The November midterm elections fast approach. Democrats are touting their massive stimulus, the mendaciously named Inflation Reduction Act, and the constitutionally illegal student loan giveaway.
But the economic facts demand they suffer defeat come November.
President Joe Biden last week talked about record-low unemployment. He explained that the headline inflation number rose only 0.1% month on month. Biden conveniently ignored comments by Democratic-leaning Harvard University professor Jason Furman that the August consumer price index report actually suggested an acceleration in inflation. Furman explained that the Cleveland Fed’s median CPI, which excludes all the large changes in either direction and is better predicted by labor market slack, showed an annual rate of inflation of 9.2% in August, the single highest monthly print in their dataset (which starts in 1983). Furman also suggested that there is a real possibility of stagflation , with an unemployment rate at or above 6% and sustained inflation of 4%-plus.
Put simply, Democrats are arguing that a white-hot labor market, with very elevated wage inflation, almost 7%, and the highest level of consumer inflation in almost 40 years justifies voter trust and the reelection of a Democratic majority to both bodies of Congress. That position is laughable when compared to what Republican tax and economic policies accomplished during the Trump administration.
In the fourth quarter of 2019, just before the COVID pandemic washed over the country, people were enjoying a true “Goldilocks economy.” This involved low, well-contained inflation, full employment, and real wage gains in line with secular growth in productivity. Describing the 2019 labor market, the Bureau of Labor Statistics said : “The U.S. labor market remained strong … as the unemployment rate fell to 3.5%, the lowest rate since 1969. The employment-population ratio and the civilian labor force participation rate increased over the year.”
In the fourth quarter of 2019, the public also enjoyed a real inflation-adjusted increase in personal disposable income of 1.5% coupled with very low, stable inflation of 1.6%. Top line: The Republican Tax Cuts and Jobs Act of 2017 (especially the reduction in the corporate tax rate from 35% to 21%) helped deliver a full employment economy with extremely low inflation — which is to say, a central banker’s dream.
By contrast, Democratic economic policy can best be characterized as an embrace of Modern Monetary Theory: helicopter drops of money and massive deficit spending. We might have a full employment economy, but we also have a 2.8% decrease in real average hourly earnings as measured from August 2021 to August 2022 — oh, as well as the highest rates of inflation in 40 years.
Measured by their recent respective records, Republicans gave us a full bowl of warm porridge. Democrats give us cold gruel. The economic facts encourage associated electoral choices.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.