Republicans have a secret: For all their professed horror of it, they adore inflation.
At the moment, Republicans love inflation because it gives them a rationale to oppose the reconciliation bill (even though they’ve opposed President Joe Biden’s Build Back Better program since he introduced it as a candidate back in July 2020, when inflation was a mere 1 percent). Inflation also gives Republicans something to beat up Democrats with in the 2022 midterms (even though there’s a good chance the Covid-created inflationary spurt will have receded by then).
Senator Rick Scott, who chairs the National Republican Senatorial Committee, is ecstatic. “We’re going to continue to have inflation,” he told The Wall Street Journal on November 14, “and then interest rates will go up. This is a gold mine for us.”
Scott did some mining two days later when he blamed a 15 percent increase in Medicare Part B premiums on “Biden’s inaction to address the inflation crisis he and Washington Democrats have created with reckless spending and socialist policies.” This was utter nonsense, and not just the socialism part. Kaiser Health News reports that the increase was prompted mostly by the need to catch up after a premium freeze the previous year and by the extremely high price of Aduhelm, the new Alzheimer’s drug. But October’s 6.2 percent increase in inflation over October 2020 made Scott’s nonsense sound plausible.
Over Thanksgiving weekend, Scott’s NRSC ran an ad in 10 battleground states targeting Biden and the Democrats on inflation. “Hey, you!” the ad said. “Do you like high gas prices? If so, introducing Joe Biden and Democrats! Leaders so incompetent they’ll make you choose between filling up your car and feeding your children!”
Republicans love inflation so much that they fantasize it’s imminent even when it isn’t. In 2010, for example, when the economy was still struggling to recover from the Great Recession of 2007–9, a long list of Republican eminences (only some of them actual economists) published in The Wall Street Journal an open letter to then–Federal Reserve Chairman Ben Bernanke urging him to halt “quantitative easing” (that is, an increase in the money supply through the purchase of longer-term securities). They wanted quantitative easing to stop because it was inflationary. Events proved them wrong, but Republicans continued to urge tight-money policies on the Fed because they felt certain inflation would come roaring back. It just had to!
Perhaps, dear reader, you find my argument facetious. To relish exploiting a blunder attributable to your adversary, you protest, is not the same thing as being pro-blunder. Democrats were happy when President Donald Trump pressed Ukraine’s president to investigate Hunter Biden, not because Democrats wanted Volodymyr Zelenskiy to investigate the president’s son but because Trump’s request was so obviously impeachable an offense. By the same token (you argue), Republicans are happy that inflation is taking off under Biden not because they love inflation but because they love blaming Biden for inflation.
To that criticism I answer: yes and no.
Yes, Republicans relish the political opportunities that inflation gives them. As Edward Luce noted recently in the Financial Times, Democrats always get blamed for inflation, even when they’re out of power. President Richard Nixon was as much to blame for stoking inflation as his predecessor, Lyndon Johnson, but only Johnson got blamed. President Jimmy Carter appointed Paul Volcker as Fed chairman, paid the price of Volcker’s brutal anti-inflation policies by losing the 1980 election, then received zero credit when those policies finally tamed inflation under Carter’s successor, Ronald Reagan. As I noted here in July, inflation begat the property-tax revolt, which begat the Republican Party’s cultish devotion to tax cuts. The GOP owes its central organizing principle to inflation.
But also—no. Republicans don’t stop at loving the political opportunities that inflation provides. They also love inflation itself.
Oh, sure, Republican members beat up Fed chairs whenever they appear before Congress for not doing enough to curb inflation, even when there’s no inflation to curb (which is most of the time). But that’s just pantomime. Congress has zero control over Fed policy. To the limited extent that presidents and members of Congress can affect macroeconomic policy at all, Republicans favor tax cuts that expand the deficit—which is inflationary. Over the past generation, deficits have grown far more under Republican presidents than Democratic ones.
Republican constituencies find inflation much more congenial than do Democratic ones. Ask the Republicans! Lately they’ve gleefully been flagging studies that show inflation is more harmful to low-income Americans, who tend to vote Democratic, than to wealthy ones. It’s true! The GOP sees this as a wedge issue, and it’s a pretty good one.
Inflation is catnip for borrowers because it reduces the value of their debt. Who borrows more than anyone else? Rich people, which is to say, Republican voters. Billionaire consumption “is mostly funded by borrowing against unrealized capital gains,” Luce pointed out. Edward McCaffery, a law professor at the University of Southern California, elaborated last summer to The Wall Street Journal: “Ordinary people don’t think about debt the way billionaires think about debt. Once you’re already rich, it’s simple, it’s easy. It’s just buy, borrow, die.” (Why die? Because dying is how you protect unrealized capital gains, which aren’t taxed when they pass on to your heirs. President Joe Biden tried to close this so-called “angel of death loophole” in the reconciliation bill, but his fellow Democrats wouldn’t go for it.)
Business, another Republican constituency, loves inflation, too. It’s a mistake to say corporate greed causes inflation; if it did, we’d have had galloping inflation for years. But corporations are adept at taking advantage of inflation once it comes, gouging customers and boosting profits. It’s axiomatic that prices rise much faster than they fall.
The real estate market is especially fond of inflation because real estate is a debt-intensive industry. Trump, when he was president, constantly beat up Fed Chairman Jerome Powell for not lowering to his satisfaction the cost of borrowing. That wasn’t because Trump was a Republican—Republicans are supposed to pretend they hate inflation. It was because Trump was a real estate tycoon.
The stock market likes inflation because it depresses the bond market. When stocks fall, that isn’t because the stock market fears inflation; it’s because it fears the Fed will raise interest rates to curb it. The bond market isn’t crazy about inflation, but if inflation gets bad enough the Fed raises interest rates, which it loves. Banks, similarly, dislike inflation right up until the Fed hikes interest rates, at which point they purr like a kitten.
If Republicans and their constituents love inflation so much, why haven’t they been able to bring it back? For the same reason that the current inflation spurt won’t likely last long. Inflation is a wage-price spiral, and for the past generation wages have stagnated. The one—the only—good thing to come from that is that inflation never took off. Wages have been rising lately, but they still lag price increases considerably, and there’s a limit to how much you can raise prices before you make your product unaffordable to the median wage earner. As Catherine Rampell of The Washington Post noted recently, when you adjust for inflation, average hourly wages actually fell 1.2 percent between October 2020 and October 2021.
Why haven’t wages risen? Because labor unions don’t have the power they enjoyed in the 1960s and 1970s, inflation’s last golden age. And although Republicans love inflation, they don’t love it enough to tolerate labor unions. That’s a big reason why another Great Inflation remains a distant dream. But in the meantime, Republicans can use pandemic-driven inflation to bludgeon Democrats. And they will.