As Biden faces a summer of inflation, voters will be watching

President ignores prominent Democratic economists at his own peril

President Joe Biden’s rosy views of his economic policies aren’t shared by most Americans, Winston writes.  (Caroline Brehman/CQ Roll Call file photo)
President Joe Biden’s rosy views of his economic policies aren’t shared by most Americans, Winston writes. (Caroline Brehman/CQ Roll Call file photo)
Posted June 16, 2021 at 6:00am

As ketchup goes, so goes the nation? Kraft Heinz CEO Miguel Patricio told Time magazine not long ago that his company is weighing price increases for one of the nation’s staples because of supply and demand issues that are driving up the cost of raw materials and food commodities. 

“We haven’t increased prices to consumers. We do not know if we’ll have to increase prices or not yet. We are studying and building scenarios on that,” Patricio said. Heinz isn’t alone in trying to deal with surging prices. Global conglomerates and local businesses alike are struggling to “build back better,” while facing price increases, threats of increased taxes, worker shortages and supply chain issues best exemplified by the global chip shortage impacting industries across the board.

Just last week, the Bureau of Labor Statistics delivered the sobering news that consumer prices rose 5 percent, year over year, in May, higher than Wall Street expected and at a rate the country hasn’t seen since August 2008. 

Even a cursory look at the Agriculture Department’s producer price index, or PPI, which the department says is a “useful tool for understanding what may soon happen to the Consumer Price Index,” is worrisome. The May PPI forecast expects cattle prices to increase by 5 percent to 8 percent; pork prices by 8.5 percent to 11.5 percent; and poultry by 13 percent to 16 percent. Significant price increases across the commodities spectrum are now likely, so says the government.  

Despite growing concerns that inflation is on the rise, President Joe Biden painted a rosy economic picture in his remarks on the release of the May jobs report. He had plenty of good things to say about the impact of his economic policies, especially the $1.9 trillion American Rescue Plan, or ARP. What he didn’t talk about was the impact of the law on inflation, apparently betting that inflationary pressures will be “transitory.” 

Democratic warnings

Former Obama Treasury Secretary Larry Summers was one of the first Democratic economists, but not the last, to warn the administration early on about the risks a “go big” stimulus bill posed to the economy. Biden didn’t listen. The ARP became law, and now inflation is on the rise.

Jason Furman, who chaired President Barack Obama’s Council of Economic Advisers, told Bloomberg last month that the total size of the $1.9 trillion ARP was unnecessarily large, going on to say, “I don’t know any economist that was recommending something the size of what was done.”

Summers recently told CNN, “Policymakers at the Fed and in the [White House] need to recognize that the risk of a Vietnam inflation scenario is now greater than the deflation risks on which they were originally focused. … Whatever was the case a few months ago, it should now be clear that overheating — not excess slack — is the dominant economic risk facing the U.S. over the next year or two.”

Summers wrote in a Washington Post op-ed that “where possible, infrastructure investments should be financed by reprogramming of Rescue Plan funds, such as those now being used by some states to finance tax cuts. Additionally, current spending financed by future taxes might further stimulate an already overheated economy.” 

Once again, Biden doesn’t appear to be listening to some of his party’s most prominent economists, at his and his party’s political peril.

What voters want

But the American people are listening, and it’s becoming more and more evident that the Democrats have failed to win even the most basic argument over the fundamental purpose of the nearly $2 trillion ARP, much less who’s to blame for today’s surging inflation.

In our April 7-11 Winning the Issues survey, voters were split over perceptions of the law, with 45 percent seeing the ARP as a “government spending bill with too many unrelated special interest priorities” and 42 percent as “relief dealing with the pandemic and aid for businesses and individuals.”

While this is not a decisive margin, the fact that 45 percent — nearly 1 in 2 voters — viewed the ARP as a spending law with too many unrelated priorities means Democrats have their work cut out to demonstrate this was the right policy prescription for economic recovery, especially as fears of inflation grow.

More alarming for Democrats is the finding that independents also leaned toward this view (41 percent to 35 percent), especially conservative independents at 66 percent to 22 percent. Moderate independents were evenly split between the two views (39 percent to 41 percent) but were not convinced it was a relief bill to address the pandemic.

As Biden uses his time in Europe to talk about the global economy and push for a global business tax, back home, inflation is emerging as a major political issue as people struggle to contend with the rising cost of living. Our June 7-10 Winning the Issues survey found general agreement across party lines that inflation is on the rise.  More than 7 in 10 people, 74 percent to 10 percent, believed the statement that “inflation is increasing.” By party, Republicans agreed by an 84 percent to 7 percent margin; independents by 71 percent to 5 percent; and even a significant majority of Democrats believed inflation is rising, 65 percent to 18 percent.

The survey found that the main area of disagreement by party is what caused increasing inflation and when it started. Forty-four percent agreed that today’s inflation “has been accelerated because of current government policies,” while 35 percent felt “inflation has been happening long before now.” Republicans (65 percent to 21 percent) and independents (43 percent to 33 percent) agreed with the first view, while Democrats by a 2-to-1 margin saw it as happening long before now (50 percent) rather than the result of current policies (25 percent).

Interestingly, middle-income voters blamed current policies 51 percent to 32 percent. The survey also asked voters whether they were paying more in higher prices because of government spending policies. By a 60 percent to 21 percent margin, voters overwhelmingly put the blame for higher prices where it belongs — on government spending policies.

Biden and congressional Democrats may not want to listen to Larry Summers, but as inflation heats up and fractured Democrats fight over just how “progressive” and expensive their legislative agenda is going to be, they might want to listen to voters.

David Winston is the president of The Winston Group and a longtime adviser to congressional Republicans. He previously served as the director of planning for Speaker Newt Gingrich. He advises Fortune 100 companies, foundations, and nonprofit organizations on strategic planning and public policy issues, as well as an election analyst for CBS News.