The Political Cost of Rising Prices

There is a cruel irony in American government and politics. The area in which the president has the most Constitutional authority is foreign policy but Americans don’t much care about foreign policy until it comes home to them. Then they care about the consequences very much.

At the Wall Street Journal Michael C. Bender reports that the WSJ’s latest poll found despite approval of President Biden’s response to Russia’s invasion of Ukraine, that has affected his approval rating hardly at all because they’re unhappy about the way rising prices are hitting their pocketbooks:

The new survey showed that 57% of voters remained unhappy with Mr. Biden’s job performance, despite favorable marks for the president’s response to the Russian invasion of Ukraine and a recent State of the Union speech, which provided him an opportunity to directly speak to millions of Americans. Just 42% said they approved of Mr. Biden’s performance in office, which was virtually unchanged from the previous Journal poll in mid-November.

Meanwhile, Democratic advantages narrowed over Republicans on issues related to improving education and the Covid-19 response. A 16-percentage-point Democratic edge on which party would best handle the pandemic was down to 11 points, while a 9-percentage-point lead on education issues was down to 5 points.

When asked about which party was best able to protect middle-class families, the 5-point advantage for Democrats four months ago evaporated and left the parties essentially tied on the question.

Voters also gave Democrats poor marks for handling inflation and the economy, which 50% cited as the top issue they want the federal government to address. The Ukraine conflict was No. 2, with 25% of voters saying it was most important.

A majority of voters, 63%, said they disapproved of Mr. Biden’s handling of rising costs, the president’s worst rating on six policy issues surveyed in the poll. Meanwhile, 47% of voters said Republicans were better able to handle inflation, compared with 30% who preferred Democrats.

That’s hardly surprising. The year-on-year inflation is closing in on 8%—the highest in decades, enough to swamp pay increases. In her column in the Washington Post Catherine Rampell says that Democrats are “in denial”:

Consumer prices rose 7.9 percent in February from a year earlier, the Bureau of Labor Statistics reported Thursday. This was, yet again, the fastest pace of price growth in four decades. The increases were broad-based, affecting food, fuel, airfares, shelter and more. Meanwhile, worker paychecks fell further behind, as overall inflation outpaced average wage growth.

These data were collected largely before the Russia-related run-up in global energy prices. Which suggests that next month’s overall inflation reading could be worse.

Given these trends, Americans are unhappy with the economy. But many on the left don’t want to hear it.

In recent months, many Democrats and their allies have approached the (political) problem of inflation by either denying any serious issue exists; or acknowledging it exists but demagoguing about its cause.

Some lefty politicians and commentators have argued that inflation is not that big of a deal. Americans have been tricked into thinking things are bad mostly because the media (and/or Republicans) keep telling them things are bad, this argument goes. Articles such as this one, drawing attention to inflation, are to blame.

and she closes in on a point I’ve been making around here:

To be clear, prices are rising — not because corporations suddenly remembered to become greedy. They’re always trying to make a buck. The issue is that supply remains constrained by pandemic-related disruptions (and now, also, Russia sanctions). Meanwhile, consumer demand is red-hot. People are buying sports equipment and appliances at record levels, and companies can’t keep up. So firms continue to charge ever-higher prices.

Demand is hot by design: Policymakers decided to boost demand with fiscal and monetary policy designed to get as many people back to work as quickly as possible. This strategy succeeded at generating strong job growth and saved many Americans from the scars of long-term unemployment. The downside is it contributed to faster inflation.

Democrats could defend these policy choices on the merits. They could say: Yes, we’ve been running the economy hot, but that’s better than the alternative. Instead, many pretend that there were no price-related trade-offs from their fiscal strategy.

homing in on the risks I’ve identified here:

For example, if “profiteering” is really the cause of high gas prices, Warren’s proposed “windfall-profits tax” for the oil industry might sound like a reasonable solution. But the last time Congress implemented a similar tax, it reduced domestic production. And once again: A key problem now is that production — a.k.a. supply — is too low to meet demand.

When it comes to economic policy, even if you diagnose the problem correctly, figuring out the remedy is still hard. Really hard. (What can government do to nudge supply higher? There’s lots of debate about this.)

But if you’re in denial about the diagnosis itself, getting the prescription right is nearly hopeless.

I think the problem is slightly worse than that. I strongly suspect that the temptation to “double down” on their preferred strategy—subsidizing consumption—will be irresistible, compounding present problems, while, for example, broad subsidies for producers would fracture their own caucus.