(RNS) — During the 1992 presidential campaign, James Carville famously came up with a mantra for Democratic campaign workers to remember what voters really cared about: “It’s the economy, stupid.” It helped Bill Clinton beat incumbent George H.W. Bush.
Today, Republican strategists might modify this slogan to “It’s inflation, stupid.” Republicans are hoping that inflation is the issue that will win over swing voters.
Meanwhile, Democrats are telling people, “It’s abortion, stupid,” hoping that the promise of protecting abortion rights will motivate their base to come out to vote.
Currently, things do not look good for Democrats.
Inflation is hurting everyone, whereas white middle-class suburban women, who are essential to a Democratic victory, have concluded that they and their daughters are either living in a state where abortion will remain legal, or can get to a state where it is legal if they become pregnant.
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The price of gasoline, food and housing are more pressing problems at the moment.
It does no good for Democrats to point out that Putin and OPEC are more responsible for fuel prices than President Biden and that there is little he can do about it. No one remembers how cheap oil was during the pandemic. It does no good for environmentalists to argue that if we had reduced our dependence on fossil fuels as they had urged, we would not currently be held over a barrel.
Republicans will blame Democrats for pumping too much money into the economy during the COVID-19 downturn, but the Trump tax cuts also poured money into the economy — via those in upper tax brackets who got the highest breaks.
Who is more to blame for over stimulating the economy, the family that spent their child tax credit on food or the multimillionaire who wanted a bigger mansion?
Meanwhile, the pandemic caused uncertainty for business executives who made decisions for short-term gain that later led to inflationary pressure.
At the beginning of the pandemic, airlines laid off pilots and crews. Rental car companies stopped buying new cars and flooded the market with used ones. Computer chip companies stopped making chips for cars and produced chips for game consoles. Markets were unprepared for a boom in sales to people working from home, while travel, restaurants and hotels cratered.
When the pandemic began to recede, airlines did not have enough crews to fly their planes. Auto companies did not have enough chips to build new cars. Rental car companies bid up the price of new cars and stopped dumping old ones in used car lots. On top of this, disruptions in supply chains caused by COVID-19 shut down production for manufacturers who had learned to live with “just-in-time” deliveries of parts and materials.
Corporate America’s solution to its mistakes: Raise prices. Corporate profits continue to go through the roof.
Add to that a housing shortage left over from the Great Recession, which led to higher home prices and higher rents. During that recession, private equity firms bought up housing for a song and upped the rent.
Economists will tell you that in the long run, once the pandemic and war in Ukraine are over, the markets will adjust. The problem for Democrats is that voters live — and vote — in the short run.
With Congress incapable of raising taxes on the rich, the country is depending on the Federal Reserve to bring down inflation with higher interest rates. This is a blunt instrument, akin to using a hammer to remove a tooth — for two reasons.
First, higher interest rates will reduce demand for goods and services, which will then cause unemployment, which will further reduce demand when unemployed workers run out of money. Thus, those at the bottom of the economy will be forced to pay for the mistakes of those at the top of the economy. This happened during the Great Recession, and it is happening again now.
Second, higher interest rates do not deal with the structural problems that have led to the housing crisis. True, higher interest rates may bring down prices for current housing by reducing demand as mortgages become too expensive for the middle class, but high interest rates also discourage increasing the supply of new housing.
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After the Fed conquers inflation, the housing market will be just as bad if not worse than it is now.
It is time for economists and politicians to find other ways of fighting inflation than simply the blunt instrument of higher interest rates. Sadly, higher rates are necessary, but they are not sufficient.
Republican obstructionism and congressional gridlock make it unlikely that creative solutions will become government policy, but it is inhumane and unjust for us to continue bludgeoning workers and the poor to fight inflation that they did not cause.