Inflation and its impact on the midterm elections

By Rick Morain
Jefferson Herald

With the midterm elections less than five weeks away, and absentee voting set to begin in only two weeks, Republicans across the nation are hammering away at one of their most powerful campaign issues: inflation.

When the inflation rate first started to spike several months ago, economists both inside and outside the government expected the higher prices to subside in a short time. They were wrong – inflation has held firmly above eight percent since late spring or early summer, and most experts look for it to remain relatively high for many months more.

When that happens, the party in power gets the blame, no matter what. Inflation is always caused by a number of factors, but in a campaign year it’s invariably linked by the “outs” to the policies of the “ins.” This year the Republicans have a tailor-made opportunity to tar President Biden and the Democratic Congress with causing inflation through overspending, or runaway spending, or foolhardy spending, or some other colorful description.
The Republican attack has some legs. Inflation, simply put, happens when demand outstrips supply. When people have more money to spend, and goods and services are in short supply, prices rise. That’s where we are now.
On the supply side: the Ukraine war has shrunk the availability of foodstuffs worldwide. In addition, the Covid pandemic shrank the ability of the economy to produce things, and businesses consequently cut back on their productivity infrastructure.

On the demand side: in order to get the economy moving again after Covid, Congress and the President pushed through massive spending programs to put money into Americans’ pockets. For example, the Paycheck Protection Program infused businesses with cash to maintain employment levels. Pent-up personal spending momentum spiked after Covid subsided – people had money to spend on what Covid had prevented them from buying.
But because it takes a while for the supply chains to gear back up to pre-Covid levels, and with people eager to return to their pre-Covid standard of living, demand is outstripping supply. The federal infusion of money into the American economy, although it was done for worthy purposes, added to the supply/demand imbalance and therefore to the heightened inflation rate.
The Federal Reserve, by raising the interest rate it charges the banking system, is trying to counter inflation by making borrowing more expensive. That should somewhat reduce demand, but it’s not likely to have much effect before the November election.

With all this said, Democratic U.S. Senate candidate Michael Franken needs to respond to the TV attack that incumbent Republican Senator Chuck Grassley’s campaign is running.
Video in the ad shows Franken apparently saying that the Senate has no role to play in fighting inflation. I’ve asked three people who are trained in economics, all of whom lean Democratic, whether that is true. Their unanimous opinion is that it’s not – that federal taxing and spending actions directly affect supply and demand, and therefore the rate of inflation.     
Congressional economic-related activity is called “fiscal policy,” as opposed to Federal Reserve activity which is called “monetary policy.” Both have an effect on the inflation rate.
The missing all-important factor in the Grassley ad, and the point that Franken needs to answer, is the context in which he made the remark. The video is simply a one-sentence statement. It doesn’t even mention the word “Senate” or “Congress.”

Conventional wisdom in politics is that when you’re defending yourself, you’re losing. Most of the time that’s probably true. But some charges need to be answered.
Mike Franken holds an engineering degree from the University of Nebraska and is a graduate of the Naval Postgraduate School’s college of physics. He retired a few years ago as a three-star Navy admiral after a decades-long career as a naval officer, serving in key command positions around the world. He’s not uneducated.

To me, it’s highly unlikely that he sees no connection between federal fiscal policy and the inflation rate.

He would do well to explain the context in which he made the statement in the ad. I’m writing this column on Tuesday of this week. By the time you read it Franken may have cleared up the context of his remark. If not, I hope he does so soon.

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