April 2024
With election day approaching the Democrats are desperate to address Biden's dismal approval ratings, especially his handling of the economy. The liberal media have been sympathetic. Virtually every news outlet has published a story similar to this one: Why isn’t the growing economy helping public perception of Biden?
The subliminal message of these stories is that the public is too ignorant to realize that the American economy is actually booming. After all, the data for the Biden years reveal record low unemployment, robust job creation, and big investments in infrastructure and chip manufacturing. So, why don't people appreciate how well-off they really are?
Au contraire. The public's distain appears mistaken only against the statistics that Biden wants to showcase, the unemployment rate for instance. But against statistics that measure Americans' lived experience, their low opinion of Biden's performance is right on the mark.
That experience is shown on the chart. People were objectively worse-off under "Bidenomics," because accelerating inflation eroded the purchasing power of their income. The vertical distance between Median Earnings (green) and the CPI lines measures the percentage loss of purchasing power, a.k.a. the "Inflation Tax."
The average price of stuff purchased by the typical consumer (CPI-all) rose faster than the wages of full-time workers. In the first 18 months of the Biden's reign, prices (CPI-all) rose 13%, while wages went up just 7%. In other words, by the middle of 2022, the real value of a worker's paycheck had depreciated 6%. Thereafter, the gap gradually shrunk to about 2% in December 2023.
Even worse, the makeup of inflation was biased against the Working Class.
The burden of price inflation was greater for young adults and other low income consumers. That's because the basket of stuff bought by less wealthy people is heavily weighted toward big-ticket necessities - rent, transportation, and food. It turns out that price inflation for necessities was higher than average, as depicted by the pinkish line (CPI-necessities).
The average consumer represented by CPI-all allocates about 62% of spending to housing, transportation and food. But for poorer consumers, necessities might account for more than 90% of spending, in which case their experience of inflation was closer to the pinkish line (CPI-necessities). Consequently, their loss of purchasing power in mid-2022 was closer to 8% rather than 6%. The financial strain was evident in the rise of credit card and auto loan defaults, especially among the young.
But lower income folks were also disadvantaged in other respects. Since they were less likely to own a home and a stock portfolio, they couldn't benefit from the appreciation of those assets during Biden's term (17% and 26% respectively). For this reason, richer people were cushioned from the effects of price inflation.
These data not only explain Biden's unpopularity, they accurately predict the demographic profile of those most likely to despise him. According to polls, as respondents' age and income decline, so does their support for Biden, especially white men.
But here's the clincher...
The financial burden is far worse than the official figures suggest. It turns out that the official CPI actually understates the cost of living. As currently constructed, CPI-all (red line) does not count interest rates, the price of borrowing money. The interest charges on personal loans (credit card debt, car loans) have skyrocketed since 2020.
Adding these interest costs to the mix of prices sharply raises the CPI, as approximated by the dashed red line on the chart. This shows that at the end of 2023 the true inflation-tax on the median worker was about 9%. That's why in March 2024 Biden's approval rating is down to 38%.
Biden, the progressive hypocrite.
Most of the blame for the "post-transitory" wave of inflation lies with the Democrats' "go-big" fiscal policy. Ignorance is no defense. They were forewarned by the eminent economist Larry summers who predicted that adding another $2 trillion to the national debt in the name if pandemic relief and fiscal stimulus would ignite inflation.
And he was right. That's what happens when pandering politicians throw $1400 checks to millions of citizens who don't need the cash, but are willing to spend it.
Progressive Joe has repeatedly pledged that "anyone who makes less than $400,000 will not have to pay one extra dime in taxes." But, by stoking inflation he has broken that promise. After all, the resulting loss of purchasing power is the equivalent of a tax on earnings. As noted above, from 2021 through 2023 the inflation tax rate on paychecks averaged at least 6%. And like other taxes on consumption (e.g., sales taxes) the inflation-tax is regressive.
And who collected those inflation-taxes? Of course, the businesses selling goods at inflated prices. Profits didn't suffer because the revenue they made on each unit of output rose along with inflation. In short, Joe's Inflation-Tax exacerbated inequality.
More inflation taxes may be on the way.
Biden's climate policy is formulated on the pretense that decarbonization is completely painless in terms of economic cost. So the actual cost must be disguised as something benign. That's why Biden's policy rejects a policy of taxing CO2 in favor of popular, but inefficient, subsidies and protectionism. This choice actually increases the cost of decarbonization. So, to kick the cost-problem down the road, the Democrats will be tempted to finance climate policy with deficit spending (which Republicans use to finance tax cuts for the rich). This is likely to ignite new rounds of regressive inflation-taxes.
Commentaires