Democrats’ unstated midterm rallying cry to voters, a takeoff of their guiding mantra from an election thirty years ago, ordained, It’s not the economy, and you are stupid.
Distract and deflect sum up in two words the Democratic Party’s winning strategy to deal with the highest price spike in four decades. If the obfuscation on the issue that voters identified as the most important lent credence to the Evil Party moniker for Democrats, then more so did the Stupid Party label fit the behavior of Republicans.
Donald Trump, who, in a series of tweets while president derided Federal Reserve “boneheads” for not lowering “our interest rates down to ZERO, or less,” cooperated in the strategy by shifting focus away from the issues and onto him. He did this by diminutizing the candidates he ostensibly endorsed (e.g., boasting to Ohio voters that “J.D. is kissing my ass” for support), stealing their stage at rallies, and rhetorically fixating on his 2020 grievances rather than on the public’s 2022 problem with prices. Edison Research’s exit polls showed Trump with a 58 percent unfavorable rating among 2022 voters and 39 percent favorable rating, so making 2022 about the past president rather than about the current one’s failures acted as a drag on Republicans and a fuel for Democrats.
Republicans saw in the faint silver lining on the massive inflation cloud an Election Day trouncing of the party in power. The silver lining revealed itself on November 8 as a trick of the light. They never connected the dots for voters from big-government policies to inflation. Either they expected voters to do this themselves or they do not understand economics enough to explain it. People felt the pain of inflation. They could not articulate in the ballot box who caused that pain and how.
So the red wave that greeted the last two Democrats in the White House two years into their presidencies failed to materialize. Instead of losing fifty-four congressmen and eight senators, as Democrats did in 1994, or sixty-three and six as they did in 2010, President Joe Biden’s party added governors, retained control of the U.S. Senate, and lost but a handful of seats in the House of Representatives. The math — Republicans entered the elections with far greater numbers in Congress than they did in 2010 or 1994 and defended twenty-one of thirty-five Senate seats up for grabs — always dictated a lower ceiling on seats gained than in the two aforementioned midterms. But the idea of essentially a stalemate election eluded the predictive powers of all but a few political soothsayers.
The consumer price index (CPI) rose from 1.4 percent in Biden’s first month in office to 9.1 percent in June 2022. How did such an alarming price escalation not cause voters to use the ballot box to place the party in power in the penalty box?
Edison Research’s exit poll conducted for television networks shows that 31 percent of voters chose inflation as the top issue, and those voters broke Republican by more than a two-to-one margin. The AP VoteCast exit poll listed a broader category, economy and jobs, which 47 percent of voters also named as their top concern, again breaking by an almost two-to-one margin for Republicans. So, the degree to which Democrats, aided and abetted by some Republicans, made the election about matters unrelated to the economy benefited Democrats electorally.
Democrats, for their part, attempted to deliberately confuse voters on the reasons for a case of Budweiser bottles jumping to $24.49, roast beef to $12.99 a pound, and gasoline to $3.80 a gallon.
The deflection involved pointing to the usual boogeymen. The Biden administration set this tone early this year when the president explained skyrocketing supermarket prices by saying, “Four big corporations control more than half the markets in beef, pork, and poultry.” In a campaign commercial, Senator Mark Kelly of Arizona blamed inflation on “price gouging” and “corporate greed.” Representative Alexandria Ocasio-Cortez of New York told Chris Hayes on MSNBC: “Inflation is not going up due to government policies. Inflation is going up due to Wall Street decisions.”
In a less successful effort, twice-failed Georgia gubernatorial candidate Stacey Abrams attempted to link the Dobbs decision to inflation.
“Having children is why you’re worried about your price for gas, it’s why you’re concerned about how much food costs,” Abrams said on MSNBC. “For women, this is not a reductive issue. You can’t divorce being forced to carry an unwanted pregnancy from the economic realities of having a child.”
Senator Bernie Sanders of Vermont found more success in deflecting blame by making the argument that since other countries suffer from increasing prices, the United States necessarily finds itself in the clutches of forces beyond our control.
“Inflation is not unique to America,” Sanders wrote days before the election. “It is an international crisis. In the European Union, inflation is nearly 11%. In Germany, it is 11.6%. In the United Kingdom it is 10.1%. In Ireland, it’s 9.6%. In America, it’s 8.2%, much too high, but lower than it is throughout much of Europe.”
Sanders neglected to mention that the annual rate of price rises for the most recent figures available measured 3.0 percent in Switzerland, 3.4 percent in Saudi Arabia, and 2.1 percent in China. In contrast, rates hit 268 percent for Zimbabwe, 162 percent for Lebanon, and 52 percent for Iran. This “international” crisis varies in intensity quite wildly from one nation to the next. For instance, the rate exceeds 80 percent in Argentina; in bordering Bolivia, it falls below 3 percent. Clearly, domestic policies profoundly influence the inflation number country to country, and global trends do not dictate giant price hikes everywhere.
Even the U.S. CPI rate dropping from 9.1 percent in June to 8.2 percent in September to 7.7 percent in October reflects policy changes. The Fed’s balance sheet shrank from an $8.933 trillion peak in March to $8.676 just prior to Election Day. The central bank also raised its federal funds rate six times in 2022 prior to Election Day. While this helped drop the CPI rate, the CPI rate’s drop to 7.7 percent, revealed days after the election, likely did not help Democrats much if at all because month to month the rate increased by 0.4 percent, as key a barometer for the public as gasoline increased prior to the vote, and the CPI for All Urban Consumers, relied upon as the metric, still increased dramatically from last year even if the year-to-year numbers from previous months eclipse it.
The targeting of individual industries, as Biden, Kelly, and AOC did, ignored the fact that for almost all of 2022 prior to the election the Bureau of Labor Statistics’s monthly CPI reports showed all or almost all of the categories and subcategories increasing in price year over year. The price spike did not confine itself to this industry or that industry. When everything grows more expensive, credibly fingering the culprits as the greedy meat conglomerates or the oil barons would seem a difficult task. Alas, the Bureau of Labor Statistics does not publish the price index that voters study. The checkout-line display and digital fuel-price flip signs do. The impulse to blame the messenger remains strong.
So, when inflation rates vary wildly internationally but nationally spike across the board indiscriminate of industry, this confirms that monetary policies primarily caused monetary problems. The Federal Reserve’s balance sheet, which stood below $3.9 trillion in September 2019, reached just under $9 trillion in March of this year. In the three months corresponding with the initial lockdown response to the U.S. COVID outbreak, it expanded by $3 trillion.
Central bankers in most advanced countries created a massive amount of money in a short period of time. This explains Sanders’s ability to point to great problems in the United Kingdom, European Union, and beyond. Fiscal recklessness provoked the monetary recklessness. Our central bankers do not operate in a vacuum. The fiscal recklessness of spending huge sums unavailable in the treasury came about because of COVID’s suppression of productivity. Whether one finds such emergency measures necessary seems irrelevant to the question of what primarily caused exploding prices. The clear answer, obscured for the entirety of the 2022 campaign, remains money.
Inflation serves as the lifeblood of big government.
The law of supply and demand does not magically stop with money. The rapid creation of so many dollars, particularly at a time when economic activity tanked, clearly impacted the value of dollars.
We did not bake a larger pie. Instead, we cut more pieces from the existing pie. Each piece became less filling than the larger ones that existed before.
The fact that the federal government operated on a deficit of just over $3.1 trillion in 2020 and the Federal Reserve’s balance sheet increased by just under $3.2 trillion that year proves instructive in illustrating the connection between deficits and loose money. Central bankers feel compelled to create money when policy makers spend what they do not possess. The easy money created in response to deficits results in a glut of dollars, which, per the laws of supply and demand, decrease in value. The Fed’s easy money from September 2019 to March 2022 — when the central bank finally raised its federal funds rate from essentially zero and ended its quantitative easing — enabled big government and ballooned already big deficits, leading directly to the price rises we currently experience.
So much of the inflation-centered debate of this last year fixated on obscuring that central fact. A separation of words from their meanings, which occurred long ago, facilitated the ability to shift blame to multinational corporations, a Russian dictator, a Chinese virus, and anything but American politicians and central bankers.
“The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation,” Ludwig von Mises pointed out in Human Action: A Treatise on Economics. “What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates. This innovation is by no means harmless.”
We call inflation’s most recognizable symptom “inflation,” which hides the cause of upward prices.
The reason to inflate terms into meaninglessness comes from the same dishonest place as the impulse to inflate the currency. And in partaking in dishonest means to obscure the reasons for dishonest money, Democrats serve not just their immediate partisan ends but also their long-range policy goals. Inflation bumps middle-class people into wealthy tax brackets. It encourages a culture of spending rather than a culture of saving. Most importantly, it serves as the lifeblood of big government.
In moving away from opposition to big government as the lifeblood of its party, Republicans lost their way, no longer exposing and opposing the causes of pain at the cash register. The GOP helped usher in November’s disaster with its campaign tactics and messaging but also with its recent governing priorities. A small-government party knows why it opposes colossal spending, gargantuan deficits, and loose money. One unmoored from the animating principle of limited government cannot articulate a persuasive response to such folly.
The Federal Reserve creating currency for the purpose of putting it straight into the treasury allowed the federal government to spend in excess of $6 trillion in each of the last three fiscal years after never before allocating as much as $4.5 trillion. The deficits that accompanied the record 2020–2022 spending spree, unprecedented in the history of any government anywhere at any time, occurred despite the federal government this year and last collecting revenues unprecedented in the history of any government anywhere at any time.
Inflation, like debt and taxation, arrives on the table as the check due for big government. But politicians enamored with growing the federal government — its spending amounts to about a quarter of annual gross domestic product — want to keep that a secret.
That Democrats succeeded in keeping this a secret stands as the secret to their November success.