OPINION:
Inflation has come down, but not enough. President Biden does not get much love for that. During the Trump administration, the economy expanded 2.8% annually before the pandemic broke out, and inflation averaged about 2%.
Since Mr. Biden took office, the economy weathered the COVID shutdowns, has since recovered and appears to be growing again as economists expected in 2019 had the pandemic never occurred.
The rub is that prices have jumped 18% on Mr. Biden’s watch, and inflation continues at about 3% a year.
On inflation, Mr. Biden gets all the blame, but that’s unreasonable. It reflects voters’ unwillingness to appreciate how markets work and prices are determined.
At the height of the pandemic and in early recovery, domestic and global supply chains broke down — leading to shortages of eggs, computer chips and infant formula. West Coast ports backed up. Ultimately, lockdowns in China curtailed imports of finished manufactured goods and components.
With so many Americans working from home, reluctant to venture out and many service establishments closed, consumers spent more heavily on goods to make their homes more comfortable and on computers and accessories to assist them, stressing supplies as well.
Studies at the Federal Reserve indicate about half of the run-up in prices could be attributed to supply constraints.
The federal government poured about $4.6 trillion into relief in the form of unemployment benefits, aid to states and local governments and other stimulus spending. These were enabled by the Fed expanding its balance sheet to monetize much of the resulting new federal debt.
The Fed essentially printed money, but what the economists expected did not happen right away, and for two reasons:
First, money must get out into the product markets to have an impact. But other than buying more electronics and primping up home offices and family rooms, Americans didn’t spend the lion’s share of their pandemic relief benefits. Household savings surged about $2.1 trillion and did not start to fall significantly until early 2022.
Similarly, state and local governments couldn’t spend the COVID aid as fast as it was going their way. All those savings indicated the aid distributed by Washington was far in excess of what was needed to keep households, small businesses, and state and local governments solvent during the shutdown.
Second, the classical quantity theory of money requires full employment for more money to create high prices.
Unemployment surged from 3.5% in February 2020 to 14.8% in April, and it did not return to pre-COVID levels until March 2022.
In spring 2022, two forces converged. The new money was finally spent, and labor markets returned to full employment.
The delayed price effects of printing money debuted in April 2022. With the Fed denying culpability and arguing that the higher prices were transitory, inflation eventually accelerated to 9.1%.
If paternity is to be assigned to a president, consider that Mr. Trump was responsible for spending most of the $4.6 trillion in stimulus, but Mr. Biden was warned that the final tranche of $1.9 trillion would be terribly irresponsible.
Of the two, Mr. Biden is the incumbent.
Progressives’ efforts to blame corporate profiteering are misplaced. Profits have benefited recently because the labor markets are not as tight as earlier in the recovery, and wage pressures have lessened.
According to the polls complied by RealClearPolitics, more voters disapprove of Mr. Biden’s handling of inflation than approve — by 25 percentage points.
Even if the pace of inflation has slowed, it is nagging, and human psychology is not the friend of a sitting president at a time like this.
If a commuter stops for coffee, pays $3 for a cup that was $2 before the pandemic, and then the price jumps a nickel to $3.05, he remembers that the coffee was $2 not too long ago, not $3 last week.
Grocery prices continue to rise, but gasoline prices have fallen a lot since May. You’d think Mr. Biden would get some credit for that, but it’s human nature to focus on bad news and ignore the good.
Psychologists don’t think it’s cultural as much as something evolution has bred into the species.
We are wired to respond more quickly to threats. A prehistoric woman who moved less quickly at spotting a patch of ripe wild berries than at the sight of a bear charging would be more likely to survive and contribute to future generations.
This explains why people across cultures are more attentive to negative than positive news, and journalists looking for eyeballs shouldn’t be blamed for emphasizing negative events.
No surprise, Mr. Biden’s voter approval rating on the economy — despite robust growth, low unemployment and inflation coming down — is a negative 18%.
We learned during his presidency that Mr. Trump likes big deficits too. He would have run those up differently. But on inflation, I doubt we would be much better off had he been reelected in 2020.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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