Greetings from the state capitol! Last week, inflation hit 8.6%, the Federal Reserve increased its rate 3/4th of a percent, the stock market dropped into territory not seen since the early months of the pandemic, more supply chain problems emerged, and the national debt continued to soar. We saw negative GDP growth the first quarter, and it appears we may a second — two in a row is considered a recession. None of this is welcome news as everyday Oklahomans pay more for everything, particularly fuel and food, and worry electricity may be next.

Younger people don’t remember struggling through a similar time during the late 70s and early 80s. The country was in the first of two recessions within three years, and unemployment was at its highest level since the Great Depression. In 1980, inflation averaged 13.5% and prime rates hit an all-time high at 21.5%, having steadily increased the previous two decades from the 4% range. The Iranian oil embargo had driven up gas prices and reduced supplies. At the time, our country was heavily dependent on foreign oil as fracking and the extraction from shale had not been developed.

But those high interest rates, while slowing economic growth, also helped bring inflation to heal. The then chairman of the Federal Reserve was credited with beating inflation, which slowly ratcheted down over the next couple of decades as the price of money increased (had more value). There were also tax cuts, which “stimulated” the economy, itself inflationary, but very importantly, there were accompanying constraints on federal spending.

What is happening today is quite different. We are driving the price of money down (making it less valuable) with seeming little concern over our spending, while promoting policies that constrict demand (supplies) for a key pillar of our economy, and showing an unwillingness to take the hard steps necessary to slow inflation.

The Fed has been holding its funds rate at 0 or near 0% for a long time to help the economy limp along through hard times, and while now reluctantly increasing them, is at the beginning, not the end, of what they are likely to have to do. I say this because it took 20 years to get to the high rates of 1980, and 20 more for the rates to come down…. To a level where current Fed officials publicly say is their top target.

We’ve also spent 5.2 trillion dollars through six federal stimulus plans in a single year, including “paycheck protection”, American Recovery Plan Act (ARPA) funds, and infrastructure. This spending is over and above our more normal annual expenditures, which is flooding the economy with cash, creating more dollars chasing supplies of all kinds.

On top of that, the Biden administration has pursued a domestic energy policy that is contracting supplies. Our economy is largely fueled by diesel-powered trucking fleets and rail, delivering food and other goods everywhere. The Biden administration’s stated policy is to eliminate fossil fuel usage in favor of a “green” energy sector built on wind and solar. Pipeline projects have been cancelled, and promising exploration leases on federal lands and offshore have been cancelled; the ones without much potential are still allowed. As a result, oil is harder and more expensive to obtain, which simultaneously drives up costs and reduces supplies.

If you were an oil company, would you invest, explore, and produce in an environment where public policy is to drive you out of business? But this trend isn’t unique to this administration. Refining capacity is also important. However, the last major refinery was built in this country in 1977, when demand was substantially less than today. And don’t forget, much of our electricity is generated by other fossil fuels (i.e.., coal and gas). This supply chain problems is self-inflicted, making a difficult time worse.

So, supplies are constricted, and we pushed trillions into the economy by printing it (the opposite of curbing spending). The Fed has been slow to raise interest rates, so the dollar has been devalued. It is likely to take years for all the extra cash, much of which hasn’t even been spent yet, to wash through the economy and settle out to the point the laws of supply and demand can come into a better balance. In Oklahoma, we still haven’t even spent our $1.8B ARPA funds either, so more localized inflationary pressure is on the horizon.

I’m of the opinion that there is little state government can do to mitigate the effects of a national inflationary cycle. State coffers will probably see a temporary influx of gross production tax revenues from the high price of oil, but if we see higher unemployment and a slowed economy, we’ll also see declines in income tax and sales tax revenues as companies and employees adjust to inflation by curtailing their spending.

The state should provide tax relief where it can, control its spending, and focus on the long term. That means growing economic opportunity for those willing to invest, addressing our workforce needs, improving our tax structure, and getting better (more efficient, better service) at what state government does. In other words, we should do the same thing we would do if there was no inflation.

Now, about the $1.8B in ARPA funds yet to be distributed: we are in special session to do just that. We should be strategic about how we spend those funds, limiting them to one-time purposes. I favor large capital projects, workforce development, and shoring up some of our long term obligations if allowable, like funding our state pensions to the point they don’t require any future state resources. We should not fund anything that commits the state to continuing obligations.

And in the meantime, you and I will make the best individual decisions we can to deal with rising fuel, food, electricity, and other prices, and those choices will often be difficult.

As always, please drop by the office if you happen to be in Oklahoma City. You can call my office at 405-557-7380, or write to me at Representative Mark Lepak, 2300 N. Lincoln Blvd, Rm. 453, State Capitol Building, Oklahoma City, OK, 73105.

Mark Lepak is the State Representative for District 9 and is best reached via email at mark.lepak@okhouse.gov.

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