The shift of consumers from services to goods over the past 18 months is at the center of the highest inflation in 31 years, fueled by massive supply chain disruptions. Biden’s favourites have sunk as the midterm elections are getting ready. Among some of the solutions is encouraging Americans to get out and live their lives — instead of staying home and ordering more household goods that would overwhelm suppliers and keep inflation high.
“The best thing a president can do right now is both raise and lower expectations,” said Bill Hoagland, senior vice president of the nonprofit Bipartisan Policy Center and former aide to the Republican leadership in Congress. “I feel a little sorry for the president. A lot of this is out of his control.”
The Commerce Department’s latest report on retail sales this week — up 1.7 percent in October — showed consumers were keeping their spending streak on track. But strong demand for merchandise has only intensified the supply-demand imbalance that has made spending more expensive. Sales at restaurants and bars were flat, suggesting the prolonged impact of the pandemic.
Growth in consumer spending on goods has historically followed growth in spending on services. During the pandemic recession, the demand for both dropped drastically. While consumer spending has bounced back, demand for goods has outpaced demand for services, according to Commerce Department data.
The White House said the price hikes were temporary, and the president had moved to open up transportation bottlenecks. The government is also taking an anti-inflation spin on its signature policy efforts – the bipartisan infrastructure bill Biden signed into law on Monday and Rebuilding Better, a trillion-dollar “human infrastructure” bill.
The message is that the statutory tax cuts, combined with cheaper prescription drugs, health coverage, child care, and parental care will help with household budgets and bring people back into the workforce.
“This bill will reduce inflationary pressures, lower costs for working families,” Biden said last week in Baltimore.
Biden’s economic policy adviser Jared Bernstein said the president had taken steps to ease the economic shock, including boosting trillions of dollars in stimulus spending to boost demand during the pandemic recession.
“When it comes to offsetting demand-side surprises, the president has acted swiftly,” Bernstein said in an interview. Improving the supply chain is more complicated.
“We don’t control ports in China, Singapore or Amsterdam,” he said, “and they also face supply chain constraints.”
But Bernstein cited Biden’s move to extend working hours at California ports and money directed towards easing congestion at ports in North Caroline and Georgia.
“If you explain to people concretely what you do in this space, they will realize that you are fighting for them,” he said.
“They’ve struggled a bit with how to characterize this,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a free-market think tank. “They have made some missteps. They should at least be considered to understand that this is a problem.”
Republicans blame Democrat-led stimulus spending for overheating the economy. They have launched a stagflation bugaboo – slow growth coupled with runaway inflation – that brought down Jimmy Carter’s presidency.
Stagflation is interesting but hearsay. Companies are awash in cash, and consumer demand is showing no signs of slowing. The economy continues to grow.
“If Donald Trump were president, he would call it the greatest economy of all time. If Ronald Reagan became president, he would call it the greatest economy of all time,” said Jim Kessler, co-founder of the centre-left group. Third Way think tank and former aide to Senator Chuck Schumer. “This is not stagflation at all. No stag. That’s economic critical race theory.”
Spinning the economy is part of the president’s job, be it for political or real-world purposes. In 1974, President Gerald Ford tried to bring down inflation with rhetoric.
“We have to whip up inflation now,” Ford said and urged Americans to drive less, reduce heat, and take out the trash. People slap that slogan — or simply WIN — on buttons, T-shirts, hats, and backpacks in a campaign later described by Ford economic adviser Alan Greenspan as “absolutely stupid.”
Carter attempted public persuasion four years later. It was April and the cherry blossoms in Washington were in bloom. But the president put on a sweater and sat by the fire to tell people to stop wasting energy. Like Ford’s WIN button, the speech invite public ridicule.
“It sounds ridiculous now, but Carter is in the same situation as every president if something goes wrong with the economy that they really can’t control,” said Joel Naroff, president of Naroff Economics, a strategic consulting firm. “They should at least show that they’re trying to do something about it.”
When growth stalled after George HW Bush entered the White House, he reassured people that all would be well. Bill Clinton took the opposite tack in the 1992 presidential campaign—that’s economics, stupid—making Bush look untouchable.
But Clinton, too, initially failed to connect with the economy, contributing to the Democratic Party’s historic midterm loss in 1994.
After the 2001 terrorist attacks, George W. Bush appealed to consumer patriotism to revive the economy.
And in 2011, while the US was still struggling with the effects of the financial collapse, President Barack Obama tried to persuade companies to hire.
“Many of you told me that you were waiting for demand to rise before you left the field,” Obama said. a speech to the Chamber of Commerce. “But many of your economists and salespeople now expect a healthy increase in demand. So I want to encourage you to get into the game.”
Trump famously tried to publicly humiliate the company via Twitter to make his bid. Executive — and market — finally ignore it.
Biden’s challenge is that he can highlight how consumer demand for goods drives much of the inflation problem. But getting consumers to change their behavior is much more difficult.
“How do you change economic reality? You don’t,” Naroff said. “If you tell people ‘stop buying’, they will give you a wave of one finger. There was nothing the man could do. But it’s a political issue for him.”