Should Inflation Be the Dominant Election Issue in 2022?

Both Republicans and Democrats talk about inflation. Neither has anything useful to say.

A number of political analysts have observed that inflation has displaced other issues as the dominant issue in this election cycle. That may well be true, but should it be?

The left at first tried to dismiss inflation as transitory. When that was clearly false, some said inflation is not that harmful. When voters clearly appeared to believe that inflation matters, the left switched to “it’s not our fault,” citing high levels of inflation in many other countries and blaming supply chain disruptions and Russia’s war against Ukraine.

The last of these has at least a little bit of merit, but there are many low inflation countries that suffered from these same problems. The unifying feature of economies with high inflation is loose monetary and aggressive fiscal policies to combat the Covid induced recession.

Republicans certainly share the blame for loose monetary policy. Political pressure from both parties has encouraged the Fed to keep interest rates far too low for far too long. Other countries have experienced a similar dynamic to varying degrees. Democrats bear most of the blame for just how aggressive fiscal policy has become, but Republicans share some of the blame for actions taken during the Trump administration.

Democrats say that Republicans complain about inflation but offer no solutions. On that the Democrats have a point. The Democrats offer solutions, that aren’t solutions. The “Inflation Reduction Act” was about climate change subsidies. Most economists agree its role in terms of inflation will be minimal. Student loan forgiveness is a wealth transfer. If unfunded through tax increases on someone, student loan forgiveness will just make inflation worse in the long term. Price controls on drug prices, like all price controls, just make markets less efficient. Real reform here would require U.S. drug companies that receive U.S. patent protection grant “most favored nation” status to U.S. consumers. Under this rule drug companies would be free to set prices, but they could not charge any U.S. consumer, including Medicare, any more than the least expensive price they charge outside the U.S. This would be good public policy, but it has nothing to do with inflation.

What is inflation?

Remember, inflation is a rise in the general price level. Higher or lower prices for individual commodities are not inflationary or deflationary. For example, in the absence of accommodating monetary policy, higher energy prices just mean lower prices for other goods (or recession, but that requires a much longer discussion).

What would help?

So what should both parties be saying on inflation. First, it is a serious problem. Second, the Fed is doing the right thing by raising interest rates, and we (the politicians) will avoid pressing the Fed to back off before the job is complete. Third, if elected we (the politicians) will not make the Feds job harder by cutting taxes or increasing spending.

What role should inflation play in the mid-term elections?

Neither party is saying anything like that. So from my perspective, inflation is not an issue for the mid-terms. Maybe it should be, but it certainly does not help me decide on who to vote for. In any case, we will have divided government for the next two years, even if the Republicans gain both the House and the Senate, since Biden is President. Divided government means that we are unlikely to see either tax cuts or major spending legislation. That may be the best we can hope for since it will make the Feds job easier.

If not inflation, what issues should drive the election?

Vote on abortion rights, there are clear choices to choose from, no matter where you stand. Vote on preserving democracy and election integrity, there are clear choices. Vote on America’s commitment to NATO and the defense of Ukraine against Russia, there are clear choices. Vote on climate change or energy security, there are clear choices.

But please don’t vote on inflation. There is no party that offers a good answer here.