Inflation is settled as an election issue, and Biden has lost

OPINION:

While six months is admittedly a lifetime in politics, as the head of a Wall Street macroeconomic research firm, I can say with great confidence that, as far as the November election is concerned, the issue of inflation is settled, and President Biden has lost. There is not enough time to change the fact that over the last three years, the average person’s purchasing power has declined meaningfully.

How do I know? Tired of wading through measures of inflation from academics and other expensive “experts” that bear little resemblance to the cost of living for the average person, we created our own measure of the consumer price index that includes only what people must buy regularly. Deeming it our Common Man CPI in a nod to the great American composer Aaron Copland, we include only food, energy, housing, clothing, insurance and utility costs. Everything else — from flat-screen televisions to trips to Fort Lauderdale — is excluded.

What we found would not be surprising to anyone who has bought groceries in the last few years or doesn’t have Mom and Dad pay their bills. While wages have risen 15.1% since Mr. Biden took office, the Common Man CPI is up 21.2%. In other words, the standard of living for the average American has deteriorated by roughly 6 percentage points over the same period.

Even with this month’s as-expected inflation numbers, our Common Man CPI has outpaced the Bureau of Labor Statistics’ headline number for nine consecutive months and 34 of the 40 months since Mr. Biden’s inauguration.

Only in the rarefied world of Ph.D.s in economics would someone have the temerity to exclude the cost of food and energy and then call such as measure “core.” Eating and staying warm or cool enough is pretty “core.” Some economists have even gone so far as to create a “supercore” measure of inflation that excludes food, energy and housing costs. How one might delude oneself into thinking that excluding food, energy and shelter from an inflation measure would make it relevant to anyone is beyond me.

Knowing a little about the trade, I can tell you that some economists do this not to help consumers and business owners understand what is happening in the economy to make better decisions but to, at best, boost their own sense that they can accurately forecast a system as complex as the economy. At worst, these “alternative” measures are used for political reasons, attempting to fool people into thinking that the inflation they see with their own eyes is an illusion.

To be fair, the Federal Reserve has made progress in bringing the inflation growth rate down once it finally realized that it was not transitory in March 2022. The problem is that there has been virtually no coordination between fiscal and monetary policy when it comes to dealing with price increases. In this way, it is unsurprising that the Fed’s victory lap over inflation last December has proved premature.

The Biden administration routinely runs budget deficits of over 7% of gross domestic product. This had never occurred before in the postwar period when the unemployment rate has been below 7%. Today, it rests just below 4%. Like it or not, Biden-era spending and stratospheric budget deficits mean that there is nothing his campaign can do to escape blame for the fact that the average person’s standard of living has deteriorated during his term.

Some may point out that wages are rising faster than prices as proof that the current policy mix is working. This view ignores the cumulative effects of inflation that Americans face. Looking at inflation this way, it becomes clear that wages and benefits cannot rise fast enough in the next eight months to obscure the fact that this country’s working men and women are worse off than they were on Inauguration Day in 2021. Prices could decline to even things out, I suppose, but what economists call deflation takes place that quickly only in the presence of an economic catastrophe, and economic catastrophes have been notoriously unkind to incumbents.

Although no one in the academic economic community would ever admit it, a “bread and circuses” approach to public finance has been responsible for the plight of those whom economist William Graham Sumner once described as the “forgotten man” who quietly pays for the schemes of the political class. Said Sumner, “He works, he votes, generally he prays — but he always pays — yes, above all, he pays.”

Regardless of what some academic might tell you, if you feel your take-home pay can’t keep up with inflation, you’re right. Perhaps it is because former President Donald Trump understands the plight of the common man that he seems to be winning.

• Jason De Sena Trennert is chairman and chief executive officer of Strategas Research Partners.