Peter Morici: Voter dissatisfaction with inflation will define the midterms
Americans have good reason to be unhappy with the economy and President Joe Biden.
At the State of the Union, he bragged on the strong recovery, but abstract statistics like GDP growth, the unemployment rate and average hourly wages don’t rhyme well with many voters’ personal experiences.
Paychecks aren’t keeping up with electricity, gasoline and grocery prices.
Laughable were early denials and now the remedies offered by the Federal Reserve, Treasury and progressive West Wing economists.
White House reassurances
Cecilia Rouse, Chair of the president’s Council of Economic Advisers, asserts inflation will subside within months. However, omicron is ripping through cargo ship crews and along with rising fuel costs, that translates into higher freight rates and more inflation.
Rising oil prices impose big price increases for farmers’ fuel, herbicides and fertilizer—and delivery and distribution costs for food processors.
How that’s going to bring down retail prices for laptops or meat evades my expensive education in economics and ordinary folks’ common sense.
Treasury Secretary Janet Yellen tells us Build Back Better will solve the labor shortages, but it would raise the cost of child-care for middle class professionals over the next few years. Yellen should know better than to peddle that line.
The administration has persistently claimed monopolies are causing inflation. Biden has instructed the FTC to investigate oil companies and accuses meat processors of anticompetitive practices. On Feb. 10, he announced 72 initiatives across a dozen agencies to boost competition.
Where were all those monopolies when Donald Trump was president and prices were stable? Did those magically cartelize the American economy between Election Day 2020 and Inauguration Day 2021? I doubt the president has good answers for those questions.
The administration has discouraged the development and distribution of oil and gas in the United States, even as war blazes in Europe and created new demand for natural gas exports and cut off supplies of Russian oil.
It doesn’t take a Ph.D. in economics to see how those drive up the cost of driving and winter heating bills.
For the year ending in February, consumer prices were up 7.9% while wages increased only 5.8%.
That’s not a huge difference but those wage gains are only averages. Pandemic demand and stimulus spending most benefited the wages of finance and high-tech workers, nurses and several other specialties—most other workers’ wages lagged behind.
Importantly, most folks get their pay adjusted annually, but businesses can raise prices quickly and lately have been. That’s a key source of rising worker resignations—often, the only way to beat inflation is to switch jobs.
Bosses getting richer
CEOs are taking double-digit pay increases while magnanimously announcing they will increase white-collar pay by about 4.4% this year. What’s it like to be a loan officer, teller or work the IT help desk at Bank of America
where Brian Moynihan is taking $32 million?
Not be outdone, new Apple
phones are terribly expensive but no longer include chargers and headphones. That disguises how much prices have jumped. After golf, yachting and ordering up the corporate jet, shrinkflation—fewer potato chips (silicon wafers) in the same wrap—is a favorite CEO pursuit.
Take comfort America, it’s all for a good cause. Tim Cook is taking $99 million in compensation.
Pandemic stimulus spending enabled asset bubbles in financial markets, and now investment bankers and private equity traders are grasping millions in bigger bonuses.
All these worsen the inequality Biden aims to fix.
Most concepts in economics are terribly inaccessible but some are clear. If the economy is experiencing shortages because the government is handicapping the oil-and-gas industry, shipping lanes are clogged, and work at home is shifting spending from sandwich shops to fitting out home offices, printing more money will bid up prices.
Biden financed his $1.9 billion American Rescue Plan with help from the Federal Reserve printing money to purchase the necessary new Treasury securities.
Now the Fed is on a unicorn hunt for the terribly illusive soft landing—getting inflation significantly closer to 2% while not boosting unemployment. Meanwhile, the president is dipping into his diversity list for new Fed governors with a strong bias toward printing money and manufacturing more inflation to create tight labor markets.
Most alarming, Fed nominee Lisa Cook can’t tolerate ideas different from her own. She wanted the editor of the prestigious Journal of Political Economy removed for criticizing the defund the police movement.
Americans can see two things plainly. Tight labor markets and inflation manufactured by big spending and printing press monetary policies are sending ordinary folks to the poor house, and they have every reason to vote for change in the midterm elections.
Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.