Bad News, Good News for GOP

Our new book is The Comeback: The 2024 Elections and American Politics. It includes a chapter on congressional and state elections.

 For Republican prospects in 2026, the economy is a problem:

Alex Isenstadt:

Republican operatives and lawmakers are increasingly anxious about how inflation could affect the GOP in the 2026 midterms, and want President Trump to take more aggressive steps to address rising prices.

Why it matters: GOP insiders and lawmakers believe the cost of drugs and consumer items — and how the White House deals with Trump's tariffs potentially turbocharging prices and creating shortages — will be key to whether the GOP keeps control of Congress next year.

Zoom in: Republicans on Capitol Hill and beyond praise Trump's recent focus on crime, but many are alarmed by internal polls and focus groups showing persistent — and increasing — concerns about prices.

Katherine Hamilton and Alison Sider:

For the American middle class, it has been a summer of cooling confidence.

Consumer sentiment dropped nearly 6% in August, after trending up in June and July, according to a closely watched index from the University of Michigan. Pessimism about the job market increased, with more people surveyed saying they expect their income to decline, according to polling done by think tank the Conference Board.

The middle class—generally considered to include households making roughly $53,000 to $161,000 a year—is playing an outsize role in that waning optimism. After months of tracking high-income earners’ increasing confidence about the economy, households making between $50,000 and $100,000 made an abrupt about-face in June. They now more closely resemble low-income earners’ gloomier views, according to surveys done by Morning Consult, a data-intelligence firm.

“There was a period of time, briefly, where the middle-income consumer looked like they were being dragged up by all that was going well in the world,” said John Leer, chief economist at Morning Consult. “Then things fell off a cliff.”

But....

At Politico, Lisa Kashinsky, Elena Schneider and Nicholas Wu write that Democrats are "hamstrung by constitutional restrictions or independent commissions in some states, while Republicans are generally free of those legal barriers and have leadership trifectas in Indiana, Florida, Missouri and Ohio, promising state lawmakers fewer restrictions to draw Democratic rivals out of their seats. Florida’s constitution has language restricting partisan gerrymandering, though its conservative-majority state Supreme Court recently upheld a GOP redraw."

Nate Cohn at NYT: "[If] the new maps are enacted in all of these states, Democrats will need to win the national popular vote by two or three percentage points to be favored to retake the House, according to projections based on recent congressional and presidential election results."

Some Green Shoots for Democrats

Our new book is The Comeback: The 2024 Elections and American Politics. The second Trump administration is off to an ominous start. Democrats have problems, but still take hope.

Mike Allen at Axios:

Here's the five-part theory of the case for why Dems are optimistic about 2026, as laid out by more than a dozen of their top campaign staffers:

1. The "big, beautiful bill" is polling terribly.
2. Cuts to Medicaid and the Affordable Care Act are expected to make the "big, beautiful bill" even more unpopular.
3. Prices are still high despite Trump promising to bring them down. Economic approval had long been one of Trump's consistent political strengths. Now it's not.
4. Trump's deportations are getting blowback after going well beyond violent criminals and gang members. Polls show Republicans losing an advantage on one of their key issues in the 2024 election.
5. Democratic enthusiasm. A recent CNN poll found 72% Democrats and Democratic-aligned voters are extremely motivated to vote in the midterm elections, compared to just 50% of Republicans and Republican-aligned voters.

Washington Post:

How closely are Americans following news about government files from the federal investigation of Jeffrey Epstein, and what do they think about President Donald Trump’s handling of the issue? The Washington Post texted 1,089 people Monday to ask.

The Post’s poll found that most Americans are paying at least some attention to news about the Epstein files. Americans largely disapprove of how Trump is handling the issue, with most Democrats and independents disapproving and Republicans expressing a mix of approval and uncertainty. Most Americans strongly support releasing all files in the Epstein case and suspect the documents contain embarrassing information about Trump, Democrats and billionaires.

Midterms on the Horizon

Our forthcoming book is The Comeback: The 2024 Elections and American Politics. It includes a chapter on congressional and state elections.

Abby Livingston at Puck:

The midterms are already here: In normal times, the first quarter of the off-year congressional election cycle is sleepy and sluggish. But these, obviously, are not normal times. Hakeem Jeffries and his Democratic caucus are already steeped in the fundraising and recruitment fight, and last month, House Dems raised $9.2 million—their largest haul ever in an off-year January—compared to the N.R.C.C.’s $6 million. This isn’t just because of the committee’s storied digital fundraising: Many members, including Massachusetts’ Richard Neal and New Jersey’s Frank Pallone, have been hosting fundraising dinners. A group of House progressives hosted one last night, and the Congressional Black Caucus’s
political arm will host one in early March. Along with member dues, I’m told by a senior House Democratic campaign aide that this extra push has brought in $2.8 million, or nearly a third of the January haul.

But the more pressing task for both parties is recruitment, which will lay the foundation for the next two years. As Politico’s Elena Schneider reported this week, federal workers who fell victim to DOGE cuts might become a new talent pool of House candidates. Meanwhile, the Dems are also eyeing a huge potential get: Jimmy McCain, the Marine veteran and son of the late Arizona Republican Senator John McCain, to run against David Schweikert in Arizona’s 1st congressional district. Of course, the defection of the so-called McCain Republicans has been partly credited with flipping the state to Joe Biden in 2020, and for some high-profile statewide losses—Blake Masters and Kari Lake—for the party’s right wing.

For the Republicans, the recruitment picture is murkier: A party consultant told me there’s talent in the wings, but potential candidates are waiting on two developments. The first is the fate of the shutdown/debt ceiling/tax-and-spending-cuts negotiations this spring. The second is the price of eggs, which has supplanted the price of gasoline as the leading political economic indicator in my conversations. Republicans might also have to spend some of their recruitment energy on their incumbents. I’m hearing that, for a smattering of pre-Trump Republican members, this congressional term is turning out to be even more miserable than the last one—which, of course, included the defenestration of Kevin McCarthy. My impression is that if it weren’t for their party’s micro-margin in
the House, some Republican reps would be considering resignation.

Max Cohen at Punchbowl News:

House Majority Forward, the HMP-aligned organization, will launch a national cable ad Monday that attacks Republicans for threatening Medicaid. The HMF ad acts as the initial salvo in the Medicaid messaging wars ahead of the 2026 midterms, where House Democrats have forecasted that they will focus on health care access.

The ad centers on the recently adopted House GOP budget resolution, which the narrator says “opens the door to $880 billion in Medicaid cuts.”

The spot also argues that the potential Medicaid changes are “all to fund massive tax cuts for Elon Musk and billionaires.”

Next week, House Majority Forward will run similar ads in 20 battleground districts nationwide.

In other ad news: Liberal outside group Unrig Our Economy is running two new ads targeting vulnerable Reps. Mariannette Miller-Meeks (R-Iowa) and Juan Ciscomani (R-Ariz.) for supporting the House GOP budget resolution.

 

Dishonest Inaugural

Our forthcoming book is The Comeback: The 2024 Elections and American Politics. 

Glenn Kessler fact-checks Trump's inaugural address.  Two examples:

“The inflation crisis was caused by massive overspending and escalating energy prices.”

Trump is leaving out the biggest factor for the 9 percent inflation in June 2022, the highest level in 40 years: the covid pandemic.

Inflation initially spiked because of pandemic-related shocks — increased consumer demand as the pandemic eased and an inability to meet this demand because of supply chain problems, as companies reduced production when consumers hunkered down during the pandemic. Indeed, inflation rose around the world — with many peer countries doing worse than the United States — because of pandemic-related shocks that rippled across the globe. Inflation in December was 2.9 percent.

...

“Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”

Trump is flat wrong to claim that tariffs are paid by a foreign country. Economists agree that tariffs — essentially a tax on domestic consumption — are paid by importers, such as U.S. companies, which in turn pass on most or all of the costs to consumers or producers who may use imported materials in their products. As a matter of demand and supply elasticities, overseas producers will pay part of the tax if there are fewer goods sold to the United States. Domestic producers in effect get a subsidy because they can raise their prices to the level imposed on importers. There is little debate over the fact that consumer prices will rise in response to tariffs.

Biden and Inflation

 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 probably the most important reason for the Democrats' defeat.

William Galston at WSJ:

The administration’s economic strategy included industrial policy, worker power, antitrust policy, a shift away from free trade, and a reorienting of fiscal and monetary policy away from capital toward labor.

Several of these measures yielded tangible results, but the new macroeconomic policy proved fatal for the administration. The Hewlett report insisted that neoliberalism had hurt workers by focusing on inflation rather than unemployment. Why was it, the report asked, that after a long period of rock-bottom interest rates, inflation was “too low”? The report asserted: “If economic developments over the past decade show anything, it is that there is greater headroom for spending without causing undue inflation.” Governments, Hewlett argued, can spend more on efforts to boost demand “without worrying about inflation quite so frantically.”

A few months later, Mr. Biden signed into law the American Rescue Plan, a nearly $2 trillion stimulus package on top of the trillions the Trump administration had spent during the pandemic. Three years later, the consumer-price index showed a 20% overall price increase. The inflation over which the Biden administration presided dramatically undermined Kamala Harris’s electoral prospects.

Some Democratic-leaning economists have argued that inflation was a global, pandemic-induced supply shock on which fiscal stimulus had little or no effect. To his credit, Jared Bernstein, Mr. Biden’s chief economic adviser, doesn’t take this easy way out. In a recent interview with the New York Times, he said the inflation of recent years “was exacerbated by strong demand, no question. So I’m not giving fiscal policy a pass.”

Fundamentals: Incumbent Parties Lost Ground All Over the World

 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.

 

Just to clarify: this isn’t just the first time since WW2 that all incumbent parties in developed countries lost vote share.

It’s the first time since this data was first recorded in 1905. Essentially the first time in the history of democracy (universal suffrage began in 1894). pic.twitter.com/04hdpN8aq0

— John Burn-Murdoch (@jburnmurdoch) November 7, 2024

The Inflation Election, Continued

 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.

Neil Irwin at Axios:

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.

Inflation Election

 Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics. Our next book will look at the 2024 election.  Objective indicators were doing great. Perceptions, not so much.

German Lopez at NYT:

On paper, the economy seems OK. Inflation is down recently. Wages are up. But anger persists. That’s because higher prices cause a special kind of pain — one that lingers and, historically, leads voters to punish the people in charge. Tuesday was no exception.

...
Why does inflation anger voters so much? Some economic problems, like high unemployment, affect only a minority of the population. But higher prices affect everyone.

Inflation also taps into what psychologists call “loss aversion”: People feel negatively about losses much more than they feel positively about gains. So although wages have kept up with inflation or surpassed it, people still feel more pained by sticker shock at the grocery store than elated by their gains.

To make matters worse, consumers can’t do much about inflation. They simply have to cut back their spending on certain things or work more hours to afford them. The sense of loss combined with a feeling of powerlessness leaves people furious. They expect their leaders to fix the problem.

Inflation fell to normal levels over the past year, but high prices remain. Eggs still cost nearly triple what they did four years ago. When people imagine an ideal end to inflation, they think of prices returning to normal. That hasn’t happened, and economists don’t expect it will. When the polling firm Morning Consult surveyed U.S. voters about inflation, they were comparing prices with those from 2020. They blamed President Biden and Harris for the increases since then, fairly or not.

“Americans were comparing this economy to one without inflation, whether or not that was a realistic option according to economists,” said my colleague Ben Casselman, who covers the U.S. economy. “They weren’t saying, ‘Inflation is tough, but at least I have a job thanks to Biden.’ They were saying, ‘Of course I have a job, but now I have to deal with all this inflation thanks to Biden.’”

The same dynamic is haunting leaders all over the world. Over the past few years, voters have thrown out incumbents, on the left and the right, in Britain, France, the Netherlands, Argentina, Italy and Australia. The top political parties in South Africa, Japan and India also faced disappointing elections. Canada’s and Germany’s incumbents are in danger of losing their jobs next year.

 

The Economy, September ed.

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great. Perceptions may be catching up.

Emily Peck at Axios:

When it comes to the economy, Kamala Harris appears to have closed the "trust gap."

Why it matters: In polling throughout this election cycle, President Biden had been losing on the issue, with voters consistently saying they preferred Donald Trump on the economy.Harris seems to have shaken off some of that baggage.

The big picture: The economy is typically an important issue for voters in an election, but it's been especially significant this cycle — as the high cost of living is weighing on people's wallets.

Zoom in: 46% of voters said they trust Harris to handle the economy — the same share as former President Trump, according to a Morning Consult poll conducted in late August and released Thursday morning.A separate survey from FT-Michigan Ross, taken after the debate and released on Sunday, shows Harris with a slight edge over Trump when it comes to the economy. Voters who watched the debate were even more apt to go for Harris.

Between the lines: This isn't about voters preferring Harris over Trump so much as it is about voters preferring Harris over Biden.Her entry in the race has reshaped the way we talk about the economy in this election, says Sofia Baig, an economist at Morning Consult.
Not many folks are out there throwing around the term Bidenomics anymore.

Ben Werschkul at Yahoo Finance:

The Federal Reserve's decision to opt for a bigger half-percentage-point cut opened a new area of disagreement between GOP nominee Donald Trump and Fed Chair Jerome Powell.

What Trump said this week is that the cuts are a sign of one thing: a weak economy that he claims was brought on by the Biden/Harris administration.

"I guess it shows the economy is very bad to cut it by that much assuming that they are not just playing politics," Trump said at a Manhattan bitcoin bar Wednesday.

"One or the other," the GOP nominee added "but it was a big cut."

Powell — who was elevated to Fed chair by then-President Trump but has found himself often at odds with him in recent years — offered an opposite analysis Wednesday afternoon.

"Our economy is strong overall," Powell told reporters, arguing the move to cut the Fed's benchmark rate by 50 basis points was instead a way to try to ensure "strength in the labor market can be maintained" alongside economic growth.

Believing Trump's Lies

 In Divided We Stand: The 2020 Elections and American Politics, we look at Trump's dishonesty and disregard for the rule of law.

Aaron Blake at WP:

As Trump has launched a series of claims and suggestions that are bizarre even by his standards, new data shows large swaths of his supporters believe them.

But the most drastic among them — most notably the claim about Haitian immigrants in Springfield, Ohio, stealing and eating pets — have not caught on with more middle-of-the-road voters. That suggests there is real potential downside for Trump in pushing these fantasies.

The new data comes from YouGov, which has occasionally tested Trump’s false claims. After last week’s debate, YouGov asked voters about a battery of them.

The major findings on what Trump supporters believe:

• A majority (52 percent) of Trump supporters say they believe the claim about Haitian migrants “abducting and eating pet dogs and cats.” Excluding those who are “not sure,” twice as many say it’s at least “probably true” as say it’s at least “probably false.” (There remains no real evidence for this claim. Officials have debunked it and linked it to threats, and Republican Ohio Gov. Mike DeWine on Sunday called it “a piece of garbage that was simply not true.”)
• 43 percent of Trump supporters say they believe that “in some states it is legal to kill a baby after birth” — another claim Trump referenced at last week’s debate. In fact, slightly more said they believed this was true than disbelieved it. (It is false.)
• 28 percent of Trump supporters say they believe that “public schools are providing students with sex-change operations,” something Trump has recently suggested is happening but for which there is no evidence.
• 81 percent of Trump supporters say they believe Venezuela is “deliberately sending people from prisons and mental institutions” to the United States. (There is no evidence that Venezuela or any other country is doing this, and Trump has used bad data to support his claim.)

The claims about Haitian migrants, post-birth executions and sex changes at school are actually some of the least pervasive. But the other claims that Trump supporters believe are more about statistics than ridiculous assertions.

For example, 77 percent say they believe the United States has given more aid to Ukraine than all of Europe combined (false), 70 percent say they believe millions of undocumented immigrants are arriving every month (false), and 70 percent say they believe inflation is at its highest rate ever (not true today or at any point in recent years).

Good Economic News

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great. Perceptions, less so.

Rachel Siegel at WP:

Inflation eased again in August, dropping to the lowest level in more than three years and locking in expectations that the Federal Reserve will cut interest rates next week for the first time since the pandemic’s early days.

Data released Wednesday by the Bureau of Labor Statistics showed prices climbed 2.5 percent in the 12 months ending in August. That was a noticeable improvement over the 2.9 percent notched in July, in part because of falling gas prices. Prices also climbed 0.2 percent over the previous month.

Scott Sowers at WP:

Mortgage rates fell on Thursday to their lowest level since April 2023 — 6.2 percent for a 30-year fixed-rate mortgage, down from 6.35 percent a week before, according to Freddie Mac.

That’s a sharp drop from the high of 7.8 percent recorded last October and welcome news for would-be home buyers who have been priced out of the property market, as well as homeowners who bought at high rates and are eager to refinance. It also comes as the Federal Reserve gets ready for its next policy meeting next week, when it is expected to announce the first interest-rate cut since it began hiking rates in March 2022 to combat spiraling inflation.

Housing Costs in 2024

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy

Peder Schaefer at Politico:

By nearly every metric, it’s never been more expensive to buy a home in America.

The average sale price for a home in 2024 is a record high $513,100, the average 30-year fixed rate mortgage is near 7 percent and the ratio of the median single-family home sale price to household income — a good proxy for tracking nationwide home affordability — is 7.68 to 1, an all-time record.

Naturally, housing concerns loom large in the race for the White House: An April Michigan Ross/Financial Times poll showed that 27 percent of Americans assess housing costs as one of their top three economic issues as they make their vote for president, ranking higher than government spending, the national debt, wages or even interest rates.

Younger voters are especially energized around housing issues, the poll showed, with 31 percent of all voters 18-44 marking it as a top economic issue, tied with gas prices and wages.

Inflation 2024

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great. Perceptions, not so much.

Felix Salmon at Axios:

The meaning of the word "inflation" has changed. It used to mean rising prices; now it means high prices.

...

The headline measure of inflation is based on something pretty arbitrary — where prices were exactly one year ago.The more salient timeframe, especially in an election year, might be what has happened to prices since the pandemic, or since Joe Biden took office.

Zoom out: A more intuitive concept of inflation is just "am I paying higher prices for things than I used to."Under that definition, inflation can be high even when prices are falling.

On a literal level, that should not be possible — prices that are deflating can't also be inflating. In quotidian usage, however, it's entirely possible for $4 eggs or gasoline to be indicia of inflation, even if they were $4.50 previously.

Between the lines: A nerdy lexicographical schism — the descriptivists versus the prescriptivists — has become a key driver of the 2024 presidential election campaign.

Voters who think that inflation is high are likely to blame Biden for it, and less likely to vote for him.

When Biden administration staffers push back by saying that inflation isn't high, they risk being seen as out of touch.

Where it stands: These days, if you read or hear something about inflation in mainstream discourse, then: Either "inflation" is being used to mean "high prices",

Or else there's an implicit or explicit "actually" in there somewhere, and you're getting the feeling that you're being mansplained to.

The bottom line: Prices are high, therefore inflation is high. Get used to it.

Perceptions of the Economy, May 2024

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great. Perceptions, not so much.

Lauren Aratani at The Guardian:

Nearly three in five Americans wrongly believe the US is in an economic recession, and the majority blame the Biden administration, according to a Harris poll conducted exclusively for the Guardian. The survey found persistent pessimism about the economy as election day draws closer. The poll highlighted many misconceptions people have about the economy, including:

• 55% believe the economy is shrinking, and 56% think the US is experiencing a recession, though the broadest measure of the economy, gross domestic product (GDP), has been growing.
• 49% believe the S&P 500 stock market index is down for the year, though the index went up about 24% in 2023 and is up more than 12% this year.
• 49% believe that unemployment is at a 50-year high, though the unemployment rate has been under 4%, a near 50-year low.

Many Americans put the blame on Biden for the state of the economy, with 58% of those polled saying the economy is worsening due to mismanagement from the presidential administration.

The poll underscored people’s complicated emotions around inflation. The vast majority of respondents, 72%, indicated they think inflation is increasing. In reality, the rate of inflation has fallen sharply from its post-Covid peak of 9.1% and has been fluctuating between 3% and 4% a year.

In April, the inflation rate went down from 3.5% to 3.4% – far from inflation’s 40-year peak of 9.1% in June 2022 – triggering a stock market rally that pushed the Dow Jones index to a record high.

 

The Two-Incumbent Election: Comparing Records

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics. The 2024 race has begun.

The nomination phase is effectively over.

The voters are unhappy.

Seung Min Kim and Amelia Thomson-Deveaux at AP:

There’s a reason why President Joe Biden and former President Donald Trump are spending so much time attacking each other — people don’t think either man has much to brag about when it comes to his own record. Americans generally think that while they were in the White House, both did more harm than good on key issues.

But the two candidates have different weak spots. For Biden, it’s widespread unhappiness on two issues: the economy and immigration. Trump, meanwhile, faces an electorate where substantial shares think he harmed the country on a range of issues.

A new poll from the AP-NORC Center for Public Affairs Research finds that more than half of U.S. adults think Biden’s presidency has hurt the country on cost of living and immigration, while nearly half think Trump’s presidency hurt the country on voting rights and election security, relations with foreign countries, abortion laws and climate change.

Bidenomics

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.

Alex Thompson and Hans Nichols at Axios:

The president has had an off-and-on relationship with "Bidenomics" during the past year, however.Biden initially was reluctant to use the term, but last June he decided to embrace it. His advisers calculated that voters were going to blame — or credit — him for the country's economy regardless of what anyone called it.

The goal was to co-opt Biden's Republican critics and do for "Bidenomics" what former President Obama did with "Obamacare" — take a word that seemed a political liability and turn it into an asset.

In recent months, though, "Bidenomics" mentions by Biden, Democrats in Congress and others in the party have fallen off a table.It's a shift that amounted to an acknowledgement that the White House's messaging effort was falling flat with many voters.

By the numbers: Congressional Democrats initially followed Biden's plunge into touting "Bidenomics." They used the word 483 times last July in tweets, Facebook posts, press releases and floor statements, according to data from Quorum.But it wasn't long before those Democrats were grumbling to Biden's team that the White House was tone deaf in its branding as voters were struggling with inflation.

Rep. James Clyburn (D-S.C.), a close ally of the White House, was publicly critical.

The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly
Marijn A. Bolhuis, Judd N. L. Cramer, Karl Oskar Schulz & Lawrence H. Summers
XLinkedInEmail
WORKING PAPER 32163
DOI 10.3386/w32163
ISSUE DATE February 2024

Unemployment is low and inflation is falling, but consumer sentiment remains depressed. This has confounded economists, who historically rely on these two variables to gauge how consumers feel about the economy. We propose that borrowing costs, which have grown at rates they had not reached in decades, do much to explain this gap. The cost of money is not currently included in traditional price indexes, indicating a disconnect between the measures favored by economists and the effective costs borne by consumers. We show that the lows in US consumer sentiment that cannot be explained by unemployment and official inflation are strongly correlated with borrowing costs and consumer credit supply. Concerns over borrowing costs, which have historically tracked the cost of money, are at their highest levels since the Volcker-era. We then develop alternative measures of inflation that include borrowing costs and can account for almost three quarters of the gap in US consumer sentiment in 2023. Global evidence shows that consumer sentiment gaps across countries are also strongly correlated with changes in interest rates. Proposed U.S.-specific factors do not find much supportive evidence abroad.

The Economy, the Election, and the Rural-Urban Divide

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great. Perceptions, not so much.

Ronald Brownstein at The Atlantic:

Paul Kellstedt, a political scientist at Texas A&M University, told me that two big structural shifts in public opinion help explain why Biden has not benefited more so far from these green shoots of optimism.

One, Kellstedt said, is that the relationship is weakening between objective economic trends and consumer confidence. Compared with the days of Reagan or Clinton, more voters in both parties are reluctant to describe even a booming economy in positive terms when the other party holds the White House, Kellstedt noted. Given Biden’s record of overall economic growth and job creation, as well as the dramatic rise in the stock market, the consumer-confidence numbers, though improving, are still lower “than they should be based on objective fundamentals,” he told me.
...

Political strategists in both parties believe another central reason Biden isn’t benefiting more from the many positive economic trends under his presidency is that so many Americans remain scarred by the biggest exception: the highest inflation in four decades. Although costs aren’t rising nearly as fast as they were earlier in Biden’s presidency, for many essentials, such as food and rent, prices remain much higher than when he took office.

Compared with metro America, rural America is benefiting less from the growing economy.

Paul Krugman on rural America:

Indeed, American farms produce more than five times as much as they did 75 years ago, but the agricultural work force declined by about two-thirds over the same period, thanks to machinery, improved seeds, fertilizers and pesticides. Coal production has been falling recently, but thanks partly to technologies like mountaintop removal, coal mining as a way of life largely disappeared long ago, with the number of miners falling 80 percent even as production roughly doubled.

The decline of small-town manufacturing is a more complicated story, and imports play a role, but it’s also mainly about technological change that favors metropolitan areas with large numbers of highly educated workers.

Federal programs, he writes, do benefit rural America, but..

While these transfers somewhat mitigate the hardship facing rural America, they don’t restore the sense of dignity that has been lost along with rural jobs. And maybe that loss of dignity explains both white rural rage and why that rage is so misdirected — why it’s pretty clear that this November a majority of rural white Americans will again vote against Joe Biden, who as president has been trying to bring jobs to their communities, and for Donald Trump, a huckster from Queens who offers little other than validation for their resentment.

 

Brahmin Left, Populist Right, and Views of the Economy

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great. Perceptions, not so much.

 Ruy Teixeira at AEI:

Right now, it looks more like a “Brahmin Left” vs. “Populist Right” election.

“Brahmin Left” is a term coined by economist Thomas Piketty and colleagues to characterize Western left parties increasingly bereft of working-class voters and increasingly dominated by highly educated voters and elites. The Brahmin left has evolved over many decades and certainly includes today’s Democratic Party.

As a Brahmin left party, the temptation is great for Democrats to lean into their emerging strengths and just hope for the best among working-class voters. That is the natural inclination of the elites and activists who now dominate the party.

And indeed there are a couple of potent issues Democrats are planning to run on that are dear to the hearts of their Brahmin left base: abortion rights and defending democracy (“Democracy is on the ballot”, etc.) While for sure these are good issues for the Democrats, especially for your college-educated next door neighbor who would sooner take a bath in hot coals than vote for Trump, it must be recognized that these issues are not as potent and overriding for working-class voters. They are less convinced—far less convinced—that a great analogy for America today is Weimar Germany, 1932. Their concerns are more mundane, connected to their everyday material concerns and relatively conservative values.

Economic indicators are generally looking positive. Roger Lowenstein writes at the NYT that this trend does not mean automatic political gain for Biden:

But voters aren’t economists. They often judge presidents on the basis of coincident economic performance. Jimmy Carter had to deal with serious inflation, and George H.W. Bush endured a recession; each was voted out. Mr. Bush’s successor Bill Clinton reaped the recovery; he got four more years.

Mr. Biden inherited a tough hand: an economy upset by Covid and supply chain disruptions. Yet he presided over a return to growth and dodged a much-predicted recession. (Touch wood.) Jobs came roaring back. Early last year, unemployment dipped below the prepandemic low of 3.5 percent under Mr. Trump, and it remains a still impressive 3.7 percent.

Wage inequality is also contracting under Mr. Biden. I would argue that voters care less about inequality than pundits do. What voters care most about is whether they are doing better.

And this is where Mr. Biden has fallen short. Inflation has snatched away the gains from even a very strong labor market. Over his first two years, as price hikes outran wages, real median household income fell 2.7 percent. The census has yet to report median income for 2023, but given that real wages were up about 1 percent through November, the cumulative change in household median income, adjusted for inflation, over Mr. Biden’s first three years is likely to be in the range of mildly negative to very mildly positive. In other words, in the all-important category of improving living standards, the country did not make progress.

This shows that jobs and output, while very important, are not the only economic indicators that matter. Inflation matters, too, because high inflation taxes away prosperity. This is one area in which I think the president, along with the Federal Reserve, does bear some responsibility. He was warned by voices in his own party — notably, Larry Summers — that his first budget package, enacted nearly a year after the Covid recession ended, was too big relative to the need. He went ahead, and inflation in 2022 soared to 8 percent, a 40-year high.

 

Doing Fine, Feeling Bad

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.  Objective indicators are doing great.

Unemployment was 3.7 percent in November.

Inflation was an 3.1 percent.

Real disposable personal income was up 0.4 percent in November

The Dow Jones was above 37,000, a record high.

So why are Americans still grumpy?

Justin Lahart at WSJ:

It could also be that, even though inflation has been cooling, Americans’ recent inflation experiences have left a more lasting mark. The Labor Department’s measure of consumer prices was 19% higher in November than it was before the pandemic hit. An analysis conducted by economists Ryan Cummings and Neale Mahoney suggests that the impact of inflation shocks on sentiment have a sort of half life, decaying over time.

The pandemic itself left a mark, too. Americans collectively went through one of the most wrenching periods the country has experienced in living memory. Expecting them to feel better just because the economy has been doing pretty well lately might be a bit much.

Good Economic News

Our most recent book is titled Divided We Stand: The 2020 Elections and American Politics.  Among other things, it discusses the politics of economic policy.

Rachel Siegel at WP:

Inflation came down in 2023 much faster than anyone expected, sealing expectations that the Federal Reserve won’t raise interest rates this week and shrinking the chances that the economy is headed for a recession.

A year after prices soared to four-decade highs, inflation for all sorts of goods and services has fallen considerably. The shift still leaves actual prices for eggs, bread, rent and other basics higher than just a few years ago. But costs aren’t rising at such a dizzying, rapid clip — bringing stability and predictability to household budgets and the economy at large.

Fresh data from the Bureau of Labor Statistics on Tuesday showed prices rose 3.1 percent in November over the year before, and about 0.1 percent compared to October. That’s still higher than normal, but a vast improvement since the consumer price index peaked at 9.1 percent in June 2022.