Election 2022 or as I call it: The Great Republican Gaslighting Exercise

 

Prior to this year, if you were to tell me that there would be midterm elections in the US where the Unemployment rate is down at 3.7% (basically full employment), the gross national product has increased every quarter of the current congressional session indicating an expanding economy and that the party out of power, Republicans in this case, would be successful at painting the Economy as “bad” I would have laughed at you. "There is no way that could happen" is what I would have said.

US Annual GDP Rate

Yet, here we are.

Republicans reading this are, I am sure, by this point shouting at the screen saying “Inflation!” “Inflation!!!!!!!!!!!” Yes, there is inflation. I will get to that shortly, but that is only one datapoint of many economic indicators. Historically in the US If the economy was expanding, i.e. the GDP growth I talked about earlier, and unemployment was low, we would all be calling that a good economy, which it is.

So, understanding that we are talking about economy where the top two indicators show it to be a good economy, let’s talk about inflation, the one aspect of the economy that isn’t where we would hope it would be.

 

Since the late 1960s, the Annual US Inflation rate has ranged from less than -2% in 2011 (deflation is generally an indicator of recession) to over 14% during the oil crisis of the late 1970s. It averages somewhere around 3 to 4 percent. The annual inflation rate in 2021 was 7% and it is currently at about 8.2%. Generally when we are talking about high inflation, we are talking about double digit increases (10%) or higher. We would prefer a lower inflation rate, but rates under 10% are not very high.

More germane to this election is, why is inflation high and should Democrats be held responsible. I can take your through this, but, spoiler alert, the answer is it is high because of what Trump and Biden (and congress during their Presidencies) did and had to do to right the economic ship after Covid, and no the Democrats and Biden should not be held responsible.

Let’s talk about my Covid assertions above. First, let’s remember, virtually all of the governments of the world shut down their economies for about six months due to Covid in mid 2020 and for the six to twelve months after that, the economies ran at a fraction of their pre-Covid output. So that is twelve to eighteen months of very low economic output, no money being earned by companies or people, factories not having orders and not producing, essentially very few goods and services being produced. If you had told me prior to Covid that something like this would happen, I would expect at a minimum that we would experience an economic depression in its aftermath with unemployment at 25% and persisting that way for some time and other severe economic impacts. After all, people still have to pay their rent and mortgage. Where was that money coming from? What would happen to banks if mortgages wouldn’t be paid for 6-18 months. How would companies keep employing people? How would people buy food? How would people pay for electricity, internet, phone, etc if they weren’t being paid? The government had to prop all of these things up for hundreds of millions of people.

It says something that the governments of the world were able to take action and prevent a complete collapse of the economies given those circumstances. And what is it that the US and other governments did to prevent this collapse? They injected trillions of dollars into the economy. After March of 2020 and up until the end of his Presidency, Trump injected three trillion dollars into the economy to shore it up during and after this shut down of the economy. In the beginning of his Presidency, Biden injected another three trillion dollars into the economy. Now, as I indicated, the fact that the economy could be salvaged at all in the US and elsewhere given the circumstances is still surprising to me. But if you think you can inject that kind of money into an economy that isn’t producing goods and services and not have some specific expected impacts, particularly where inflation is concerned, you don’t understand economics. In fact, most brokers on Wall street were predicting massive inflation in Fall of 2020 regardless of who won the Presidential election since both Biden and Trump were promising additional rounds of large stimulus were they to be elected. It was understood by both parties and their economic experts that this would be required to keep the economy going.

So one large component of the inflation we are experiencing globally, not just in the US is because governments had to rescue the economy after Covid. In fact, the US is experiencing less inflation that most of the other large developed countries. Here is a graph of the inflation by commodity group of the other G7 countries. They all are experiencing inflation, as expected, but the US is generally doing better than the rest of the group.

 

Also imagine, if you will, all this money that had been injected into these economies, but there weren’t many goods and services to spend it on. Factories took a long time to spin up again and get to full production. Shipping companies had to get their container ships up and working again sailing the pacific from Asia to the US and other routes. So you had all of this money and not many goods and services, that is a recipe for inflation and governments couldn’t do too much about that.

I would be saying this regardless of who had won the White House in 2020. It is a miracle that the economies of the US and the other countries of the world did not fail completely in the wake of the Covid shutdowns. Disruptions to entire economies on the scale of what we saw with Covid are rare. In fact I am not sure anything like that has happened since the industrial revolution ended in the mid 1800s.

It is completely bizarre, given the circumstances, that anyone is blaming the party in power for inflation. I suppose if you know absolutely nothing about macroeconomics, if you don’t even understand that adding tons of money to an economy without adding goods and services will mean inflation, then I guess it might be understandable. I find it hard to believe that people are that ignorant of economics. For sure, Republican and Conservative pundits who are selling this to grassroots voters know better, they just don’t care that they are lying. That isn’t a surprise to me, that’s how those folks operate.

If it goes like the polls are predicting, this will be the first time in American history that a party with positive GDP growth and an unemployment rate this low will be punished by losing congress. And it will happen because of ignorance.