Inflation and Unemployment Rising: Stagflation Likely
High unemployment plus high inflation equals stagflation. This is Bidenomics in action.
The White House and mainstream media can spin the unemployment numbers any way they want, but spin doesn’t change the reality; things are bad. The official unemployment rate is 3.8%, up from 3.5% last year. Meanwhile, under Biden, as much as 25% of the jobs created are government jobs. That is at least double what it should be for a free-market, capitalist country. Despite this boom in taxpayer-funded government job creation, employment fell again last month by 50,000 jobs. This year, about 1.8 million full-time jobs have disappeared.
Ironically, the workforce participation rate has been falling under Biden. This means that even though a greater percentage of the population has decided to give up and no longer look for a job, there still aren’t enough jobs for those who want to work.
According to the Bureau of Labor Statistics, 2023 ended with 4.2 million Americans reporting that they were working part-time jobs for economic reasons, which was an increase of 333,000 from the previous year. This includes people whose hours have been cut from full-time to part-time. The jobs report showed that the number of part-time jobs is growing, while the number of full-time jobs is decreasing.
The US Bureau of Labor Statistics defines employment as any individual aged 16 or older who has worked as a paid employee for at least one hour per week. Consequently, the number of unemployed individuals wouldn’t change if someone who previously held a full-time job with benefits, earning $124,000 annually, transitioned to working just a single hour per week at a fast-food establishment for $7.25 an hour without benefits. Following this logic, the White House could claim it created a job when a single part-time position is added to the economy.
Bidenomics has magically transformed full-time jobs into part-time jobs and private sector jobs into public sector jobs. And that will not grow the economy or make people’s lives better.
Another achievement of Bidenomics is inflation. Biden was able to grow that number much higher than Trump ever did. During the four years of the Trump administration, the highest average inflation rate was 2.4%, which occurred in 2018, and the lowest was in 2020 when inflation dropped to 1.2%. Biden scored a high of 8% in 2022 and is currently running at about 3.5%.
While 2024 so far has been better than 2023, which hit an average of 4.1% inflation. At the same time, inflation has been rising month on month. So, we may get back to 4% at some point soon.
The reason why the Trump economy was so amazing is that he had low inflation, low unemployment, and low interest rates—a trifecta that is almost impossible to achieve. Normally, a high inflation rate results in a low unemployment rate and vice versa. So, the government has to balance between job creation and inflation, and the Federal Reserve regulates inflation by raising or lowering the interest rates. However, Trump was able to deliver low unemployment and low inflation while keeping interest rates below 1%.
As of last month, the Federal Funds Rate was at a 23-year high of 5.25% to 5.5%. At that rate, it is no wonder that job creation is low; however, there should be no inflation. But even with this decade’s high interest rate, inflation is rising and employment is falling. And this condition matches the definition of stagflation.
The reason why stagflation is such a scary monster is that it defies most of the tools the Fed has in its arsenal to regulate the economy. The Fed can raise interest rates to fight inflation, but that will cause unemployment to rise. Alternatively, the Fed can cut interest rates to create jobs, but that will cause inflation to rise.
In an election year, a sitting president may want to cut interest rates in order to create the illusion of growth, and this is exactly what Democrats are calling for. In fact, even the Fed has said it might cut interest rates if that would give Biden a boost for the election.
Nearly all countries around the world have some type of central bank. Many of them are government-owned, while others are private. The US Fed is not owned by the government. As such, it is meant to be independent of government influence, making monetary policy decisions based on mathematical and economic models, irrespective of politics. However, this year, the Fed has admitted that they may change US monetary policy to influence the election. Not only would this be a violation of the public trust, but it would also be detrimental to the economy.
The Federal Reserve Chairman who played a key role in curbing the stagflation of the 1970s was Paul Volcker. And the way he did it was by aggressively raising interest rates, which peaked at 20%. The high interest rates caused a great deal of hardship, but that is what it took to tame 10 years of high inflation and high unemployment.
If the Fed cuts interest rates to help Biden in the election, we could be looking at several more years of skyrocketing inflation and rising unemployment.
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