Dems need more tough love on economic policies

Non-populist, “neoliberal” economist types are not exactly known for their political instincts. But in retrospect, they’ve been more prescient on the politics of Democrats’ economic agenda than the politicos realized.

Let’s acknowledge this up front: President Joe Biden and his advisers have difficult jobs. They want to implement sound, equitable economic policies. They also face political constraints at odds with those goals.

The policies that the economic eggheads typically recommend — freer trade, more immigration, paying for (most) new spending — don’t always poll well. Inversely, sometimes the things that poll well (e.g., policies that promote goods “made in America”) are things economists dislike.

With Biden’s approval ratings distressingly low, and more fires to put out daily, maybe it hasn’t seemed useful to listen to the economists, and take on unnecessary political risks.

But lately, the administration and Democratic lawmakers have given so much weight to these short-term political considerations that they may be sleepwalking themselves into catastrophic longer-term political outcomes resulting from their poor economic choices.

Take, for instance, the near-universal $1,400 stimulus checks passed as part of last year’s American Rescue Plan.

Many economists argued at the time (some in public, others more forcefully in private) that the payments were poorly targeted. Lots of money went to people who didn’t need financial help — who may have come out of COVID-19 in a better financial position because they kept their jobs, had some quarantine-forced savings and enjoyed rising asset values.

Economists anticipated not just that $422 billion distributed through checks was being wasted; they also realized the program (and other poorly designed parts of the bill) might be inflationary.

Why give cash-rich consumers even more spending money while supply chains remained snarled?

But, the proposal was extremely popular, favored by 78 percent of Americans. Promises of more checks likely helped Democrats win both of Georgia’s Senate seats. So Biden and Democratic lawmakers ignored those wet-blanket economists and decided to make it rain anyway.

Were voters grateful? No. Shortly after the checks went out, Americans seemed to have completely forgotten about them. There was a brief period in spring 2021, as money was first landing in bank accounts, when people evaluated their financial situations much more positively, according to a University of Michigan consumer sentiment survey. Then, numbers reverted to their previous levels a few months later.

That was before inflation really started to bite, which made Americans even more negative.

There are complex causes behind four-decade-high inflation levels, including pandemic-related supply chain issues and a recent series of unlucky shocks. But generous fiscal (and monetary) policy, including last year’s “popular” checks, played a role.

That higher inflation, and the resulting political blowback, ultimately helped kill negotiations over Build Back Better. Inflation also now represents the top risk to Democrats in the midterm elections. It’s the most frequently cited problem in recent polling, and the (limited) research on how inflation affects voting behavior suggests incumbent governments usually pay a steep cost for higher prices.

There is not much Democrats can do to curb inflation now. That’s mostly up to the Federal Reserve. But there are some modest tools available, which economists have argued for.

Biden could roll back Trump-era tariffs, which made steel, solar panels, bicycles, breast pumps and other goods more expensive. Similarly, Democrats could accelerate legal immigration processing. The United States has massive labor shortages and a nearly 2-million-person shortfall of working-age immigrants relative to pre-pandemic trends.

Biden has belatedly done some of this. But not enough, and some of it possibly too late to help. Why the administration dragged its feet is unclear.

From my own conversations with senior officials, the answer seems to involve perceived short-term political liabilities. Politicos worried about how Republicans might portray measures such as tariff repeal (soft on China!). Democrats also feared alienating important constituencies, such as organized labor.

Instead, Dems have spent a lot of energy finessing their populist messaging. They argue that the real villain isn’t a demand-supply mismatch (which could implicate Democratic policies); rather, it’s Corporate Greed. And they are now pursuing the logical policy conclusions of this demagogic rhetoric, some of which might worsen inflation.

Some Democrats are true believers in the greedflation theory of the world. But many, including White House aides, have told me this stuff just polls better.

Unfortunately, optimizing on what polls well today can lead to much worse polls come November, if doing so causes price growth to remain high.

“People ask me for advice all the time about how to message inflation, but really you need to do whatever you can to get inflation down,” says David Shor, a data scientist who does polling for Democrats and progressive groups.

Some left-leaning economists and even political operatives have been privately critical of Democrats’ approach to inflation, but much quieter publicly. Maybe that’s because they want to be good allies. A reminder to those in the coalition: You do your friends no favors by withholding good advice and, sometimes, tough love.