Inflation Is Not the Main Issue in the Election

October 21, 2022

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The media have been obsessed with inflation for the last year and a half, reporting as though this is the only economic issue that matters to people. In the real world, people have other things to worry about, like jobs.

Jobs are a really big deal for most people since it is hard to get by if you do not have one. Fortunately for the American people, the economy has created almost 10 million jobs since President Biden took office, a record pace of job creation. The unemployment rate has fallen to 3.5 percent, reaching the lowest point in a half-century.

Having a job is only part of the story, people want to be able to have jobs with decent pay, where their bosses treat them with respect. We have a very long way to go to get to that situation, but are we making progress?

A good measure of our progress toward job quality is the ability of people to quit jobs they do not like and find better ones. We have seen record rates of voluntary quits — 51.5 million just in the last year — under Biden. In the last year, there were voluntary quits. Some people quit more than one job, so they would be counted twice or three times in this number, but it is clear that tens of millions of people could quit bad jobs and find better ones because of the strong labor market.

The ability to leave a bad job also means that workers are able to demand higher pay. This has been especially true for workers at the bottom end of the wage ladder. The average hourly pay for production and nonsupervisory workers in the hotel and restaurant sector has outpaced inflation by 3.8 percent since the start of the pandemic.

The story is not quite as good higher up the wage ladder. If we look at all production and nonsupervisory workers, pay has trailed prices by 0.1 percent since the start of the pandemic. That’s the wrong direction, but we have seen far worse at other times. For example, from 1980 to 1989, the period often called the “Reagan boom,” workers’ wages trailed prices by 3.9 percent.

Other factors also affect people’s living standards. For example, the low mortgage rates we had seen until recently allowed tens of millions of people to refinance their homes. A person with a $250,000 mortgage, who was able to refinance at a 1.0 percentage point lower rate, would be saving $2,500 a year on interest payments. This would be a big deal to a middle-class family with an income of $70,000 or $80,000.

We have also seen an explosion in remote work since the start of the pandemic, with 19 million more people working remotely now than in 2019. These workers are saving thousands of dollars a year in commuting costs. They are coming out way ahead, even if they have to pay somewhat more for milk and bread at the supermarket.

It is important to remember where the recent rise in inflation came from. Our economy has been disrupted by a worldwide pandemic, as well as Russia’s decision to invade Ukraine. These shocks have led to soaring prices everywhere, not just in the United States.

As a result of the pandemic shutdowns, there was a massive shift to buying goods. People who could no longer go to gyms or restaurants instead spent their money on clothes, TVs, and cars. This huge surge in demand occurred at the same time that many factories and ports worldwide were shut down due to the pandemic.

A jump in demand, at the same time supply was contracting, led to increased prices over the last year and a half. It makes no more sense to blame Biden and the Democrats for this inflation than it does to blame Governor DeSantis for the thousands of people who were made homeless by Hurricane Ian.

Fortunately, we seem to be through the worst of the pandemic supply chain problems. Stores have rebuilt their inventories, and prices are coming down in many areas. Most visibly, gas prices are down more than a dollar a gallon from their peak this spring.

Inflation is still a problem in many areas, but almost all the data indicate that we are through the worst. No one likes to see rising prices, but it would be unfortunate if people overlooked so much that is good in the economy to focus on a problem that was largely outside the control of our elected leaders.

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