Hidden inflation tanks Biden re-election campaign
Polling is dismal as inflation remains above 8% after peaking above 18%, taking into account homebuying costs
Inflation that peaked at 18% and remains above 8% explains disastrous polling results for President Biden – especially in seven key swing states where Biden has lost support in every demographic segment, notably among minority men.
With unemployment at 3.8%, barely above the all-time low, and inflation down to 3.1% year-on-year in January according to the Bureau of Labor Statistics, Biden should be coasting to reelection on a wave of good economic news.
Hidden inflation tanks Biden re-election campaign
The problem is that the government’s economic numbers are misleading, according to a top former Democratic official.
Inflation remains above 8%, after peaking above 18%, according to Barack Obama’s Treasury Secretary Lawrence Summers, an ex-president of Harvard. Summers and a team of economists re-calculated the inflation rate using the government’s old method, which took into account the cost of financing a home. The result of this exercise shows inflation at more than double the official number.
These numbers also take into account the cost of financing a car, which boosted the cost of auto ownership by $200 a month.
Today’s inflation, I argued in a 2023 study for RealClearPolitics, had nothing to do with the credit-driven price surge of the 1970s. It came from $6 trillion of household subsidies during the Covid recession. A tidal wave of demand hit a relatively static supply, and prices surged.
Biden’s attempt to buy off the electorate backfired. Federal government transfer payments – direct cash payments to individuals – jumped by 50% after the 2020 Covid crisis, from less than $3 trillion a year to a peak of $4.5 trillion a year. The Trump Administration provided emergency assistance during the Covid shutdown, a defensible measure when the economy shut down. But Biden accelerated the outlays when the economy was already in recovery. That touched off the inflation.
In 1979, the Fed tightened credit to squelch inflation driven by a record 35% increase in bank credit during 1977-1979. That was the right thing to do then. But bank credit showed no growth at all between 2020 and 2022. “Raising interest rates will only make things worse,” I warned in my RealClearPolitics analysis.
Larry Summers and his colleagues have shown how much worse things got. The University of Michigan’s Index of Consumer Sentiment remains in near-recession territory despite booming employment – something economists haven’t seen before.
“Given that home prices remain at historic highs despite higher interest rates, the interest payment on a new 30-year mortgage for the average house has increased more than threefold since 2021. The interest payment on a new car loan has increased more than 80 percent (Figure 3B) since the start of the pandemic,” Summers and Co. calculate. The outcome of the Fed’s bungling is a surge in the cost of living, in the form of drastically higher home mortgage and car payments, shown in charts drawn from their report.
By another measure, only 74% of American households can afford homebuying, according to the Atlanta Federal Reserve’s calculation. That’s the same proportion as at the peak of the housing bubble just before the great crash of 2008.
There are plenty of jobs available, and what seems like strong nominal wage growth of over 5% a year – but low-income workers are struggling to afford homes and cars.
That explains why Biden is showing badly in the polls, especially among low-income voters in the core Democratic base. The RealClearPolitics poll shows Trump leading in top battlegrounds by 48.2 to Biden’s 45.4, and by 42.1 to Biden’s 39.8 in the 5-way RealClearPolitics poll average.
A majority of Latino men and 30% of black men will vote for Donald Trump next November, in a massive reversal of 2020 voting patterns, according to a Wall Street Journal poll of seven swing states released April 3. The poll has plenty of bad news for President Biden,” as well as “one piece of potentially devastating news for the party Biden leads: The pillars that hold up the Democratic coalition are showing fractures,” the newspaper wrote.
In particular, “the mix of Black, Latino and young voters who have been crucial to electing Democratic candidates are withholding support from Biden or shifting toward Donald Trump – a trend particularly dramatic among men.” No voter segment showed improving support for Biden.