The Daily - The Perilous Politics of Rising Inflation

Episode Date: November 2, 2021

Inflation in the United States is rising at its fastest rate so far this century. At 4 percent, according to one index, it is double the Federal Reserve’s target.We look at why prices are on the rise and at the tense political moment they have created.Guest: Jim Tankersley, a White House correspondent for The New York Times. Sign up here to get The Daily in your inbox each morning. And for an exclusive look at how the biggest stories on our show come together, subscribe to our newsletter. Background reading: Supply chain disruptions, a worker shortage and pain at the gasoline pump have made inflation an economic and political problem for the White House.Pressure is on the Federal Reserve and the Biden administration as they try to calibrate policy during a tumultuous period.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Sabrina Tavernisi. This is The Daily. Today, the United States is dealing with substantial inflation for the first time in decades. My colleague, Jim Tankersley, on why prices are rising and the perilous political moment it creates for the president. It's Tuesday, November 2nd. Jim, I know you cover the White House for The New York Times, but you also have a background as an economics reporter. So I wanted to ask you a real kind of economics 101 question, and it's this. I've been noticing prices going up for things like groceries, restaurants, gas. And when prices go up

at the most basic level, that's inflation, right? That's exactly it. When prices rise in the economy, that's inflation. And it's the prices you see, it's the prices you maybe don't experience every day, but that are rising around you. And it's how much money people are making, their wages going up as well. So what's happening with inflation now? Well, we are seeing it now rise at the fastest rate we have seen in the 21st century. It seems like almost everything is more expensive these days. It's a feeling the pain of rising inflation.

Inflation. Inflation is certainly here. We're paying more for just about everything. Seeing the prices of gas and other things that they buy rise. Some of that is expected and some of it is not. You got increased demand, labor shortages and other disruptions that have added to costs

at nearly every stage of the supply chain. And so it's a sustained burst of higher prices, which has really, I think, caught a lot of American consumers off guard. I think the inflation risks are graver than those that the chairman recognized. And by how much is it rising? You said it's the highest in the 21st century. Yeah, so there's a bunch of different ways that economists measure inflation. But the one that the Federal Reserve likes to look at the most, the prices in that index are up more than 4% in September

compared to a year ago. So we can call that 4% inflation, which is double what the Fed's target rate for inflation is. Wow. So that's a lot more than it had been in the past. It is. We've mostly been seeing very low inflation for the bulk of this century. In fact,

the Fed for a long time was struggling to get inflation even to go at 2% a year. So this is just a sharp uptick that really started coming out of the pandemic recession. And Jim, what are the forces behind the rise? There's a lot going on here. One of the big things that's happening, first off, is that we saw prices fall in the midst of the pandemic recession. People just weren't spending as much money, and so the demand for products went down and prices fell. And then, when demand kind of returned to normal as the economy opened back up, prices went back up a bit. And that's not actually anything to worry about, and economists weren't super worried about it. But there are some other things happening now that are maybe a little more worrisome.

weren't super worried about it. But there are some other things happening now that are maybe a little more worrisome. The big thing that's happening is people have a lot of money for a lot of reasons, and they're spending it on kind of a shrinking amount of things. Can you explain that? Why are we seeing this dynamic of people having more cash, but there being less stuff for them to buy with it? Yeah, so much of what's happening with inflation right now is related to the pandemic and to the government's response to the pandemic, some of which is very positive, by the way, for people involved here. I mean, when the economy shut down in 2020, Congress passed a lot of aid, and that has continued

through the Biden administration, which passed another aid bill in March. A bunch of that aid is direct checks to people, and they've used that money to pay down debt or, in a lot of cases, to just buy things. And that's been very helpful to the economy. It's been very helpful to those households. But it's a lot more demand all of a sudden for fewer goods. And so that's driven prices up. Meanwhile, people have had a harder time finding the goods they want, just getting them from around the world maybe if you're ordering things because of pandemic-related supply chain issues. So that's driven prices up.

And then a third thing very much related to the pandemic is that coming out of the pandemic, there are a lot of people who lost their jobs. People have been slower to return to work than we thought they might be. And because they're being slower and because companies have so many open jobs, that is driving companies to raise wages rather quickly, actually, for people. And so the effect of that is to push up prices as well. And then you have geopolitical problems related to the pandemic, including that everyone's driving more again after not driving as much when we were all kind of locked down. And that demand for oil has not been met by an increase in supply. And so again,

gasoline prices go up. So prices are rising for all these reasons, very much related in many cases to pandemic responses. So then what does this all look like in my daily life? Walk me through a specific example. Well, first off, let's just stipulate for a second that there's almost always inflation in the economy. Prices go up basically all the time. They just tend to go up more slowly than we're seeing now. So you might, for example, on your grocery store shelf, notice that something like bread is more expensive now than it was a year ago. Maybe even an increase that you notice very quickly. Oh, wow, that went up 50 cents or a dollar.

But maybe the best example to think about from your personal life is if you ordered something recently, say a new couch or a new chair. I did. I ordered a bed, actually. There you go. And I'll bet you had to wait for it for a while, right? Oh, seven months. Right, exactly. So that is a, and I'll bet it was probably a bit more expensive than you thought you were going to have to pay for it. Yes, much.

Right. I mean, that's because a lot of people bought new furniture during the pandemic, whether it's a bed like you or a new chair or a couch. I mean, let's take that example actually of the couch and think about it. We're all sitting at home. We're noticing that the couch is maybe a little bit torn. Gee, that stain from the dog five years ago was really starting to wear on my brain. Oh my gosh, I now spend half my day on this couch. So let's replace our couch. America collectively had a let's replace our couch moment. And so did a lot of people around the world. And so you ordered couch.

There's not enough production of couches in the factories around the world and enough shipping containers and enough truck drivers to get it to you in time. So you wait longer, and the price to do all those things goes up. Because, again, the demand outstrips the supply. This is, in some very basic ways, economics 101. But it really is true. And you can see it as that more expensive couch slowly winds its way to your door. Okay, so things are costing more, but it sounds like a lot of people are earning more and spending more, right? So that doesn't sound bad necessarily. Well, it doesn't sound bad.

And I mean, let's back up for a quick second. Some people are earning more and spending more. Others aren't. And inflation tends to hurt people in the economy differently depending on the particular item that the price is going up. For example, gasoline prices tend to hurt lower and middle class Americans more than richer people, because those Americans tend to spend more on gasoline as a share of their income, basically. So that's bad. That's very high inflation, and that can be a real drag on people. And it's also bad when you're getting wage increases, but they're not keeping up with

the price increases around you. What you don't want to see is a situation where, okay, hey, you're getting 10% more every year in your paycheck, but the price of rent is going up 12%, and you're actually falling behind. So that's where economists start to really worry when what's called real wages start declining because of high inflation. In this case, though, there's just also the sticker shock that people experience.

The psychological effect of higher inflation is difficult for a lot of people to process, even if in many ways it brings benefits to them. Jim, say more about the psychology of it. Well, the psychology of it can be difficult because you maybe don't always notice that your paycheck is going up or appreciate if your paycheck is going up really fast if the prices around you seem like you're falling behind. And when we talk about consumer psychology, one thing that economists sometimes worry about is something called a wage price spiral. So the idea is if I'm a worker and I see prices around me going up and I expect they're going to keep

going up, then I might ask for a big raise, and my employer might have to give it to me. And then I have more money to spend, and that pushes prices up higher. And it just turns into this cascade, a spiral, if you will. And that can create very fast inflation. Now, that's still probably not going to be what we would think of as hyperinflation, when prices are just rising kind of out of control. The sort of stories you hear from the past or from other countries of currency becoming so worthless that you show up with wheelbarrows of it just to buy a loaf of bread. A wage price spiral doesn't guarantee to put you there, but definitely could put you in a much worse place for inflation than we're in now. And do we know how the public is feeling right now about the economy? We do.

The public polling on it is very sour. People have really seen inflation rocket up as a concern in the polls. I think that's in large part because they're experiencing it in their lives. They're also hearing... Look, the country's awash in inflation. A fairly consistent political message from Republicans. Inflation taxes every single American. President Biden's economic policies are causing nationwide sticker shock.

We're blaming President Biden for this inflation. The inflation we're seeing, Bidenflation as I call it, is here to stay so long as those on the left continue to jam through reckless tax and spend bills. They settled rather quickly on this idea that, hey, if you inject all this money into the economy, you're going to risk spurring massive inflation. We have not seen something like this since Jimmy Carter took this country into stagnation.

And Republicans are trying to compare this to the 1970s, when under President Carter, there was a lot of inflation without enough economic growth to go along with it. Mr. President, with all due respect, we need to wake up. The politics for Republicans are very straightforward. They have had a really hard time in the early months of President Biden's administration attacking his economic agenda because the polls showed what the president was doing was very popular. He was spending money to try to bring the pandemic to an end faster.

He was sending direct checks through his $1.9 trillion recovery bill to consumers, just like he promised in the campaign. He was doing all these things that were polling really well. And Republicans were struggling to attack the individual components, but they settled upon this sort of umbrella counterattack, which was to link his policies to inflation. And for Republicans, that bet has paid off. What we see in the polls now are that people across the board, Republicans, independents, Democrats, are all more worried about inflation. There is some evidence that they are starting to tie that in their minds to the president's

policies. And so this is the real risk for President Biden over the next year as we start thinking about the midterm elections in 2022 is that inflation could be the thing that undermines what had been a very popular economic agenda. So it sounds like inflation has become a very salient political issue. Absolutely. I think no matter which side of it you're on, whether you're the Republicans who are delighted that it has become such a good attack or the White House, which is very cognizant of it, you recognize this, the potency of inflation as a political argument right now in America. And Jim, is it a fair attack? It's complicated. There are some economists, including some Democratic economists, who do think that the president's stimulus bill has contributed some to the inflation we are seeing right now. There's some evidence from, for example, the Federal Reserve of San Francisco that there are effects, but they're fairly modest from the president's policies.

There's also a lot happening here that the president doesn't have a lot of control over, like global supply chain problems and how much oil OPEC pumps at the moment. But it's definitely something that Republicans are trying to tie to him in a way that where they're invoking, say, like the 1970s. And people really remember gas lines, high prices, a lot of very negative things in their mind regarding inflation scarred sort of a generation of Americans on price increases. That's not a fair comparison for a lot of reasons today. There's just no real straight comparison between what was going on in the 70s and what's happening now. But the psychological danger is still there for the president and for the Democrats. The psychological danger is still there for the president and for the Democrats.

People are worried about inflation and they're vulnerable to hearing attacks like this from Republicans and buying into them. And that's creating a growing political liability for the president and his party going into next year's elections. We'll be right back. Jim, you said this is a growing political liability for President Biden. What's he doing about it? Well, he's trying to do anything he can, I think. He's attacking the parts of the inflation problem that they can push even a little bit on to try to get improvement. One big place, for example, is supply chains. The president has a task force, basically,

that meets every week over Zoom just to brainstorm ideas. What can we do? How can we get shipments flowing a little faster? How can we pull this lever or that lever to get some more truckers on the road to get things to market faster? They're leaning on oil-producing countries

to do more to get prices down at the pump. I've been traveling with the president on a trip through Europe, and he was just in Rome for the G20 summit, and he convened an entire meeting of 14 countries to talk about all the ways they can work together to make supply chains work. Because it's not just America, by the way,

that is experiencing inflation. It's the whole kind of wealthy world right now. Right, interesting. And so they're pulling all these levers. They're doing what they can. But inside the White House, there's a real understanding that there's not a ton they can do. You can't change the course of global trade overnight. And you can't unclog supply chains overnight. And you can't bring down oil prices

or food prices right away. So they're doing what they can. But it's not going to do very much, very likely, for at least months, if not longer. So, Jim, it sounds like the administration is basically saying, we just have to wait this out. Yeah, although they are saying, we're going to do everything we can in the meantime. But very much they are of the belief, and they will say this again and again and again, that the inflation rate, the speed at which prices are increasing is going to come back down. They think it's sort of already peaked and increasing is going to come back down. They think it's sort of

already peaked and it's going to come back down. They think at the start of next year, workers are going to flock back to the workforce because they're going to kind of work their way through all the savings that they built up from that government support over the last couple of years. And they'll need to take jobs if they haven't already. And they think that things like supply chains will start to improve. But there's a recognition from the White House that, hey, this could take a while, but very much they believe that it's going to get better next year. And do you buy that argument, Jim? I mean, we've talked about this inflation issue on the show before. And it seemed like earlier this year, the thinking coming out of the Fed and the administration was that things should be getting more or less back to normal by now.

And that hasn't happened. I think we can be, we should be always appropriately skeptical of what government officials are telling us. And we should also be clear-eyed about the way that this administration has seen inflation. It has persisted much longer than they thought. And I think the big reason for that, they would say, I know they have told me, is because the pandemic has persisted longer than they thought. They did not foresee the Delta variant coming along, and they think that that has caused supply chain problems, workers returning problems, other things. So we'll know

in a few months how to regard that. If the pandemic keeps improving and there is not another big wave and inflation does not abate, then they really have something fundamentally wrong. But if it does kind of get better and also price increases start to tail off and their theory of the case bears out, then that might sort of say that they were directionally correct about what was going to happen, but they got the timing wrong. So that's how we should watch and judge them on this. I certainly think that they're not alone in this. It's not a sort of partisan thing they made up. The Federal Reserve has been pretty consistent with the administration in how it views inflation, and its views have sort of evolved over time as this has lasted longer than Fed officials thought as well. Play the other side of the argument for us, Jim, that it's not a

temporary thing, that there's something more long-term going on here. The case for why this could be a longer-running structural inflation is the thought that the Federal Reserve could lose control of inflation expectations. If it doesn't act fast enough to cut off the price growth that we're seeing now, then we could enter a wage price spiral because people will start to expect price increases, even if they're not coming, and they'll demand higher wages, which will then lead into that self-fulfilling prophecy. So that's the worry. The Fed sort of loses control over people's expectations for how the economy is going to work, and then, voila, it works that way. Now, the Fed would have a lot of tools to stop that,

including raising interest rates, which are basically at zero right now. But that's down the line. And, you know, right now, I think the fear of a few economists that inflation can get out of control is, I think, counterweight by the fear of economists who said, listen, we don't want to shut off this recovery too quickly. We don't want to think that inflation is the big problem people are facing right now. The big problem is we still don't have enough people with jobs and that people still need help recovering from what had been a devastating pandemic. And so those are the two sides of the sort of economics of this moving forward. And there's risks both ways. saying, there are a lot of economists in the White House and in the Fed who feel pretty confident that the inflation issue will just turn around. But in the meantime, the politics of inflation keep going. And the White House has to reckon with that. Yeah, that's the real trick for them

here. The president keeps talking in speeches about how there have been six million jobs created under his watch. And, you know, the economy is growing faster now than it has since the Reagan administration. And all these things are true. It has been a sharp rebound. A lot of that, though, is being swamped right now by people's fears about inflation. And it's contributing to an overall dissatisfaction with the economy. The president's approval ratings on economic policy have just gone way down. It's dragging down his overall approval rating as well.

Yeah, there's that classic line, what is it? When it comes to politics, it's the economy, stupid. So people want to know that politicians will help the economy grow and there won't be inflation that eats up their paycheck. Yeah, people experience these price increases every day and it has an outsized effect on how they see the economy. If they can start to see things get better, they could visibly readjust their perception of the economy. It might allow them to see a healing job market and accelerating economic growth as positives. But if it just keeps getting worse, that is the real danger, I think, for the president. People will perceive an economy that seems like it's getting out of control price-wise,

even if there are positives elsewhere. Jim, thank you. Thank you so much We'll be right back Here's what else you need to know today Mr. Chief Justice and may it please the court Here's what else you need to know today. Mr. Chief Justice, and may it please the court. Texas designed SB 8 to thwart the supremacy of federal law, an open defiance of our constitutional structure. On Monday, the U.S. Supreme Court heard arguments about a controversial Texas law that has halted most abortions in the state.

Justice Kagan points out there's a loophole that's been exploited here or used here, which is the... A majority, including conservative justices Brett Kavanaugh and Amy Coney Barrett, seem to be open to letting abortion clinics take their case to federal court. I'm wondering if in a defensive posture in state court, the constitutional defense can be fully aired. An outcome that would be favorable for the clinics. A decision to allow a challenge would be an important reversal from September, when the court voted to allow the law to go into effect. But it would not address whether the law was constitutional. It would simply return it to the lower courts for further review. And a judge in Chicago has blocked the city's December 31st vaccine mandate for police officers,

saying that the officers, who are unionized, have the right to make an argument against the mandate to an arbitrator before it takes effect. an argument against the mandate to an arbitrator before it takes effect. The ruling is a victory for the largest police union in Chicago, which has fought with Mayor Lori Lightfoot over the rule. But the judge left in place a requirement that officers report their vaccination status to the city, something the union had also opposed. Today's episode was produced by Rob Zipko and Michael Simon Johnson. Thank you. and Ben Landsberg of Wonderly. That's it for The Daily. I'm Sabrina Tavernisi.

See you tomorrow.