Voters’ Misplaced Trust in Republicans on Inflation and the Broader Economy

Posted in: Tax and Economics

As Americans cast their ballots in the midterm election, voters are divided over not just which candidates they support, but what issues matter to them. Democrats express concern about reproductive rights and the threat that Trumpists pose to the very future of democracy. Republicans say they worry about crime, immigration, and the economy—especially inflation. Although much could be said about each of these issues, today’s column focuses on the last one. Do voters have good reason to believe (as so many of them do) that Republicans will do a better job than Democrats handling inflation and the broader economy?

The Incumbent’s Curse

Some readers will no doubt think that the parties’ respective policies will play at best a minor role in determining electoral outcomes. The party that holds the White House typically loses congressional seats in a midterm election, because its supporters tend to grow complacent, whereas opposition party supporters are highly motivated. And indeed, that pattern is largely holding this year. With the exception of college-educated women driven to the polls by the Supreme Court’s recent overruling of Roe v. Wade, constituencies that favor Republicans appear substantially more likely to vote in this year’s election than do constituencies that favor Democrats. Thus, voters could be telling pollsters they prefer Republican economic policies as a rationalization for a voting choice determined mostly by the standard dynamic of American midterm elections.

In addition, there is no denying that a great many Americans face economic challenges. Although the economy has recovered most of the jobs that were lost during the early months of the COVID-19 pandemic and unemployment is low, inflation has hit worryingly high levels and is outpacing wage gains. Continued high inflation will further erode purchasing power, while conversely, the Federal Reserve’s response—raising interest rates—could cause a recession.

To be sure, Democratic politicians did not cause the current economic situation. Global forces—especially supply-chain disruptions caused by the pandemic and high energy prices caused by Russia’s war of aggression against Ukraine—have fueled high inflation around the globe, not just in the United States. And the Federal Reserve, which might be criticized for overshooting on interest rate hikes, by design acts independently of elected politicians. Thus, the key economic factors that have the electorate feeling gloomy may have little to do with policies of the Biden administration and its Democratic allies in Congress. But voters tend to reward politicians in good times and punish them in bad ones, regardless of whether they caused either.

Each Party’s Record

That is not to say that President Biden and the Democrats bear no responsibility for the state of the economy. In 2021, the American Rescue Plan Act pumped nearly $2 trillion into the economy. Last year’s infrastructure bill added another trillion dollars of spending. And other measures enacted this year—including the somewhat misleadingly named Inflation Reduction Act—include yet more federal spending. One can argue that these and other spending measures were warranted, all things considered, while still acknowledging that they probably contributed to inflation as well.

Of course, measures that have already been enacted do not necessarily bear on the question of which party will do a better job going forward. Still, it is not irrational to think—based on the recent record and the parties’ respective long-term commitments—that a Democratic Congress is more likely than a Republican one to spend freely on social programs that could contribute to inflation.

Still, a fair comparison requires evaluating the alternative. That task is tricky here because, other than criticizing President Biden, most Republicans have been reticent about what they themselves would do if in power. However, based on their record when they have held power in recent decades, it is a fairly good bet that they will promote tax cuts—which are themselves inflationary. Republicans like Senator Rick Scott of Florida believe that tax cuts are always a good idea.

That’s not all. Although few Republicans emphasize the point on the stump, at least some of them hope to “reform” entitlement programs—i.e., to cut spending on Medicare and Social Security. That ought to be a remarkably unpopular agenda, especially with core Republican constituencies, which skew older than average. Still, at least wealthy American voters might give Republicans credit for taking on entitlements: older Americans who must slash their food budget by eating fewer meals will spend less and thus dampen demand; such government cruelty could make at least a small dent in inflation.

Debt Ceiling Brinksmanship

But wait. How will Republicans running for Congress in 2022 reduce millions of elderly Americans to starvation rations and reliance on home remedies in lieu of modern (but expensive) medicine? Even if Republicans capture both houses of Congress, surely President Biden would veto any bill that cut Social Security or Medicare.

The Republicans have a plan. They hope to hold the entire global economy hostage unless Congress enacts and the President signs their agenda into law. Just as they attempted when Barack Obama was President, so too now, they will threaten to refuse to raise the debt ceiling—which, to be clear, provides borrowing authority to pay for spending that Congress has already authorized—unless President Biden agrees to their future spending cuts. Because President Biden would not likely capitulate to such economic terrorism, the result could well be a first-ever U.S. default on its obligations.

Such a default would be disastrous in the short run, potentially triggering a global financial crisis as bad as or worse than the one we experienced in 2008. In the long run, such a default could fatally undermine the status of the dollar as the world’s reserve currency, which would permanently weaken the U.S. economy and the U.S. as an actor on the world stage.

Given the stakes, one might think that Republicans are bluffing. After all, they threatened to use the debt ceiling to facilitate hostage taking during the Obama administration but ultimately backed down. Why wouldn’t they back down again?

The short answer is that the GOP has changed. When John Boehner was the Republican Speaker of the House, he managed the most rabid Tea Party elements of his party. Although not above brinksmanship, Boehner was ultimately not prepared to blow up the global economy if he didn’t get his way. By contrast, with the ascendancy of the Trump wing of the Republican party, Speaker-in-Waiting Kevin McCarthy will likely allow the inmates to run the asylum. To hold power, McCarthy debased himself by bending the knee to Trump just weeks after Trump’s brownshirts nearly killed him. Knowing where power lies in the Republican Party, he will do the bidding of its extremists on the debt ceiling. Indeed, McCarthy seems eager to lead the charge.

Listening to the rhetoric of Republicans, it is not even clear that they realize what the debt ceiling is or that they are playing with fire. During the Obama administration, various Republican senators who still hold office tried to downplay the harm that failure to raise the debt ceiling would cause.

Republicans’ irresponsibility with respect to the debt ceiling poses a greater risk to the economy than any of the other differences between Republicans and Democrats. Thus, voters should not choose Republicans over Democrats out of concern about the economy. However one might quibble with the impact of Democratic politicians’ policy priorities, they are not economic suicide bombers.

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