy has been through the shortest and deepest recession in our history. The fastest, in that the recession lasted only one quarter. The deepest in that GDP recorded a nearly 30% decline in economic activity, at one point declining at a greater rate than the Great Depression of the 1920s.
And the cause of this abrupt recession? Lockdown was the policy of political leaders to close any shop or business considered “non-essential.” It was these lockdowns that imploded the economy
When the 117th Congress was sworn in, most of the volatility was behind us. The country survived both the economic crash and the subsequent economic boom. So on that early January day, the nation’s GDP came in at 2.8% growth. Today, the economy is growing at nearly an identical pace. GDP last showed 2.6% growth. So no real change in economic growth over the past two years.
However, it is an entirely different story when we get to inflation. Despite the economic roller coaster the nation had been through, there was little inflation when 2021 began. The day the 117th Congress was sworn in, inflation stood at less than 2%. So weak was inflation that back then, it was the Federal Reserve’s policy to increase inflation. I know it’s hard to imagine that today.
But all that began to change immediately upon the Senate and Representatives taking their seat. Those government stimulus checks they all voted for began to have a predictable effect. Inflation took off like a rocket, from less than 2% on their inauguration to nearly 7% by year-end.
Who would have thought printing money out of thin air might produce inflation? Our Congresspeople must have missed econ 101 — the part about more dollars chasing fewer goods and services is inflationary.
So on inflation, this Congress and the President should get all the “credit” for inflation.
Inflation has led to a very curious situation in our income and spending.
We’ll begin by looking at Personal Income. When this Congress began, the country’s real personal income was 19.3 billion annually. Today it is only 17.7 billion. However, unlike most other times I remember, this loss of real income is due entirely to the impact of inflation. Some may feel that the paycheck is the same. But after inflation is accounted for, they lose purchasing power. That paycheck might read the same, but it won’t buy as much.
The other way to say that is it costs more today to buy just about everything. So, and this is a great irony, people are spending more today than two years ago. Spending is up 7% these last two years. Why? Answer shortages. Specifically shortages in the entire energy field, but especially oil and gas. Gasoline has been the number one contributor to inflation these last two years.
These Higher prices are due entirely to President Biden’s anti-fossil fuel policies. You may have noticed that the President announced that he would shut down the coal industry. Another blow against energy supplies for the country. That should do wonders for those areas of the country that still rely on coal-powered electric generation.
So real personal income is declining because of inflation. Private expenditures are increasing because of shortages, particularly in energy. That is not good news for those of us average consumers.
The final economic measure we’ll look at is the cost of finance. During these past two years of runaway inflation and energy shortages, this Congress and President have done little to nothing to address the genuine issues.
Reducing government spending would go a long way in reducing inflation. But Washington is mum. Promoting fossil fuel production would go a long way in mitigating energy shortages. Fossil fuels, after all, represent more than three-quarters of the energy we use. But again, neither Congress nor the President wants anything to do with carbon-based fuels.
So the Federal Reserve is the quasi-governmental agency tasked with “curing” inflation. It is now the Fed’s responsibility to slay the inflation dragon. And their only weapon seems to be interest rates.
Interest rates have gone from one-quarter percent to four percent. Perhaps the most significant relative increase in interest rates ever. Higher interest is pure destruction of the demand side of the economy.
Although we’ve seen some demand destruction, especially in real estate, the full impact of these rate hikes will come next year. And that is the reason that many analysts are predicting a Recession commencing by mid-2023.
So that’s a brief look at the economic record of the 117th Congress and the 46th President. It’s been two years highlighted by: stimulus-driven inflation, energy shortages, and the loss of personal purchasing power.
Something to think about when you’re in the polling booth.
Political Briefs
At last, it has arrived, Election Day. The Day that many in the country have looked forward to for nearly two years. When last Americans took to the polls, it ended bitterly. Joe Biden was elected President, to the great dismay of roughly half the populace. Many, on the other side of the spectrum, felt that the election had been rigged. That Biden had not achieved the electoral majority that he claimed. And for two long years, Republicans have plotted their revenge.
Today’s the Day that two years of hard work concludes. By most estimates, the GOP should take control of the House of Representatives with a solid majority.
However, over in the Senate, it may be a different story. There are fragile margins in some of the most hotly contested Senate Seats.
We will likely see this election drag on for days as slow counting and legal challenges are very likely to take over. Look for lengthy and bitter court battles in some of the significant Senate elections. President Biden last week warned us of that outcome. And as head of one of the major political parties, he’s no doubt right.
If Republicans win the House, that will put them in charge of the nation’s economic policy for the first time in years. And should mark a dramatic change from the free-spending, aggressively liberal policies that currently are dominant. After all, much is at stake here.
Under House Speaker McCarthy, we would see more pro-energy legislation. Including pro-oil and gas policies that would help boost the economy. Additionally, I would hope that a Republican Congress would rein in Government Spending, perhaps to the nearest trillion.
There are no significant economic reports on this Election Day.
Follow me here on Medium for more stories on money and finance.
