Since Democrats’ big election victories last Tuesday, I’ve been seeing some speculation that the 2024 election could be characterized by a reverse trailing effect: President Joe Biden, whose poll numbers have reportedly been seen weighed down by a poor economy, could be boosted by local candidates who have been reaping victories on social issues.
Well, I’ve been digging a little into economic and political history—which, after all, is about the only thing we can rely on in these matters—and I’m having some problems with this story. First, the economy is not doing badly with Biden as president. On the contrary, the economic news has been extraordinarily good, and history helps explain why. However, many Americans tell interviewers that the economy is not doing well. Because? I don’t think we know; What we can say is that the experience overturns a widely held opinion about the sources of American discontent.
Finally, could Biden have pursued alternative policies that would have left him in a better political position? The lessons of history indicate no. If economic perceptions are a big problem for Democrats next year (which is far from certain), it could be more a matter of bad luck than bad politics. Let’s start with the situation of the economy. The plain and simple reality of the last year or so is that the United States has achieved what many, possibly most, economists considered impossible: a significant drop in inflation without a recession and not even a large rise in unemployment. If you don’t trust me, listen to Goldman Sachs, which on Wednesday released a report titled The Hard Part Is Over [Lo difícil ya ha pasado]in which he points out that we are managing to combine rapid disinflation with solid growth, and that he predicts that this happy combination will continue.
What went well? In 2021, Biden Administration economists published an essay on historical inflation episodes, in which they argued that the closest parallel to current events was the spike in inflation after World War II, which subsided when the economy resolved war disruptions and readjusted to peacetime production. For a time, that analysis seemed overly optimistic, since inflation has been much higher and for much longer than the Council of Economic Advisers anticipated. However, at this point, when it seems that a soft landing is increasingly plausible, it seems that the Council, despite having underestimated the magnitude of the crisis, was correct in its interpretation. Still, voters are not happy. The most widespread story I have heard is that people don’t care that prices have stabilized, they are angry that they have not returned to pre-pandemic levels.
This makes some psychological sense. In September, consumer prices were about 19% higher than just before the pandemic. Average wages had also risen, about the same amount, and the wages of nonsupervisory workers (the bulk of the workforce) had risen significantly more. But human nature being what it is, it is logical that people feel that, despite having earned more income, inflation has taken it away from them. And lecturing voters about why that’s not the right way to look at it is not, shall we say, a very promising political strategy.
But this is where my historical doubts assail me. It is not the first time that we have witnessed a temporary rise in prices that later stabilizes, but does not fall again. It happened after World War II, and again during the Korean War, with the latter increase being roughly the same magnitude as what we’ve seen since 2020. Unfortunately, there is no data on consumer confidence in the 1940s. , although some political scientists believe that economics actually helped Harry S. Truman win his unexpected election victory in 1948. But we do have that data for the early 1950s, and it suggests that people were relatively optimistic regarding the economy despite the increase in prices. Why should it be different this time?
Additionally, it’s worth noting that many voters hold demonstrably false views about the current economy; They believe, in particular, that unemployment, which is near a 50-year low, is actually near a 50-year high. Whatever is actually happening, could Biden or the Federal Reserve have done something to reassure voters?
I see it this way: the disruptions that the pandemic caused in the supply chain made it inevitable that the prices of some goods would rise sharply. The only way to have avoided general inflation would have been to force significant decreases in the prices of other goods and services. And everything we know from history indicates that trying to impose deflation on large parts of the economy would have had disastrous effects on employment and output, something akin to the silent depression Britain inflicted on itself after the World War I when he tried to return to the pre-war gold standard.
So what is really going to happen in the next election? I have no idea, and neither do you. What I can say is that if you think Biden has made glaring blunders in his economic policy and that he could have easily put himself in a much better position, you probably haven’t thought it through.
Follow all the information Economy and Business in Facebook and xor in our weekly newsletter
The Five Day agenda
The most important economic quotes of the day, with the keys and context to understand their scope.
RECEIVE IT IN YOUR EMAIL
Subscribe to continue reading
Read without limits
_
#Historical #lessons #economy #wrong