Inflation is spiking, and Democrats — who, rightly or wrongly, are poised to take the blame this November — appear to be in denial about it.
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.
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.
I actually agree that much of the economic coverage has fallen short. For example: Contrary to recent headlines, gas prices aren’t really at all-time highs, at least not when adjusted for the changing value of the dollar. And there has been much more emphasis on soaring prices (bad news, boo) than on dwindling unemployment (good news, yay!).
Yet, it’s delusional to think that ordinary people wouldn’t care much about inflation if only the media stopped discussing it. People notice when they pay more for groceries, rent, gasoline, pet food, diapers. It is painful. It is unsettling. And inflation affects a broader swath of people than does a change in the unemployment rate, so more people are going to complain.
Journalists are writing a lot about 40-year-high inflation because Americans are worried about it, not the reverse. And bellyaching about media coverage won’t help Democrats address constituents’ legitimate concerns — or win their votes.
The most visible champion of this narrative is Sen. Elizabeth Warren (D-Mass.), who has blamed “corporate greed” for price spikes in cars, groceries and more. The solution, then, is to find new ways to shame and punish corporations. The White House economic team has been divided about whether to endorse this explanation for rising prices, but President Biden himself has increasingly embraced it.
For instance, when he spoke Tuesday about banning Russian oil imports, he preemptively berated the petroleum industry for any attempt at “excessive price increases” and “profiteering or price gouging.” These words sound damning — but they have little substantive meaning beyond “raising prices more than I think they should.”
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.
It’s unclear if Democrats have been blaming “corporate greed” for inflation because the message polls well or because they believe it. If the latter — well, we’re in deep trouble.
Because Democrats might end up adopting policies that make things worse.
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.