Democrats' election losses prove how much people hate inflation
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Illustration: Annelise Capossela/Axios
There is a simple, core lesson to be gleaned from the Democrats' decisive loss in Tuesday's election, along with similar flips in political control this year in nations from Britain to Japan: People absolutely loathe inflation.
Why it matters: As global policymakers shape their strategies for the years ahead, they may wish to weight even more heavily the pain — and political upheaval — that result if they can't achieve stable prices.
- In particular, the incoming Trump administration may want to tread carefully in implementing elements of his agenda — particularly tariffs and mass deportations — that economists believe would fuel higher prices.
- It may also affect the willingness of fiscal and monetary policymakers to intervene aggressively in the next crisis, changing the perceived balance of risks when a recession next looms.
Flashback: If you were a young person in the 2010s following the economy, it seemed almost quaint to hear older economists, officials and financiers warn about inflation.
- The predominant economic problems of that era were elevated unemployment and inadequate demand. Against that backdrop, fretting about inflation seemed like missing the point — applying lessons from the 1970s that weren't pertinent to the 21st century.
- Turns out they had a point.
State of play: Most point-in-time indicators of the Biden economy look great — the unemployment rate, inflation over the last year, real wage growth and so on. On those measures alone, you might have expected a landslide win for the incumbent party.
- But if you look at the full arc of the last four years, it isn't hard to see why voters were dissatisfied and took it out on Vice President Harris.
- While inflation-adjusted disposable personal income per capita is rising at a nice clip now (up 2.6% for the 12 months ended in September), it plunged during the inflation surge of 2021 and 2022, dropping 5% in the 12 months ended May 2022.
- As a result, on net, that measure of economic well-being has risen only modestly during the Biden administration, in contrast with strong gains in President-elect Trump's first term in office or in past cycles like 1984 and 1988 when the incumbent party comfortably won.
Between the lines: Economists will debate for years how much the $1.9 trillion American Rescue Plan passed in March 2021 contributed to the inflation spike, as opposed to other factors like snarled pandemic supply chains.
- Regardless, the political reality is that voters have little memory of the $1,300 stimulus checks they received three years ago and are still ornery about high grocery bills.
In theory, high inflation may create winners and losers across the economy but shouldn't make everyone worse off on net. But in the real world, people see the prices of their things go up and hate it, even if their wages are rising at a similar clip.
- Even in a recession, only a small share of the population finds themselves unemployed, whereas in an inflationary episode, everyone experiences the frustration of higher prices — even those who can afford them comfortably.
