Stephen Moore: New GDP report is a five alarm siren warning -- we are headed towards stagflation

Nearly every Biden policy has made inflation and the economic slowdown worse

The Commerce Department reported today that the high-flying U.S. economy with a 6.7% rate of growth in the U.S. economy for the first half of this year crash landed in the third quarter (July-September) with an anemic rate of just 2 percent. 

What the new report shows is that the supply chain disruptions – getting productions from the plants and the cargo ships to the retail customers – is creating havoc. Car sales, for example, were way down because of microchip shortages. Many grocery stores now have empty shelves of produce and vegetables.   

This slow growth rate comes at a time when inflation has hit its highest level in more than a decade at 5.6% and consumer confidence in the economy has tumbled.

All of this is a bit reminiscent of the economy of the 1970s. Anyone remember the term stagflation? 


Those under the age of 40 probably don’t even know what that is – and they’ve certainly never experienced it up front and personal.

Here’s the official definition from Investopedia: Stagflation is characterized by slow economic growth, which is at the same time accompanied by rising prices (i.e. inflation)."

The last time we saw this phenomenon was in the 1970s during the era of presidents Nixon, Ford, and Carter. Years of persistently high inflation triggered a surge in unemployment. That then led to the term "misery index." The sum of the inflation rate and the unemployment rate.  It exceeded 18% in Carter’s last year in office.

And then it was…Jimmy we hardly knew ye.  With the economy sagging, Carter lost a landslide election to Ronald Reagan. 


The lesson here is straightforward: Stagflation is the ultimate curse for politicians.

How bad is it now? 

Inflation, which had been relatively tame for 40 years, has been a cascading problem in Biden’s first ten months in office. The Consumer Price Index suddenly galloped from less than 2% in the Trump years to between 5 and 6% for the past four months and the cross your fingers hope by the Federal Reserve Board and the White House that the sticker-price rises at the grocery store, the restaurant and the gas station were only "transitory" have melted away like an ice cream cone on an August afternoon. 

To be fair to Biden some of that steep rise in prices was bound to happen due to the depressed prices during 2020 – the pandemic year.  As consumer spending popped like a cork from a champagne bottle when lockdowns ended and the economy returned to normal there was a natural demand response to reopening.   

But nearly every Biden policy has made inflation and the economic slowdown worse. The absurd $1.9 trillion blue state bailout bill passed in March marinated the economy with hundred dollar bills as if dropping like confetti from helicopters.   

Worse yet has been the expansion of welfare programs like food stamps and unemployment benefits (not tied to working).  These free cash and benefit programs incentivized workers to stay out of the workforce and collect government payments that when added all up could be the equivalent of a $75,000 a year job in many states. The big surprise was that the labor force shrunk and companies had 11 million jobs they couldn’t fill. 


The worsening supply chain issues – due in part to a lack of truck drivers and warehouse workers – has created a shortage of goods on  the selves from bananas to Band-Aids to blue jeans.  Less goods and more cheap money to spend is the very textbook definition of gale force winds of inflation.   

The most worrisome trend is the almost overnight decline in business investment.  Business investment or "Cap X," as it is sometimes called, is the seed corn of a productive economy. 


Companies have slowed their investment spending in part because of the imminent threat of higher taxes and a steel fist of new regulations has cautioned businesses to hit the pause button. 

Why invest when the politicians in Washington are threatening to tax away your earnings in the name of paying your "fair share?" Businesses that make profits are now demonized as enemies of the people in this new progressive culture.   

The income redistributionists who seem to be driving the Democratic Party agenda are soon going to learn that there pixie dust economic doctrine called Modern Monetary Theory – which posits that Congress can spend and borrow ad infinitum -- is a giant hoax. 

When the political class begins to indiscriminately plunder company profits in the name of "fairness," the profits and the businesses begin to disappear.   


So if Congress and the White House are as afraid of the forces of stagflation – as they should be – what should they do? 

The first and most urgent step to contain stagflation is to defeat Biden’s $1.75 trillion spend, tax, borrow, and print money scheme. As FBN's Larry Kudlow puts it… Save the Country: Kill the Bill.

This week’s GDP report is a five alarm siren warning that the Biden debt binge has to stop now or our current and hopefully temporary stagflation doesn’t turn into runaway stagflation. 

Stephen Moore is a senior fellow at FreedomWorks and co-founder of the Committee to Unleash Prosperity. His latest book is: "Trumponomics: Inside the America First Plan to Revive Our Economy."