Commentary on Political Economy

Thursday 11 April 2024


Why’s Joe Biden in trouble? It’s the prices, stupid

The Times

The thing that most irks the modern establishment, the highly educated, technocratically accomplished elites who toil selflessly to save their inferiors from error, is the sheer ingratitude of the people they were born to lead.

These sophisticates in the permanent bureaucracy, the universities and the media spend their days patiently explaining to the dumb masses the virtues of net zero, childhood gender selection, decarceration of criminals, global economic integration and open borders. But the ingrates just don’t appreciate it. Instead they insist on clinging selfishly to their belief in things like biological sex, law and order, good jobs, national identity, border security and gas stoves.

This stubborn refusal to accept the essential truths of life and the unique ability of their progressive masters to improve it is on display in the debate over the perennially central issue of the economy to the US presidential election. President Biden is in deep trouble, for a number of reasons. But to his campaign and its supporters in the press, the most confounding feature of that trouble is the disapproval voters express of his handling of the economy.

The president and his enablers keep insisting that the US economy is in fine fettle. They claim that three-plus years of “Bidenomics” — massive government handouts, investment in green energy and infrastructure projects, and tightened regulation of the animal spirits of capitalism — have birthed an economic boom the likes of which have never been seen. “Folks, I inherited an economy that was on the brink,” Biden said in his state of the union address last month. “Now our economy is literally the envy of the world.” But the folks, damn them, just don’t see it.

According to the latest Real Clear Politics polling average, only 39 per cent of voters approve of Biden’s handling of the economy; 57 per cent disapprove. With numbers like that, re-election is almost impossible.


Now it is true and we should stipulate that, by global standards, the claim has some merit: the US has indeed performed relatively well on key metrics. Since the pandemic it has enjoyed the fastest rate of growth of all the major economies. And unemployment, at just under 4 per cent, remains low by international standards.

But with half of Europe in recession, Japan in a three-decade-long stagnation, and China’s once dynamic economy stalled, this is not the achievement Biden suggests. In any case, when voters think about their economic conditions they aren’t thinking about how they’re doing compared with people in Dresden or Dalian. They’re thinking about how things are now compared with where they were a few years ago before Biden became president. And they aren’t impressed.

Democratic economists like Paul Krugman — Nobel prizewinner, multiple-Ivy League professorial chair-holder, and New York Times columnist (a trinity of credentials that surely affirms his right to lecture the rest of us) — have led the way in asserting that what’s going on is nothing to do with voters’ understanding of economic reality but a false consciousness brought about by a combination of political partisanship and bad information.

“A substantial part of the electorate has economic perceptions quite far from reality; even if things improve they probably won’t hear about the good news or will be regaled with other negative stories,” he says. That’s right: it’s not the data. It’s the people that are the problem.

But voters’ negative views about the economy are not that hard to understand. They don’t require some new school of anthropological analysis or cultural criticism. It’s the prices, stupid.


The overwhelming economic reality of the past three years has been soaring inflation. For 20 years inflation in the US, and the wider western economy, was essentially non-existent. Price stability, the holy grail of economic policymakers for the last third of the 20th century, was the reality of the 21st. Prices rose at an annual average of about 2 per cent — meaning most people did not really notice it from year to year.

But with the pandemic, and then some ill-advised fiscal largesse from Biden in 2021, inflation took off, hitting a 40-year high of 9 per cent in the summer of 2022. It has come down since then, as Biden and company keep reminding us. But this fails to grasp the important distinction between the rate of price increases and the level of prices. After increasing by 20 per cent in two years, the rate at which prices are rising may have fallen, but prices are still rising.

This was sharply underlined this week with news that in March consumer price increase accelerated again. Core inflation, which strips out volatile components, is still running at just under 4 per cent, twice what it was before Biden was president, and this on top of the huge increase in prices we have seen in three years.

Unlike unemployment or even growth, price inflation is experienced by everyone. While incomes have risen too, for most people they have barely kept pace with the price level. Economists have long known that when wages and inflation are both rising at 5 or 6 per cent, people feel a lot less secure about the economy than they do when prices and wages are rising by 1 or 2 per cent. And of course the consequences of higher inflation are felt in sharply higher interest rates — rates that markets now think in the wake of the latest inflation numbers are likely to persist for much longer.

So there should be no mystery about why voters are unhappy about the economy. We just need to invert George Orwell’s famous observation: some things are so obvious that you have to be a real intellectual to miss them.

No comments:

Post a Comment