Stewardship of Inflation

Terry H. Schwadron

May 17, 2024

When voters are asked about the presidential campaign, “inflation” or “economy” comes back as a top reason for their choice rather than, say, the possibility of conviction on felony charges.

The follow-up questions usually show that what people are fixated on high prices for food or rent rather than the myriad measures that governments use to gauge economic stability.

It should serve as one of the more substantive, non-character-oriented topics should the promised June 27 debates seemingly agreed to quickly come about.

The more macro the measure, the better the Joe Biden years look in comparison to the Donald Trump years, even removing the long-term effects of the pandemic. But even a record of sustained low unemployment, jobs growth, higher wages, strength of the U.S. dollar, and statistical charts do not alleviate consumer perception.

In polling, Trump regularly is perceived as a better driver for the economy — a myth not immediately apparent by looking at any data or plan. The past always is rosier if what you remember is that five or eight years ago, eggs and gas cost less — as if it is the only measure that means anything. So were wages, for example, and taxes for many of us.

It’s a political problem even when economic matters seem to be going well. And it is largely based on myth, since U.S. presidents don’t control most of the market-based forces that set and drive prices. Generally, because prices were lower then, however, does not portend they will fall anew.

Obviously, there are lots of other issues to decide on a candidate, but we could do worse than listening to what each has to say about what they plan.

The Biden Program

Joe Biden has a good economic story to tell, with job creation, investments in industries that will be important in returning overseas jobs to the U.S. and through climate changes, widespread infrastructure repair projects, and continuing efforts towards extending social policies to dampen prescription costs, extend health care, and maintaining Social Security and Medicare.

Just this week, consumer price numbers showed a continuing cooling, largely the result of Federal Reserve monetary price regulations rather than presidential action.

Biden continues to stub his political toe, however, for a variety of expectations that he has been unable to fulfill, starting with promises for forgiveness of vast amounts of student debt, and for claiming that he entered the presidency in 2021 with the country at a 9% inflation rate. There was plenty awry economically in 2021 because of Covid interruptions but not that high an inflation rate, though the conditions for high rates were present.

From his continuing statements, what we can expect from Biden is more of what we see now — a long-term approach to keeping price increases down for the basic household goods, with emphasis on adding more competition for prescription drugs, adding to the forgiveness of student debt that he has managed to get by various adverse court judgments, more job creation and deference to the Fed on money supplies.

He has jawboned companies about taking advantage of inflation to raise prices — and rents, and while he got early success with a split Congress to address programs that helped with Covid recovery, the legislators now only equate more spending with higher consumer prices.

The whole Biden economic program is about seeing the whole of global supply as well as local prices. Slow and steady seems the mantra in a world that demands more action now.

His problem is communicating the usefulness of his credo as a set of social benefits that can translate into votes.

The Trump Approach

For Trump, whose message blares at rallies, social media posts, and statements, any number of recent news accounts reflect a much more dramatic set of declarations about another Trump term. Once you can get past derision of Biden, though, there are serious questions about him doing anything that will affect household costs.

Indeed, as a recent Axios column noted, “his second-term plans could make inflation worse.”

At least four principles of Trump’s economic philosophy carry significant inflationary risks, according to economists and Wall Street analysts.

Trump wants universal tariffs of at least 10 percent on all imports, a move that likely will trigger a global trade war. In particular, he wants a 60% hike on tariffs on all Chinese goods, including clothing, and more on cars — something Biden agrees with.

An analysis by the Center for American Progress Action Fund, a Democrat-aligned group, found that the 10% tariffs “would amount to a roughly $1,500 annual tax increase for the typical household.”  In an interview with Time Magazine, Trump disputed that his plans would drive up prices in the U.S. and falsely claimed that tariffs force foreign countries to pay the U.S.; consumers pay the passed-along tariff cost.

Trump also has attacked the Fed over higher interest rates to combat inflation, a standard approach to inflation. Trump insists on low borrowing rates to promote trade for U.S. goods. If you believe the Fed’s approach to have lowered inflation, reversing it obviously will raise prices. Meanwhile, Trump says he wants to control the Fed and eliminate its independent status.

The most standard Trump idea is lower taxes. But the Republican priority to extend the 2017 tax cuts will cost another $3.3 trillion over the next decade, according to the Committee for a Responsible Federal Budget, Tax cuts as passed benefit the wealthy, not the middle class.

Other policy concerns aside, Trump’s strict anti-immigration policies will cost a ton and will create employment problems galore. Economists believe the immigration increases have allowed the job market to continue booming without adding to inflationary pressures.

In addition, Trump talks of devaluing the U.S. dollar to stimulate foreign trade without acknowledging that it will cost more for U.S. consumers.

In all, economists looking at all of this see Trump’s positions as a “recipe” for inflationary shocks to the economy. Trump’s Agenda47 website outlines plans for presidential “impoundment” authority to cut out “wasteful and unnecessary” spending by federal agencies, which Trump says will help stop inflation. He wants to “unleash energy dominance” by expanding oil and gas drilling, which he believes could ease prices at the pump, but more drilling won’t affect a market for years.

It all makes one wonder why Trump is seen as a better steward for the economy,

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