Since the Democrats’ big victories last Tuesday, I’ve been hearing some speculation that the 2024 election could be marked by a reverse lag effect: President Joe Biden, whose poll numbers have reportedly been weighed down by a weak economy, could get a boost from local candidates, who have won victories on social issues.
Well, I’ve done a bit of reading into economic and political history – which, after all, is the only thing we can rely on in these matters – and I have some problems with this story. First, the economy is not doing badly with Biden as president. On the contrary, the economic news has been exceptionally good, and history explains why. However, many Americans say in interviews that the economy is not doing well. Because? I don’t think we know; What we can say is that this experience overturns a widely held belief about the causes of American discontent.
Finally, could Biden have pursued alternative policies that would have put him in a better political position? The lessons of history show not. 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 policy. Let’s start with the state of the economy. The plain and simple reality of the last year is that the United States achieved what many, perhaps most, economists thought was impossible: a significant decline in inflation without a recession and not even a major increase in unemployment. If you don’t trust me, listen to Goldman Sachs, which released a report on Wednesday called “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, economists in the Biden administration published a paper on historical episodes of inflation in which they argued that the closest parallel to current events was the post-World War II surge in inflation, which subsided as the economy overcame wartime disruptions and readjusted Production adjusted in peacetime. For a time, this analysis seemed overly optimistic, as inflation had been much higher and had been going on for much longer than the Council of Economic Advisers had expected. However, at this point, when a soft landing looks increasingly plausible, it appears that the Council was correct in its interpretation, although it underestimated the scale of the crisis. Nevertheless, voters are not satisfied. The most common story I’ve heard is that people don’t care that prices have stabilized, they’re angry that they haven’t returned to pre-pandemic levels.
This makes perfect psychological sense. In September, consumer prices were around 19% higher than just before the pandemic. Average wages had also increased by about the same amount, and the wages of non-supervisory workers (the majority of the workforce) had increased significantly more. However, human nature being what it is, it is logical that people feel that inflation has taken away their income even though they earned more. And lecturing voters about why that’s not the right view is, let’s say, not a very promising political strategy.
But here my historical doubts assail me. This is not the first time that we have seen a temporary price increase that later stabilizes but does not fall again. This happened after World War II and again during the Korean War, with the latter increase roughly in line with the magnitude we have seen since 2020. Unfortunately, there is no data on consumer confidence in the 1940s, although some political scientists believe that the economy actually helped Harry S. Truman to his unexpected election victory in 1948. But we have this data for the early 1950s and it suggests that people were relatively optimistic about the economy despite the rise in prices. Why should it be different this time?
Additionally, it is worth noting that many voters have demonstrably incorrect views about the current economy; Specifically, they believe that unemployment, which is near its 50-year low, is actually near its 50-year peak. Whatever actually happens, could Biden or the Federal Reserve have done something to reassure voters?
Here’s how I see it: The disruptions the pandemic caused in the supply chain made it inevitable that prices for some goods would rise sharply. The only way to avoid general inflation would have been to force significant price reductions on other goods and services. And everything we know from history suggests that trying to impose deflation on large parts of the economy would have had catastrophic effects on employment and production, something like the silent depression that inflicted on Britain after the First World War , as it attempted to return to the deflationary prewar gold standard.
So what will really happen in the next election? I have no idea and neither do you. What I can say is: If you think Biden made glaring mistakes in his economic policies and could have easily put himself in a much better position, then you probably haven’t thought this through.
Paul Krugman is a Nobel Prize winner in economics. © The New York Times, 2023. Translation of news clips
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