"So what should politicians do?" - expose who benefited from the higher prices?
When demand exceeds supply and prices go up - who benefits? Take the war in Iran: the oil companies get the higher prices with no increase in their costs and so they and their shareholders benefit. Or the Covid supply chains. In a mismatch between supply and demand the cost to produce doesn't necessarily increase for the price to increase.
Economics says a mismatch between supply and demand should result in an increase in supply but that can take a long time. I'm not sure companies will be in a big hurry to trade higher prices for more volume at lower prices, especially if the mismatch is transient. And when the mismatch is resolved the prices stay high.
A very intelligent discussion and I appreciate David's multiple references to Paul Krugman's insights. Nevertheless, I think some important points may have been missed. I apologize in advance for weighing in on points I only have limited knowledge of. One data point that is often cited, including here, is "real wages," which looks at wages versus inflation. Important and valid, but these numbers need to be looked at below the surface. I am hopefully remembering correctly, perhaps in Krugman's own writings, that this regime's attack on immigrants may well have driven up "real wages" as a statistic without anyone's wages actually changing. Deport immigrants, who are invariably at the lower end of the wage scale, and scare others into staying home, and real wages increase because you are dividing higher incomes among fewer workers. Paul has also noted that while unemployment is low, hiring is also low, leading workers to feel they do not have the option to find a better job. While I agree that "excessive prices," (aka, long term inflation) is an important factor, other big issues are in play.
Part of Trump's problem now is that he promised voters that he would REDUCE prices on day one. Economists knew (and those who follow the experts knew) that this was impossible. Prices go down only in a recession (or really the only time they went down significantly across the board was 1929-1933 when the "recession" is now fondly known [but not remembered] as The Great Depression). Trump probably won because of this fatuous promise. It did not take long for his voters (and all of us) to know that he was smoking the best weed on the planet or whistling Dixie or whatever your metaphor may be. So even if he had let prices continue at the moderate rate of increase that President Biden left him, voters would have been seriously disappointed that prices did not go down. What he has done, of course, is taken every possible step to INCREASE prices -- eliminate subsidies for Affordable Care Act ("Obamacare") health insurance, impose tariffs on both consumer goods and the materials that go into their manufacture, deport the workers who produce our food (not really felt yet), destroy lower cost renewable energy, promote AI which will drastically increase energy consumption, and now Trump's Iran War.
As far as from here to the Midterms goes, these self-created Trump problems will be aggravated. Many have not hit home yet, but they will. The impact of tariffs, for example, was delayed by (1) existing inventories and (2) uncertainty of what the ultimate levels would be, sellers not wanting to make repeated price adjustments. Food price increases will not really hit hard until fresh produce season when there will be huger price increases caused by shortages from lack of workers to work the crops and by the staggering increase in the cost of fertilizer. And gas prices -- The press reports the price of Brent Crude and West Texas Intermediate as fluctuating between about $90 and $110 per barrel; but Paul Krugman in an April 13 podcast told us that the actual price of actual oil (if you want oil as opposed to a gamble on the future market) was $148.87 that day (a figure that he said is available but hard to find). In other words, the cost of oil has gone up far more than people realize. And there will be a shortage for some time even if Trump's Iran War ends, so the price will probably go higher, probably much higher, resulting in gas prices much higher than they are now.
So what should Democratic candidates do? Don't promise lower prices. Don't make any unrealistic promises about prices. Be honest with voters and tell them that we can't reduce prices. But we can, and we will, stop doing the stupid things (like those listed above) that every real economist will tell you will INCREASE prices. And we will get you affordable health care, affordable electricity, affordable gasoline, etc.
This was one of the best wonky podcasts ever. And, I love the combo of you guys models and commentary leveraging my favorite economists Jared Bernstein and Paul Krugman.(even though I came to know everyone separately). Sometimes I think this is the echo chamber, but I think it’s more like natural synergy. The excess price and inflation expectation were things I have thought about but very cool to see that driving the right prediction in a model. On the other hand, it is depressing to think about continued one term presidents since most policies that could have positive impact tend to take time since they have to build something vs. tearing something down.
In the section that starts No quick fixes": did it happen that Biden restored the economy but not enough time had gone by for that to fix consumer sentiment? I always thought if he'd had a few more years that good economy would have filtered down to the people.
"So what should politicians do?" - expose who benefited from the higher prices?
When demand exceeds supply and prices go up - who benefits? Take the war in Iran: the oil companies get the higher prices with no increase in their costs and so they and their shareholders benefit. Or the Covid supply chains. In a mismatch between supply and demand the cost to produce doesn't necessarily increase for the price to increase.
Economics says a mismatch between supply and demand should result in an increase in supply but that can take a long time. I'm not sure companies will be in a big hurry to trade higher prices for more volume at lower prices, especially if the mismatch is transient. And when the mismatch is resolved the prices stay high.
Perhaps we are hoping to use our wage increases to put more into savings instead of food and fuel.
A very intelligent discussion and I appreciate David's multiple references to Paul Krugman's insights. Nevertheless, I think some important points may have been missed. I apologize in advance for weighing in on points I only have limited knowledge of. One data point that is often cited, including here, is "real wages," which looks at wages versus inflation. Important and valid, but these numbers need to be looked at below the surface. I am hopefully remembering correctly, perhaps in Krugman's own writings, that this regime's attack on immigrants may well have driven up "real wages" as a statistic without anyone's wages actually changing. Deport immigrants, who are invariably at the lower end of the wage scale, and scare others into staying home, and real wages increase because you are dividing higher incomes among fewer workers. Paul has also noted that while unemployment is low, hiring is also low, leading workers to feel they do not have the option to find a better job. While I agree that "excessive prices," (aka, long term inflation) is an important factor, other big issues are in play.
Part of Trump's problem now is that he promised voters that he would REDUCE prices on day one. Economists knew (and those who follow the experts knew) that this was impossible. Prices go down only in a recession (or really the only time they went down significantly across the board was 1929-1933 when the "recession" is now fondly known [but not remembered] as The Great Depression). Trump probably won because of this fatuous promise. It did not take long for his voters (and all of us) to know that he was smoking the best weed on the planet or whistling Dixie or whatever your metaphor may be. So even if he had let prices continue at the moderate rate of increase that President Biden left him, voters would have been seriously disappointed that prices did not go down. What he has done, of course, is taken every possible step to INCREASE prices -- eliminate subsidies for Affordable Care Act ("Obamacare") health insurance, impose tariffs on both consumer goods and the materials that go into their manufacture, deport the workers who produce our food (not really felt yet), destroy lower cost renewable energy, promote AI which will drastically increase energy consumption, and now Trump's Iran War.
As far as from here to the Midterms goes, these self-created Trump problems will be aggravated. Many have not hit home yet, but they will. The impact of tariffs, for example, was delayed by (1) existing inventories and (2) uncertainty of what the ultimate levels would be, sellers not wanting to make repeated price adjustments. Food price increases will not really hit hard until fresh produce season when there will be huger price increases caused by shortages from lack of workers to work the crops and by the staggering increase in the cost of fertilizer. And gas prices -- The press reports the price of Brent Crude and West Texas Intermediate as fluctuating between about $90 and $110 per barrel; but Paul Krugman in an April 13 podcast told us that the actual price of actual oil (if you want oil as opposed to a gamble on the future market) was $148.87 that day (a figure that he said is available but hard to find). In other words, the cost of oil has gone up far more than people realize. And there will be a shortage for some time even if Trump's Iran War ends, so the price will probably go higher, probably much higher, resulting in gas prices much higher than they are now.
So what should Democratic candidates do? Don't promise lower prices. Don't make any unrealistic promises about prices. Be honest with voters and tell them that we can't reduce prices. But we can, and we will, stop doing the stupid things (like those listed above) that every real economist will tell you will INCREASE prices. And we will get you affordable health care, affordable electricity, affordable gasoline, etc.
I don't see the transcript button (just has share and ...)
Should be good to go now!
This was one of the best wonky podcasts ever. And, I love the combo of you guys models and commentary leveraging my favorite economists Jared Bernstein and Paul Krugman.(even though I came to know everyone separately). Sometimes I think this is the echo chamber, but I think it’s more like natural synergy. The excess price and inflation expectation were things I have thought about but very cool to see that driving the right prediction in a model. On the other hand, it is depressing to think about continued one term presidents since most policies that could have positive impact tend to take time since they have to build something vs. tearing something down.
Thank you so kindly! I really loved doing this episode.
In the section that starts No quick fixes": did it happen that Biden restored the economy but not enough time had gone by for that to fix consumer sentiment? I always thought if he'd had a few more years that good economy would have filtered down to the people.