Post-Election Thoughts: Part I

It Wasn’t Just Inflation

Over the past several weeks, I have been thinking a lot about the election and what it means for the future of our country, I am sure like many of you. It’s gotten to the point that I’m past 20 single-spaced pages and have realized that none of you want to read all this in one sitting, and maybe in no sitting at all! Nonetheless, I am hoping that there are still enough of you out there who aren’t totally checked out about politics and what’s going on in the country to want to take a few minutes reading a bit more.

So, I’ve decided to post my thoughts in three separate posts on these topics: Why? What’s Next Step? And Way too Early Thoughts about 2028. As I march through these topics, hopefully to be completed over the next two weeks, I reserve the right to change my mind on a topic I’ve addressed before. Perhaps like you, I have been bombarded with substacks and opinion and news columns about these subjects (predominantly the first two), and I constantly am learning new things. As the famous economist John Maynard Keynes reportedly said (though others have said much the same thing): “When the facts change, I change my mind, what do you do, sir?”

Inflation: My First Reaction (and that of Many Others’ Too)

My first reaction, like that of many commentators in the first week or so after the election, was that Vice President Harris lost on November 5^th primarily, maybe even entirely, because of inflation, or more accurately, the large price spike in late 2021 and 2022. After all, Harris ended up losing nationally by just 1.6%, a seemingly small enough margin that could have been reversed had the U.S. economy never suffered that price jump. The “inflation did it” (or the “price eggs”) explanation seems to be supported by post-election polling, backed by much anecdotal evidence, that “the economy”, code for that price jump, by far was the top voter concern. https://apnews.com/projects/election-results-2024/?office=P. President-elect Trump and his commercials incessantly blamed Biden and Harris, and Democrats generally, for causing “inflation,” by enacting the 2021 stimulus package, a line of attack which Harris tried to deflect with her vow to punish price gouging. But that proposal could never have been enough to ease the anxieties of voters who were confronted with the reality of a higher price level every time they went to the store or shopped online: persuadable voters had to sense that Harris’ proposal was too little, too late, since the price jump occurred more than two years before (and those voters old enough to remember the long gas lines of the 1970s that were caused by price controls back then, knew that had a price gouging bureaucracy been in place during the pandemic, it would have aggravated, rather than eased, supply shortages)

It made little difference to those voters concerned about inflation that the price jump was caused primarily by pandemic-related supply chain bottlenecks, or that the rate at which prices change – the true definition of “inflation” – fell during most of the Biden presidency, from a peak of 9% (annualized) in 2022 to less than 3% before the election, without a recession: an outcome that virtually no one, including virtually the entire economics profession, did not foresee.

As readers of my occasional posts may know, I argued at least twice that the Biden administration, and later Harris during the campaign, should have been reminding voters for at least two years that then (reluctantly) outgoing President Trump had been advocating essentially the same stimulus that President Biden and Congressional Democrats then embraced. And that, despite Larry Summers’ prescient warning at the time that the $1.9 billion stimulus was excessive and would be inflationary, given the uncertainty back in 2021 about the course of the pandemic and the fragile state of consumer and business confidence, it was reasonable to want more stimulus as an insurance policy against recession (like so many other economists, though, Summers later was wrong in predicting that the Fed could not bring down inflation so painlessly).

Given the importance of other non-economic issues which I am about to delve into, however, I am now convinced that even the best crafted inflation narrative along these lines, one that essentially spread the blame for the price jump to Trump as well, still wouldn’t have been enough to change the 2024 result. It still should have been tried! (Right before the election, Bill Maher had a great monologue on his weekly show that made oblique reference to this point, but of course, it too was too little, too late).

In any event, the “inflation did it” explanation for what happened in the past, is a convenient way for shell-shocked Democrats to avoid the difficult task of figuring out what policies and messages they need to change going forward if they hope to regain the White House. If Democrats lost because of “inflation,” then all they would need to do is sit back and watch the inflation rate rise as Trump increases tariffs (already announced with respect to Canada, Mexico, and China, collectively accounting for more than 40% of all U.S. imports), conducts mass deportations, enlarges the deficit by renewing and likely enlarging the previous Trump tax cuts (which almost certainly will not be offset with the combination of additional tariff revenue and even deep budget cuts), and eventually replaces Jerome Powell as Fed Chairman in 2026 with new chair who has a “low interest rate” mentality that mirrors that of Trump himself. I’m not making this up: the bond market already expects inflation to rise during the Trump presidency: the prices of long-term bonds have fallen and long-term interest rates have risen since Trump’s election, though in my view, the full inflationary impact of Trump’s likely policies has not yet fully priced into bond prices and interest rates. As all this happens, and as mortgages climb and make home ownership even less affordable to the middle class than it already is, then if inflation were the reason voters brought Trump back, in 2026, and maybe again in 2028, if Trump’s policies didn’t change, Democrats would have to do little else than remind voters “We told you this would happen” and watch the political tables turn their way.

It Wasn’t Just Inflation

But I no longer believe it’s that simple. Specifically, I no longer believe that even without the price shock Harris would have won. Or at the very least, Democrats should not comfort themselves that was the only reason for their loss.

For one thing, because the pandemic itself, coupled with policy responses to it, were responsible for the price shock, positing a world without that price shock means assuming away the pandemic itself in any counterfactual scenario. And without the pandemic, it is likely that Trump would have won reelection in 2020, regardless of the Democratic nominee. Remember, as it was, Biden barely won the electoral vote in 2020, and that outcome reflected a combination of voter frustration and fear over Trump’s chaotic early responses to the pandemic (that it would somehow magically go away), as well as let’s face it, probably greater voter turnout because of the relaxed voting deadlines, themselves products of the pandemic, which on balance probably helped Biden. Those relaxed deadlines, however, fueled all kinds of conspiracy theories that formed the basis of Trump’s false claims about not having lost the election. But without the pandemic, and the economy running at close to 3% growth without inflation, a strong case can be made that Biden’s small vote margin in the swing states would have swung instead in Trump’s direction. And all this assumes that Biden himself would have been nominee. His primary campaign was saved by Rep. Clyburn’s endorsement, but it is not clear that without the pandemic there wouldn’t have been as strong an underlying source of national yearning for normalcy, which Biden’s candidacy had then been channeling, as there was given the pandemic.

In any event, assume nonetheless that a pandemic-less counterfactual history would have been the same in all other respects, and that the nation would have had the Harris and Trump choice in 2024. Had true inflation – the annual rate of price change – stayed in the 2+% range, as it was throughout the 2010’s, Harris would have gotten more votes, but for reasons spelled out below, in my view, Trump still would have won, though by a smaller margin. Likewise, if this is true, it follows that even if Biden had listened to Larry Summers and cut back, or had trimmed the size, of the 2021 stimulus, supply chain interruptions, followed by the Russia-Ukraine oil price shock, still would have sent the CPI up by 5-6 percentage points, or triple the pre-pandemic inflation rate. Given nearly two decades of low inflation pre-pandemic, an inflation rate jump from 2 percent to 6 percent still would have been jarring enough to have given Trump the edge.

Let’s remember that, given the electoral college math favoring Republicans, Democrats can take little comfort that Trump’s national vote margin is likely to end up at or near 1.6%, according to the latest vote count: hardly the national mandate that he and Republicans are claiming. Most analysts I’ve read suggest that Democrats need a 2.5-3 percentage point margin in the national vote to be assured of an electoral victory. If this is the case, then if the “inflation did it” story were right, then a no price shock scenario would have had to have switched 4 percent of the electorate, or roughly 6 million voters from Trump to Harris. To believe that is a stretch.

As James Carville (with whom I agree on just about everything) has summed it up: “We won by four and a half the last time. Well, [a] six point turnaround in American politics is [a big deal]. It’s like losing a football game 35 to 10. You’re not close.” https://newrepublic.com/article/188822/transcript-james-carville-trump-wonand-dems-must-now.

In short, the price shock was not the only reason Harris lost. What are some other theories?

One widely notion is that Democrats mainly had a communication problem. Working class voters, especially young males, it has been said, were not getting all the facts – about crime being down, not up; gas prices down, not up, and so on – because they are stuck on Tik Tok or some other non-traditional non-fact checked news source. Yes, all that’s true, but Democrats are mistaken if they believe it was just a matter of communication, and who owns the new media (Musk and Twitter).

You couldn’t be awake (pardon the pun, my discussion of “wokeness” is coming) in the U.S. over the past 4 years not to have seen on TV or on social media the millions of illegal immigrants crossing the border. Or, if you lived in a swing state before the election, you couldn’t have missed the now infamous transgender (They/Them) ad that ran during Sunday NFL games, a prime slot, especially for young men. Citing the downward trend in overall crime statistics as Harris did during the campaign and as pundits like even Carville suggested should have been highlighted to a greater degree, wouldn’t make people unsee the “smash and grab” retail thefts shown on the nightly TV news or on social media, or the endless mass shootings that, tragic as it is say, have become America’s new normal, and contribute to an overall feeling that the nation is on the “wrong track,” one statistic that really does predict presidential election outcomes. (It doesn’t help Democrats electorally that they are for common sense gun regulation and Republicans are not, because deep down all of us know that universal background checks and other sensible gun control measures, while helpful on the margin, really aren’t going to make a significant dent in mass shootings, let along everyday shootings). In a variation of the adage that a “picture is worth a thousand words,” one or two videos, let alone many of them, have a far greater impact on people’s psyches than trying to persuade them by showing or reciting a bunch of statistics.

Another widely touted theory is that America’s “working class” – the politically correct way (in both parties) to refer to most American workers who do not have a four-year college degree – whose economic fortunes have stagnated over the past several decades, has lost faith in the establishment, which Democrats have come to represent. I accept that this played a role, because it is a fact that the American Dream – that each generation will do better economically than the one before – has been eroding for some time. As Harvard’s Raj Chetty and his research team have documented, the percentage of young families doing better financially than their parents has fallen from 90 percent for baby boomers, to around 50 percent for recent generations. A major reason for this troubling trend is the growing divide between the economic prospects between those with and without a college degree. One of the more recent essays to address this theme is David Brooks, who has a thoughtful essay in December issue of The Atlantic. https://www.theatlantic.com/magazine/archive/2024/12/meritocracy-college-admissions-social-economic-segregation/680392/.

Congressional Democrats, along with President Biden and those around him, thought they could address the growing education-based income chasm both substantively and politically, with industrial policies that have subsidized investments in semiconductor chips and a raft of green energy technologies, notably electric vehicles (EVs), tied to the strongest pro-union stance of any Administration in my lifetime. On the campaign trail, Harris promised more: a tax credit for first-time home purchases, a large child care tax credit aimed primarily at working class voters, paired with tax hikes on the “wealthy,” and a hike in the federal minimum wage. In all, the Democrats’ pitch has been that they’re for the “little guy”, not the rich and well connected. Indeed, post-election, progressives like Senator Bernie Sanders have argued that Democrats didn’t promise enough for the working class, while much of the talk about who’s best to become the new chair of the DNC has focused on “little guy” messaging.

But the Democrats’ little guy economic pitch didn’t work. In part, many voters probably asked themselves if they were paying attention: so how is more highway construction or building some semiconductor and battery plants somewhere going to protect my job or raise my income? But more fundamentally, Democrats have a big cultural disconnect with working class voters. As Brooks and others have highlighted, working class voters sense that college educated “elites” don’t respect them. Even with all his flaws, Trump gives the appearance of respecting them, even claiming to “love uneducated” voters. He doesn’t want to take away their guns. His attacks on illegal immigration and foreign goods taking away Americans’ jobs resonate at the gut level. Much more so that Biden’s being “middle class Joe” or some Democratic politicians’ constant references to the “dignity of work.”

And then there’s that transgender attack ad – the one with Harris endorsing taxpayer funded gender operations for prisoners – that really hit home in the swing states, not just with working class voters, but many middle to upper middle-income college educated voters as well. The term “woke” has been over-used and misused, but that ad crystalized Democrats’ wokeness problem – seeing far too many issues through the lens of racial, sexual or ethnic identity -- in 30 devastating seconds. To his credit, Carville repeatedly warned Democrats about wokeness before the election. Even a well-known progressive journalist, Robert Kuttner, editor of the American Prospect, who has long favored trade protection and industrial policy, the policy religion shared by both Trump nationalists, and much of the Democratic party these days, has recognized that on cultural matters Democrats have shifted too far left. https://prospect.org/blogs-and-newsletters/tap/2024-11-25-did-democrats-run-too-far-left/.

Admittedly, we don’t know how many “swing” voters there were in 2024 – namely, those late deciders who really were persuadable – but the most thorough analysis of them, the so-called “Blueprint survey” confirms that to late deciders, illegal immigration and that transgender ad were top of mind, and not in a good way for Democrats. https://blueprint2024.com/polling/post-mortem-2-nov/?. My educated guess is that these two issues affected many not-so-late deciders as well.

And so there it is, the toxic brew for Democrats in 2024: Inflation (really the 2021-22 price shock), immigration and wokeness. I suspect that future researchers will apply statistical methods to figure out how much of Harris’ loss can be attributed to each of these factors. But from the evidence I have seen thus far, no single one of these factors was decisive. All three combined, however, were deadly for Democrats.

In my next post, I will try, as rationally as I can, to envision what’s coming after January 20, and the political implications. We don’t just live in interesting times, as the Chinese would say, we live in crazy times. I hope the next post will provide a bit of sanity, with a large dose of worry.