His plans increase the deficit, which is inflationary.
Large and broad tariffs are inflationary.
A massive crackdown on illegal immigration will also be inflationary as without cheap labor, making products will be more expensive or won’t happen here at all–particularly agricultural goods and housing.
Trump wants to end the independence of the Federal Reserve. Trump has been in favor of lower interest rates, which will increase inflation.
“President-elect Donald Trump’s victory in the 2024 election was powered by a remarkably consistent nationwide trend of voters turning against the Democratic ticket. Vice President Kamala Harris performed worse than President Joe Biden did in 2020 nearly everywhere: in big cities and rural areas, in blue states and red ones.”
…
“What happened on Tuesday is part of a worldwide wave of anti-incumbent sentiment.
2024 was the largest year of elections in global history; more people voted this year than ever before. And across the world, voters told the party in power — regardless of their ideology or history — that it was time for a change.”
…
“One credible answer is inflation. Countries around the world experienced rising prices after the Covid-19 pandemic and attendant global supply chain disruptions, and voters hate inflation. Even though the inflation rate has gone down in quite a few places, including the United States, prices remain much higher than they were prior to the pandemic. People remember the low prices they’ve lost, and they are hurting — hurting enough that they see an otherwise-booming economy as a failure.
As much sense as the inflation story makes, it remains an unproven one. We’ll need a lot more evidence, including detailed data on the US election that isn’t available yet, to be sure whether it’s right.”
“The U.S. government has limited influence over those global prices, which are shaped by market and geopolitical factors. Gas prices dropped during the early months of the pandemic, for example, because millions of people stayed home and dramatically reduced their gas consumption. But as the Bureau of Labor Statistics documented, prices surged as society reopened and the economy started to rebound.
While energy prices have consistently been higher under Biden than they were during Trump’s first term, they have dropped from their heights in 2022, when Russia’s invasion of Ukraine sent global prices soaring. As the Agriculture Department noted in February, fuel and oil costs saw significant declines in 2023 and are expected to decline again in 2024, thanks to drops in global energy prices. U.S. oil prices in the past few days have dropped to their lowest level in two years as OPEC+ says it will increase its own oil production later this year and fuel demand in China looks weaker.
And it’s not clear green-lighting more domestic drilling would have much impact on energy costs. For one thing, the U.S. is already producing record amounts of oil and gas, not to mention renewable energy like solar, wind and hydropower. The Biden administration has also approved more permits to drill for oil on federal land than many of its predecessors, even as it moves to restrict how much federal land is available for drilling.
Several economists also told POLITICO that while energy costs are a factor in every part of the food supply chain, they’re just one of many inputs companies consider when setting prices.”
“The merely dumb, or at least more respectable, version says that the American economy has become more monopolistic over time, and that is why businesses have been able to raise prices more. Consumers are the victims of a lack of competition. Harris nodded toward this explanation in her speech announcing the new policy, perhaps in response to early criticisms from economists.
Of course, it is absurd to believe that monopolies have developed so rapidly in the last three years that this caused the surge in inflation.
Putting that aside, while few economists would endorse price controls as a solution to insufficient competition—except for true natural monopolies—some would endorse blocking mergers through antitrust policy. The epicenter of the new optimism about antitrust is probably the Stigler Center at the University of Chicago. “The fact that you have prominent people at Chicago calling for antitrust enforcement is changing the game,” says law professor and The New York Times writer Tim Wu.
There aren’t many good case studies of successful antitrust enforcement. Indeed, mergers often create more competition, as when the recent T-Mobile/Sprint merger created a successful wireless network to compete with AT&T and Verizon. Evidence shows the merger raised wireless speeds and expanded 5G availability. Fortunately, the Obama administration did not block the merger (although they did delay it).
But one stylized fact seems to have taken hold of newly pro-antitrust economists: rising markups in the U.S. economy. Markups are the difference between the marginal cost to produce a good or service and the price at which it’s sold. A search for “markups” on the Stigler Center’s ProMarket blog yields dozens of hits. “Markups have increased because firms became better at creating product differentiation and erecting barriers to entry,” Chicago economist Luigi Zingales hypothesized in 2016.
Sounds plausible. But two new papers show that the rise in markups has nothing to do with diminishing competition. The first, a working paper published by the Federal Reserve Bank of St. Louis, finds that markups are higher in the service sector, and consumers are shifting their consumption from manufactured goods to services. Therefore, the average markup in the economy is increasing.
The second, a working paper published by the National Bureau of Economic Research, finds that markups have increased because consumers have become less price-sensitive, a mechanism also explored in the first paper. In other words, consumers have been shopping around less to find lower prices, so markups have risen. But it hasn’t happened because firms have taken advantage of inattentive consumers to raise prices; it’s just that costs have fallen faster than prices, resulting in higher markups.
The two papers have discovered complementary explanations for the rise in U.S. markups. Wealthier households consume proportionately fewer manufactured goods and more services and are also less price-sensitive. As Americans in general have become wealthier, we have all consumed more services and have become less price-sensitive.
This makes sense. As we become wealthier, the cost of our time rises. We’re more likely to quickly buy what we need without comparing prices at multiple locations. We’re also more likely to buy higher-quality versions of the same item. When it comes to food, this is definitely happening; just stroll down the grocery aisles and look at the plethora of “fair-trade,” “humane,” and organic certifications.
These results should hearten us that the U.S. economy isn’t rigged against the consumer.
Indeed, where we do see market power, it’s usually not created by really big companies. A rural hardware store has market power if the next hardware store is a long drive away. Public services like public schools and water and sewer systems have immense market power.
Moreover, big business isn’t necessarily bad. For example, Walmart, Costco, and Amazon have driven down retail prices by competing with each other.”
“GOP state attorneys general, as well as many of their Democratic counterparts, have moved to stop companies from charging what they view as exorbitant increases in the cost of some goods in certain circumstances.
In Texas, Attorney General Ken Paxton, a Republican, sued a large egg supplier for raising prices by about 300 percent at the height of the pandemic lockdowns in 2020.
Kris Kobach, the Republican attorney general of Kansas, is suing a large natural gas supplier over allegations that it gouged consumers in the aftermath of a 2021 winter storm. And in storm-prone Florida, state officials widely publicize a law that prohibits sharp price increases in essential items during emergencies.
“Nobody likes to be gouged when they’ve lost their roof,” said Trish Conners, a former chief deputy attorney general of Florida now in private practice at the firm Stearns Weaver Miller. The state laws address the “fundamental public safety role that state AGs have, and it’s largely bipartisan. You don’t see too much difference between AGs in that regard.”
The state laws underscore some of the benefits and challenges that Harris may face in selling her plan. It is broadly popular for politicians to shield consumers from excessive prices — even if many economists disagree with the approach. But at the same time, most states have limited their intervention in the market to a far narrower set of circumstances, and Harris’ plan for a national approach would likely represent a major expansion of the role of government in prices.
Some 37 states have laws to address price gouging, according to the National Conference of State Legislatures. Most of the laws have specific triggers — such as a state of emergency or disaster — and prohibit sellers of certain essential goods from jacking up prices beyond a certain threshold. Some states have a numerical threshold of, say, 15 or 25 percent, while others have vaguer prohibitions on “excessive” or “unconscionable” increases.
Florida Republican Attorney General Ashley Moody vowed to vigorously enforce the price gouging law as hurricane season began earlier this year. Her office has a dedicated hotline, app and website for consumers to report instances of gouging during emergencies.”
“Volatility in natural gas prices, including the huge spikes following Russia’s invasion of Ukraine, has certainly contributed to some price increases on the supply side. But the transmission and distribution costs have actually been going up at twice the rate of inflation nationwide, the report’s author, Brendan Pierpont, told me.
“That trend of increasing transmission and distribution costs is something that is noticeable all across the country, and so I think it’s an underlying factor in rate increases everywhere,” Pierpont said.
Utility companies have a lot of freedom in setting rates for transmission and distribution — and that directly contributes to how much profit they make. Utilities get to pick what gets upgraded when, and they also have an incentive to spend heavily, thanks to regulations that allow them to collect return on investment, usually around 10 percent, for those expenditures. This is actually built into the price most people pay for electricity.
Here’s how it works: Every year, utility companies ask regulators to approve a “revenue requirement,” which is basically a budget for what the utilities think it will cost to deliver enough electricity to their customers. Those estimates include spending on new equipment but not the cost of repairing old equipment. It also includes that return on investment, or profit, which regulators regularly approve. In Pierpont’s words, “That rate of return has a direct link to the costs that customers pay for electricity.”
What utilities don’t seem to be doing, however, is expanding the grid in a way that would benefit clean energy producers, the Energy Innovation report finds. Investments tend to cover local upgrades, like installing new metering equipment, rather than installing the high-voltage transmission lines that renewable energy sources need to connect to the grid. Meanwhile, consumers are facing more frequent outages that last longer, while utilities keep making more money for installing new, potentially unnecessary equipment.
“It’s like the utilities have a rewards credit card,” said Joel Rosenberg of Rewiring America, a nonprofit focused on electrification. “And they get to keep the rewards for how much they spend, and the [customers] have to pay off the bill, even if that bill takes 80 years to pay off.”
This plays right into the misconception that investment in renewables leads to higher rates.
Many of the states leading the way to clean energy are actually seeing lower energy prices than the rest of the country. Data from the US Energy Information Administration shows that 17 states, including California and Massachusetts, have increased their share of renewable energy sources by more than 20 percent since 2010. And with the exception of California, all of those states have seen the price of residential rate increases rise more slowly than inflation. The higher rates in California can be explained, in part, by rate increases to account for wildfire prevention. In Massachusetts, natural gas is the problem.
States where residents are seeing electricity bills that outpace inflation tend to be the ones with the highest reliance on natural gas, as highlighted in the Energy Innovation report. Some states in New England, including Massachusetts, have depended on natural gas for around 60 percent of electricity generation since 2020 and have seen prices increase by around 10 percent in the same period. Volatility in the price of natural gas also means that some of the highest price spikes are spread out over several years, so there could be more high prices in these states’ futures.”
“The Fed hiked interest rates around the same time that the supply chain got back up and running, which makes it hard to assign credit. But there’s an even more fundamental issue here. “Anything in macroeconomics is very hard to empirically test,” says Vox senior correspondent Dylan Matthews. “You can’t run experiments with the Fed.”
Ultimately, Matthews says that inflation — and our economy as a whole — is still so hard to understand because of the nature of money. “Money feels like this very hard thing, but money is also a psychological idea. Money is this idea that we can put numbers on what we owe to each other, even as we understand that these numbers are kind of made up.”
Inflation, in a sense, is a psychological phenomenon. “So understanding inflation, I think, is ultimately about understanding people and how they relate to each other. And that’s the ultimate mystery.””
“there are three reasons for Democrats to fear that slowing inflation will prove too little, too late.
For one thing, voters’ distrust of Biden’s economic management appears unshakeable. In a recent Gallup poll, just 38 percent of Americans expressed confidence in Biden to “do the right thing for the economy.” That is up a smidgen from Biden’s 35 percent mark in 2023, but it is still the worst economic approval that any modern president has suffered in Gallup’s polling, with the exception of George W. Bush immediately after the financial crisis. By contrast, 46 percent of voters have confidence in Trump’s economic management.
In RealClearPolitics’s average of recent surveys, Americans disapprove of Biden’s handling of the economy by a 17.6 point margin. And voters’ appraisal of Biden’s economic acumen has not substantially improved in recent months, even as inflation has declined. By the end of Trump’s term, on the other hand, voters approved of his economic management by a 7.8 percent margin.
Thus, the idea that Biden is personally responsible for the surge of inflation in 2022 — and that he cannot be trusted to effectively manage the economy for that reason — appears deeply rooted in voters’ minds. The fact that wages have been rising much faster than prices for more than a year has left no dent on this impression. Another few months of falling inflation could move the needle a bit, but there’s little reason to assume that such a development will dramatically change public opinion.
Second, relatedly, historical precedent suggests that the economy’s performance up to this point in Biden’s term will matter more than its performance from now until November. According to Democratic data scientist David Shor, when you examine the relationship between GDP growth and past incumbent presidents’ electoral outcomes, their economic records between inauguration and April of their reelection year count for much more than economic conditions in their campaigns’ final months.
Finally, if inflation has truly been defeated, victory has come too late to yield substantial interest rate cuts before November. The Federal Reserve declined to reduce rates after its meeting this week and forecast a single, quarter-percentage-point cut by year’s end. Investors predict that such a cut will come in September at the earliest. Even if the rate cut comes before Election Day, it would still leave Americans with dramatically higher borrowing costs than they faced when Biden was inaugurated.
It is conceivable that a small September cut may help the president a bit at the margins. Another possibility is that Biden will effectively shepherd the nation out of an economic crisis and deliver it into a low-inflation, high-employment economy and then promptly hand the White House back to Donald Trump, who will proceed to receive the lion’s share of the credit when the Fed slashes interest rates next year.”