When we look at U.S. presidencies, a similar pattern emerges. Since 1961, even if you had no access to newspapers, polls, unemployment numbers, and stock-market indices, you could have made some prescient predictions about presidential fortunes simply by watching the value of the dollar. Indeed, with the unique exception of George H. W. Bush, the performance of the dollar has predicted presidential outcomes very well.
A weak dollar produces a failed presidency because a weak dollar is just another way of saying inflation. Inflation always hurts the middle and lower classes the most and they make up the majority of the electorate. That’s what all the Bush economic cheerleaders such as Larry Kudlow have missed over the last 8 years. While the economic statistics on the surface looked reasonable, the hidden tax of inflation was eroding the purchasing power of the average American.
Inflation is also the source of the increasing class warfare evident in the recent presidential campaign. The rich have indeed gotten richer under Bush, but the culprit is not tax policy as is presumed by those on the left. The rich have captured more of the national income but have also paid more of the tax bill. Making the tax code even more progressive will just reduce growth and lead to disillusionment by those placing their hopes for equality on the alter of redistribution. John explains the rising inequality:
As the late Robert Bartley wrote in The Seven Fat Years, “inflation always creates winners and losers, redistributing wealth.” Unfortunately for wage earners, when currencies collapse, capital more readily flows into commodities, collectibles, and property, such that entrepreneurs and businesses go wanting for capital. Simply put, workers are bitten twice by inflation — first through the reduced value of their earnings and second through investment slowdowns that make it impossible for employers to increase wages commensurate with rising prices.
The good news is that fixing this problem is not nearly as hard as everyone expects. Enact policies that increase the value of the dollar and inflation will disappear:
And now, with the dollar at historical lows, it’s often remarked that fixing our inflation problem will be painful. This couldn’t be further from the truth. A stronger dollar would bring unmitigated good, increasing the value and amount of wages thanks to increased investment. Of course, a stronger dollar also could have saved the Bush administration from an inflationary economic legacy that gets worse by the day, and which continues to anger the electorate like no other policy.
Unfortunately, the likely winner of today’s election is not proposing any policies that will accomplish the goal of a stronger dollar. Higher taxes will not raise the value of the dollar. Higher government spending will not raise the value of the dollar. Hope will not raise the value of the dollar.