Lessons from Nixon

Posted by: Paul Donovan

12 Nov 2021
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Daily update

  • Politicians have noticed inflation (although voters may be less concerned—most US consumers have not found inflation has limited their ability fill their homes with ever increasing amounts of unnecessary goods). Hungary’s government has imposed price controls on fuel, demonstrating it is “doing something” on inflation. There are historical precedents for this.
  • US President Nixon twice presided over wage and price controls—in US President Roosevelt’s wartime administration, and from 1971 as president. The 1970s controls briefly lowered inflation, then led to shortages as sellers refused to sell without pricing power, then led to surging inflation when controls were lifted. The inflation effects of government-imposed weak pricing power differ completely from the inflation effects of market-driven weak pricing power.
  • The dispiriting part of today’s US Michigan consumer sentiment opinion poll is the comparison of Republican and Democrat sentiment—a visual representation of severe political polarization. The inflation expectations number represents neither inflation nor expectations—it represents current food and fuel prices.
  • The COP26 summit is concluding with little action. Was it all a waste of jet fuel? There have been corporate commitments to change, and while some of this is “greenwashing,” the private sector (with government and philanthropy) is vital to sustainability, so any progress is to be welcomed.

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