Trump’s campaign message on inflation is wrong

Edwin Lopez sorts money in the cash register at Frankie’s Pizza on January 12, 2022, in Miami. Credit – Joe Raedle—Getty Images

Ohn the campaign route, Donald Trump hammered the president Joe Biden for the “nightmare” of “disastrous inflation”. He has made inflation one of his main attacks against the outgoing president, even accusing Biden of being responsible for increasing food prices by as much as 50 or 60 percent. (They do not have.)

Trump attack conveniently ignores economic facts, Nobel laureate says Paul Romer wrote this week, CPI inflation is around 2.8% and continuing to fall, which Federal Reserve Chairman Jerome Powell celebrated last week as being down from a high of more than 7%.

And this drop in inflation is accompanied not only by a record unemployment rate, but also by economic growth of 2.5%. Last week, the World Bank reported that this economy, the world’s largest economy, accounted for 80% of the improvement in its global outlook. Additionally, although this has not been the case during the Biden presidency, the United States has seen wage growth ultimately exceed inflation, a reversal from a trend that persisted for much part of the last 40 years.

Certainly, for many consumers, prices are still too high. But a reference to Trump’s last year in office, when inflation averaged 1.2 percent, is misleading, as falling prices were a consequence of the collapse of the economy under Trump . The unprecedented and rapid reacceleration of economic growth under Biden was an economy revived following the Trump mandate’s COVID-19 shutdown, which led to the deepest post-World War II economic recession, according to the National Bureau of Economic Research, which certifies recessions. Under Trump, as of November 2020, the unemployment rate was 6.7%, the highest since the administration of President Gerald Ford 50 years earlier.

Some argue that Biden’s early fiscal policies contributed to inflation, but there is no doubt that Biden’s promise to respect central bank independence by tightening monetary policy, reducing the budget deficit and limiting Fiscal spending has since helped bring down inflation. And despite this restraint, the World Bank reported last week that “the U.S. economy, in particular, has demonstrated impressive resilience.” Growth remained dynamic despite the most brutal monetary tightening in four decades.”

In contrast, one of the most underappreciated ironies is that, despite Trump’s aggressive attacks, his own economic policy promises are extremely inflationary, far beyond Biden’s policies.

Learn more: Women could be key to solving Biden’s inflation perception problem

In fairness, Trump has not been a model of convincing clarity in his economic policy agenda thus far, and he is likely just throwing pasta at the wall to see what sticks – so all his promises will probably not be put on the table. .

Nonetheless, the ideas Trump has floated give a good idea of ​​his room for maneuver – and it is clear that his overarching goal does not appear to be fighting inflation. Consider the key tenets of Trump’s trade policy, fiscal policy, and monetary policy promises so far, as well as their hyperinflationary effects:

• On trade policy, Trump has promised to impose universal 10% tariffs on all imports as well as 60% tariffs on all imports from China – and the higher costs would, at in turn, passed on to American consumers. According to objective, unbiased modeling from Bloomberg Economics, these tariffs would increase U.S. consumer prices by at least 2.5% and reduce GDP by 0.5%. This doesn’t even take into account that America’s major trading partners would almost certainly also impose retaliatory tariffs on U.S. products, significantly reducing U.S. exports and hurting U.S. manufacturers.

• On the fiscal policy side, Trump’s top fiscal priority appears to be a tax cut without a commensurate reduction in government spending, which would risk pushing deficits to their highest peacetime levels ever. While it is easy to celebrate tax cuts, record deficits – in other words, unsustainable government borrowing – will artificially boost demand and increase inflationary pressures. In particular, Trump pledged to permanently extend all expiring provisions of the Trump Tax Cuts and Jobs Act of 2017, which the Congressional Budget Office estimated would cost $4.6 trillion dollars over 10 years. But even beyond that, Trump has pledged to cut the corporate tax rate to 20%, apparently because “it’s a round number,” as he told the Business Roundtable this week last. Trump already left office with the highest deficits in history; Although deficits are still higher than pre-pandemic levels, Biden has contributed to a federal deficit reduction of more than $1 trillion during his term.

• Perhaps the most bizarre, idiosyncratic, and hyperinflationary elements of Trump’s economic agenda manifest themselves in his views on monetary policy. Trump and his advisers have floated the idea of ​​stripping the Federal Reserve of its independence and letting Trump himself set rates arbitrarily. Trump, throughout his life, has almost always been in favor of lowering interest rates, regardless of where we are in the business cycle, and keeping interest rates low through to de facto control of the yield curve would prove extremely inflationary at a time of already strong demand. Trump’s views on monetary policy are so outlandish that even his fellow Republican senators have repeatedly thwarted Trump’s efforts to appoint compliant allies such as pizza salesman Herman Cain and gold standard advocate Judy Shelton to the Fed Board; and protected President Jerome Powell from Trump’s repeated efforts to fire him during his first term.

• Trump and his advisers also pledged to devalue the dollar — a sudden reversal of a century-old pillar of global trade that would not only reignite inflation but reduce the purchasing power of American consumers.

Trump’s other complaints about inflation veer toward empty clichés. For example, Trump promised to unleash American energy amid fiery cries of “drill, baby, drill” – ignoring the fact that under Biden, the United States has become by far the world’s largest producer of crude oil , producing well over 13 million barrels per day. That’s more than the United States has ever pumped under Trump, more than any other country in history, and 50% more than runners-up Saudi Arabia and Russia, with prices oil and natural gas prices lower today than they were during Trump’s first term. In fact, despite anger from Greens and progressives, Biden approved 50% more oil and gas drilling permits for wells on federal lands than Trump did.

Learn more: How the Inflation Reduction Act Reshaped the United States and the World

And what about this skyrocketing food prices? The aberrant increase — a more than 70% rise in egg prices since Biden took office, which Trump surrogates have taken advantage of to criticize the president — shows that the yolk is on Trump. Unless he has a cure for the bird flu that led to the destruction of 100 million chickens, it is unlikely that he, or any other elected official, will be able to do anything about the price of eggs .

For all the noise Trump is making about Biden’s inflationary policies, Trump’s own recommendations – much higher tariffs, a politicized Fed, a devalued dollar and record federal deficits – are sure to make inflation worse .

Exactly 50 years ago, when inflation topped 12 percent under President Gerald Ford, comedian George Gobel lamented, “We now have to work like a dog to live like a dog.” » Fortunately, those days are long gone.

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