Why Did Inflation Topple the Democrats? Part II
Exit polls from the 2024 election appear to back up my theory that an increase in the percentage of economically insecure, lower-income voters in the electorate who were squeezed by inflation (compared to the 2022 midterms) led to Kamala Harris's defeat. Almost three-fourths of voters (74%) who said they experienced "severe hardship" due to inflation voted for Donald Trump. Voters who experienced "moderate hardship" went for the Republicans by a narrower margin (Trump 51% vs. Harris 45%), but voters who said they experienced "no hardship" due to inflation voted for Kamala Harris over Trump by a margin of 77% vs. 20%.
A recent Substack post "Yes, inflation made the median voter poorer." has the most convincing explanation so far for how to link changes in the economy to voter anger over inflation.
If inflation increases prices but not wages, a worker's real earnings growth (where "real" = adjusted for inflation) will go down. If you compare the Biden administration to the second term of the Obama administration or the first term of the Trump administration, then earnings growth is much weaker under Biden than under Obama's 2nd term or under Trump. So, even if inflation is not high under Biden by historical or global standards, wage stagnation means that the effects of the inflation will be more painful.
For example, in the 50th and 75th income percentiles, voters actually experienced negative income growth under the Biden administration, if you adjust for inflation. Voters in the 25h income percentile had positive growth, but inflation ensured that real income growth was weaker under than under Obama's 2nd term or Trump's 1st term.
The Substack post has an explanation with 6 bullet points that concisely explains why the standard economic statistics (unemployment, GDP growth) were so good under Biden, but voters were still very angry. The key to understanding this explanation is what economists call sticky wage theory. According to sticky wage theory, if wages are low and stagnant, those wages are not automatically going to go up simply because labor market conditions get better for workers. As a result, workers get squeezed by prices that go up, but the wages don't go up with them.
Here's the bullet list:
- The Fed allowed high inflation
- High inflation + sticky wages = low real wages...
- ...and low real wages result in low unemployment and high output
- Pundits: “the economy is good — low unemployment, high GDP — why don’t the voters understand??”
- But low unemployment and high GDP are precisely caused by the low real wages — which is, rationally, what voters care about!
- Output is high, and this is BAD — exactly the prediction of the basic model
Another factor that fostered inflation-induced anger was the timing of COVID-19 stimulus checks. In total, there were three rounds of COVID-19 stimulus checks:
Round 1, March 2020: $1,200 per income tax filer, $500 per child (CARES Act)
Round 2, December 2020: $600 per income tax filer, $600 per child (Consolidated Appropriations Act, 2021)
Round 3, March 2021: $1,400 per income tax filer, $1,400 per child (American Rescue Plan Act)
Although the COVID-19 stimulus checks in March 2020 didn’t save Donald Trump’s re-election efforts in 2020, I think it helped him in 2024, by making it easier for voters this year to view Donald Trump’s economic mismanagement under COVID with rose-colored glasses. By contrast, Joe Biden only benefited from one round of stimulus checks during his administration in March 2021 & then the checks were abruptly cut off thereafter. If my theory is correct, the stimulus checks raised voters’ expectations for what the Biden Administration could deliver economically, but cutting off those checks abruptly shattered those expectations & the disappointment still lingered on Election Day 2024.
I don’t have data yet on how the cutoff of stimulus checks may have hurt the Democrats in 2024, but we do have indirect evidence this was a factor. The standard models used by economists to predict consumer sentiment in United States government surveys have worked very well, at least up until the COVID-19 recession of 2020. After the COVID-19 recession, the economic model malfunctioned & broke into a million pieces. Since 2021, consumer sentiment is between 30 and 40 points lower than what it “should” be if pre-COVID economic models still held. (You can see this by looking at the widening gray area between the dark blue line and the light blue line on the chart after 2021.)
As I said before, I think the explanation for Donald Trump’s victory in 2024 is a combination of both real factors and distortion. The stimulus checks in 2020 and 2021 were absolutely thing to do for bringing recovery to the United States economy, but they also massively distorted voter perceptions by encourage them to overrate Donald Trump’s economic performance and underrate Biden’s.