Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics. Our next book will look at the 2024 election. Inflation was a major cause of the Democratic defeat.
Reality check: The surge in inflation that started in 2021 and peaked in 2022 was linked to snarling of global supply chains due to COVID shutdowns and labor shortages as many would-be workers stayed close to home.It occurred globally, even in countries with more modest fiscal action.
Yes, but: That doesn't mean the super-sized U.S. stimulus didn't have an inflationary impact. An analysis from the San Francisco Fed, for example, found that fiscal policy could account for about 3 percentage points of 2021 inflation, which totaled about 7%.If more restrained fiscal policy had resulted in inflation peaking even a couple of percentage points lower, the Fed would not have seen the need to raise rates by as much as it did, lessening another vector of recent economic pain.
The very existence of the super-sized fiscal action may have created a clearer linkage in voters' minds between Biden's policies and the pain of high prices.
The benefits of the ARP — those $1,300 checks in particularly — were quickly forgotten, and the rapid recovery it helped fuel taken for granted.
Between the lines: The Biden administration has pointed to falling inflation over the last two years — amid a generally favorable job market — as a great triumph.The speed of the U.S. expansion the last few years has been the envy of the world, much faster than other large rich countries, and the 2021 fiscal action helped jump-started it.
But voters appeared more concerned about the cumulative impact of inflation — prices are 21% higher now than 4 years ago — than the fact that the annual inflation rate has slowed to 2.4%.
The bottom line: At the beginning of the Biden years, liberal economists were full of enthusiastic talk about creating a "high-pressure" labor market and "running the economy hot." As it turned out, Democrats got burned.
