Donald Trump’s Victory and the Politics of Inflation

In March, I was a guest at a dinner discussion organized by a progressive advocacy group in New York. As the talk turned to Joe Biden’s low approval ratings, another attendee brought up the skewed media coverage of the President’s economic record, which seemed to be a source of vexation for nearly everyone around the table. I readily agreed that positive news about jobs, G.D.P., and Biden’s efforts to stimulate manufacturing investment—of which there was plenty—wasn’t receiving as much attention as it deserved, particularly compared with the voluminous coverage of inflation. But I also pointed to governments from across the political spectrum in other countries, such as Britain, Germany, and France, that had experienced big rises in consumer prices. Inflation, it seemed, was poison for all incumbents, regardless of their location or political affiliation.

At that juncture, I was still hopeful that, with the U.S. inflation rate falling back toward pre-pandemic levels, there was enough time for public sentiment to shift, and for Biden’s approval ratings to recover. It never happened, of course. According to the network exit poll, conducted by Edison Research, seventy-five per cent of the voters in last week’s election said that inflation had caused them moderate or severe hardship during the past year, and of this group about two-thirds voted for Donald Trump. The political half-life of the post-COVID inflation shock proved to be a long one. Kamala Harris and the Democrats joined Rishi Sunak’s Conservative Party, Emmanuel Macron’s Renaissance party, and a number of other incumbents that have been punished by disaffected voters. According to the Financial Times“Every governing party facing election in a developed country this year lost vote share, the first time this has ever happened in almost 120 years.”

To be clear, I’m not arguing that economic factors were solely responsible for the U.S. result. Immigration, the culture war, Trump’s reprobate appeal, and other factors all fed into the mix. But anger at high prices clearly played an important role, which raises the question of what, if anything, the Biden Administration could have done to counteract the global anti-incumbency wave. This is a complex issue that can’t be fully addressed in a single column. But one place to start is at the White House itself, where staffers at the Council of Economic Advisers (C.E.A.) and the National Economic Council spent a lot of time analyzing the inflation spike and examining options to deal with it.

In July, 2021, when the inflation rate was rising sharply, the C.E.A. published a blog post arguing that a historical comparison with the period immediately after the Second World War, when prices took off as a result of supply shortages and pent-up demand, suggested that “inflation could quickly decline once supply chains are fully online and pent-up demand levels off.” As inflation turned down sharply in the second half of 2022 and in the first half of 2023, this analysis turned out to be pretty prescient—more prescient, certainly, than another comparison that was being bandied around, with the wage-price spiral of the nineteen-seventies, when inflation spiked into the double digits. But, inside the White House, Biden’s economists were now being confronted with a new question: Why, despite falling inflation, was public sentiment about the economy and the President still so sour? “We quickly realized that wasn’t just about the inflation rate,” Ernie Tedeschi, a former chief economist at the C.E.A. who left the Administration earlier this year, told me. “People were still going to the store and seeing high egg prices and high milk prices.” Even when an inflationary period peters out, prices don’t magically return to where they were before it began.

The Biden Administration had already taken steps to address supply shortages and high energy prices. In 2021, it set up a supply-chain task force, which concentrated on unglamorous but essential efforts, such as clearing the backlog at U.S. ports and relaxing regulations on meat labelling, both of which resulted in getting more goods to market. In 2022, when oil prices shot up following Russia’s invasion of Ukraine, the Administration sold off more than forty per cent of the U.S. Strategic Petroleum Reserve (subsequently replenishing it at lower prices and making a profit for the taxpayer). Both of these policies were successful in their own right. “But, obviously, at the end of the day, prices still did what they did,” Tedeschi noted. “I like to think that the White House was able to help out on the margins, but the main tool for combating inflation was the Fed’s monetary policy.” (Generally speaking, this refers to how the Federal Reserve can cool or stimulate the economy by setting interest rates.)

One issue arising from the past few years is whether this division of labor, which is standard in the United States and other advanced countries, represented a sufficient response. Isabella Weber, an economist who teaches at the University of Massachusetts, Amherst, highlighted the fact that, as inflation spiked, corporate profits surged in many industries, indicating that companies were taking advantage of the situation to pad their margins, and she advocated price controls. More recently, Weber has argued that such policies would not only restrict profiteering but also could help combat the political extremism that high inflation can fuel. “Can we now finally have a serious conversation about an anti-fascist economics?” she wrote on X last week.

Most U.S. economists, including those associated with the Biden White House, remain skeptical about the efficacy of price controls, which they believe can lead to serious distortions and shortages. “I try to be humble, but I don’t know how they would have helped,” Tedeschi said. “People complained about inflation. If we had done price controls, they would have complained about shortages. It would still have been pinned on the President.” Perhaps, but imposing full-scale price controls wasn’t the only possible option for responding to public anger. As profits surged at big energy companies, the United Kingdom introduced a windfall tax on their profits, which was subsequently raised and is still in place. Germany imposed a targeted cap on the price of natural gas and electricity and introduced winter-fuel subsidies for businesses and households. As far as I can tell, the Biden Administration never seriously entertained such options. It’s also true, however, that they haven’t had much lasting political impact, and certainly didn’t turn around the political fortunes of the parties that introduced them.

Even if there was no simple policy fix for the political problems facing the Biden Administration, could it have done a better job of addressing voters’ concerns rhetorically? William Galston, a fellow at the Brookings Institution who worked in the Clinton Administration, said last week that Biden should have pivoted much earlier from emphasizing job creation to focussing on the cost of living. “He was trapped in a very traditional ‘jobs, jobs, jobs’ mind-set,” Galston said. “It was a fundamental mistake.”

Though Biden’s record on G.D.P. growth and employment creation is genuinely praiseworthy—since January, 2021, the economy has added sixteen million jobs—there is perhaps something in this criticism. For a time, it did seem that the White House wasn’t sufficiently acknowledging the frustration and anger that the inflation spike had generated. Still, beginning last year, Biden spoke out a lot more about high prices, and he sought to place some of the responsibility on corporate graft. He announced measures to crack down on “junk fees,” and criticized “shrinkflation” and “price gouging”—getting very little credit for it in the media or anywhere else. The Administration also tried to advertise the pathbreaking steps it had taken, through the Inflation Reduction Act of 2022, to lower health-care costs: capping the price of insulin for retirees, empowering Medicare to negotiate the prices it pays for some drugs, and introducing limits on out-of-pocket costs.

After Harris replaced Biden at the top of the Democratic ticket, she vowed that reducing the cost of living would be her first priority. She also outlined a number of proposals designed to help low- and middle-income families, which included expanded child tax credits, a new subsidy for first-time home buyers, and allowing Medicare to help cover the cost of home care. “One of the biggest problems with the wave of recent price shocks was that even after grocery and gas prices stabilized, the prices for housing and child care were out of reach and had been the source of enormous stress for middle- and working-class families for decades,” Felicia Wong, the president and C.E.O. of the Roosevelt Institute, a liberal think tank, told me. Harris’s proposals were designed to address these issues.

Ultimately, however, none of these things dislodged the public perception that over-all prices were still too high and that Biden and Harris, if not entirely responsible, were convenient vehicles for voters to take out their frustration on. “If people have brilliant ideas about how we could have communicated on inflation more effectively, I’m all ears,” Tedeschi said. “But we tried a number of different things. I just don’t think there is a way to talk around it, precisely because it is so real.”

That seems like the bottom line. The great irony, of course, is that the candidate who is promising to raise prices further by imposing blanket tariffs on imported goods emerged as last week’s victor. ♦