Last Thursday, we observed the inaugural event of the two planned Presidential Debates. Predictably, the candidates, both battling unpopularity, failed to surprise or sway their public image.
Charles Sizemore of The Freeport Society has consistently emphasized the key issues America is wrestling with – issues both contenders seem to neglect. Sizemore’s work highlights how the economical plans proposed by the Presidential hopefuls could potentially impact the average American consumer. Importantly, he shares strategies we could employ to protect ourselves, no matter the election result.
Personally, I approach the rhetoric of both “Democrat economists” and “Republican economists” with a grain of salt. Economists swayed by political ideology often rely on selectively chosen data to bolster their beliefs – a practice I generally shun. Yet, the ominous phrase; “mother of all stagflations” coined by economist and former Treasury Secretary Lawrence Summers, cannot be ignored.
I’ve been considering the potential of stagflation, through my work with The Freeport Investor. Notably, the horrors of stagflation were infamously responsible for the downfall of both the Gerald Ford and Jimmy Carter presidencies. The aftermath of our last experience of stagflation in the 1970s was profound, prompting the creation of the “Misery Index,” which computed a combination of the inflation rate and the unemployment rate.
Summers, like many political economists, tends to simplify. However, he correctly highlights the risk of stagflation. His criticisms aren’t solely directed at Republican Donald Trump but also spread to the Democrats. In a striking comparison, Summers likens Trump to George McGovern, who was emphatically defeated by Richard Nixon in the 1972 election.
What precipitated Summers’ concern around the looming “mother of all stagflations”? Trump’s proposed 10% hike in tariffs, 60% for the majority of Chinese imports, and more inclusive plans, marked by Summers as “economic warfare.” These involve devaluing the dollar, pressuring the Federal Reserve to cut rates, and the contentious act of deporting 15 million illegal migrants, which could exacerbate the existing labor shortage.
Clever in their strategies, politicians from both parties seem to be experts at inventing elaborate ways to worsen the existing situation. Their continuation of mercantilism—the view that prosperity can be artificially induced through erecting trade barriers and curtailing competition—functions very much like an undead zombie policy. It re-emerges regularly, despite its repeated failures.
Our American companies excel on the global stage. They do not need protection to succeed, and when such protection is granted, the consequences are clear. Shielded firms often become complacent, inflate in size, and as a result, suffer a drop in product quality.
An example of this is my first car, the 1984 Pontiac Parisienne sedan, which was a mediocre vehicle that could barely make it to 70,000 miles. Today, it’s not uncommon for cars to last up to 200,000-300,000 miles with minimal maintenance. The arrival of competition from nations like Japan, South Korea, and others effectively forced American auto manufacturers to boost their standards or risk extinction.
Here at The Freeport Society, we strongly advocate for free trade, in the vein of Adam Smith. However, we acknowledge that even free trade has its limitations, much like free speech. We agree there might be cases where certain commodities crucial to national security should be exempt from free trade.
Tariffs, by nature, inflate prices, the exact antithesis of what we need in our ongoing struggle against inflation.
It’s widely acknowledged that the 1930 Great Depression began as a minor recession. The Smoot-Hawley Tariff of 1930 transformed the slump into a depression by causing a trade collapse. Due to the tariff, trade between the US and Europe fell by around two thirds over four years, shaping an economic disaster that eventually led to the ascendancy of Adolf Hitler, Benito Mussolini, and the Second World War.
While it’s debatable whether Trump’s tariffs will secure congressional approval, it’s unsettling that such measures are even being considered. This merely demonstrates that certain bad ideas, no matter how harmful, never die out.
Simultaneously, President Biden is nurturing similar misguided notions. His Inflation Reduction Act of 2022, primarily a funding initiative for green energy projects, may just contend for the title of the most misleadingly named bill in American history. A significant increase in government spending won’t help reduce inflation.
President Biden’s measures to eliminate student debt while preserving mortgage and credit card debts could potentially fan the inflation flames. Additionally, his persistence in continuing pandemic-induced economic stimulus long after the need has subsided isn’t beneficial.
From this, it’s evident we could be heading for turbulent times, regardless of whether we’re led by a dark horse candidate or one of the current contenders.
My advice? Armor your economic defenses. Hedge inflation with investments such as gold and crypto. Bank on exponential progress. Choose leading companies plus auxiliary ones that encourage progress. Select companies that produce the currency of the ultra-rich. Because whether it’s an unknown candidate or the current ones, we’re probably steering towards an unstable future.
Let us know what you think. Please share your thoughts in the comments below.
