Joe Biden speaks from an auditorium on the White House campus in Washington, DC, on  October 26 2022
© Reuters

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Readers of this newsletter will know that I am a fan of Joe Biden’s White House and believe that most of its policies, particularly in the economic realm, have been correct. This administration has fought through partisan politics, not to mention battles within its own party (which is still divided about whether to move away from neoliberalism as an economic philosophy), to pass a major climate bill, the Chips act, infrastructure spending, support union labour, prop up vulnerable families and workers in the midst of a pandemic (which has kept consumer spending strong), and has done it all while the Federal Reserve is orchestrating a 40-year turn in monetary policy — and there’s a war in Ukraine that could turn nuclear.

So why the heck are Democrats having such a hard time selling their record economically?

One word: inflation. The job market is still hot, even with the Fed raising rates. But inflation in housing, food and fuel is outpacing wage growth, and that’s what people feel on a daily basis. Never mind that US inflation has very little to do with anything the Biden administration itself has done, but is rather the result of a paradigm shift in the global economy that has come with the end of the “cheaper is better” model.

The past 40 years have been predicated on cheap money, cheap labour, and cheap energy. Now, with the Fed (quite rightly) increasing rates, and with the end of quantitative easing, cheap money is gone. Cheap energy went the minute Russia invaded Ukraine. Cheap labour is going too, and again, quite rightly, since wages hadn’t risen for most Americans since the early 1990s before this latest bout of (still relatively moderate) wage inflation. On that note, I am amazed that people are still writing about wage inflation as though it’s entirely a bad thing. It’s only a bad thing for corporate C-suites, which are doing everything they can to keep profit margins near record highs: from cutting workers (in the case of overstaffed and oversized tech groups) to cutting product sizes and service quality.

The problem is that in 70 per cent consumer economies like the US, if you don’t pay people more at some point, the maths stops working. As the thoughtful conservative Oren Cass argued recently in the FT, it’s time to end the global race to the bottom in wages and for companies to start caring more about the communities in which they operate.

Inflation was always going to go up for a certain period of time after nearly half a century of easy money and outsourcing came to an end. Biden’s fiscal spending has little to do with the larger paradigm shift we are going through. And yet, Democrats are taking the heat for inflation, which is making it difficult for them to message all their gains. So, what do to? I’d suggest Democrats focus more on how they, not Republicans, are trying to rein in corporations. Josh Bivens, director of research for the left-leaning Economic Policy Institute, posted a blog that everyone should have a look at. As he puts it:

The price of just about everything in the US economy can be broken down into the three main components of cost. These include labour costs, non-labour inputs, and the “mark-up” of profits over the first two components. Good data on these separate cost components exist for the non-financial corporate sector — those companies that produce goods and services — of the economy, which makes up roughly 75% of the entire private sector.

Since the trough of the Covid-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualised rate of 6.1% — a pronounced acceleration over the 1.8% price growth that characterised the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labour costs contributing less than 8% of this increase. 

Bar chart of Contributions to growth of unit prices in the non-financial corporate sector (% of total) showing Corporate profits are driving up prices

Biden and the Democrats talked a bit about corporate price gouging about a year ago, but there’s increasing data to back up the fact that companies are, as always, using their disproportionate power to keep their profit margins constant rather than sharing the pain that the rest of us are feeling. And since the Republican party is increasingly split between being beholden to Donald Trump and Peter Thiel, it’s unlikely they’ll do anything about it.

Ed, you used to be a speech writer — is there a smarter way to message the Democratic economic record than what we’ve seen thus far? And even if there were, would it matter to voters?

Final word — if you live in the US and are eligible to vote but haven’t yet, go do it now!

PS Join Edward Luce, Rana Foroohar, James Politi, and veteran commentator Norm Ornstein on November 10 for a subscriber-exclusive webinar staged with the Swamp Notes newsletter to discuss the US midterm results. Register free today here and submit your questions in advance for our panel.

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Edward Luce responds

Rana, yes there’s a far smarter way for Democrats to market their record — take their cue from Barack Obama’s recent stump speech. For those who have missed the new, far less professorial, Obama, here is a recent clip. His message is powerful because it focuses on economic justice in light of the jeopardy facing everyone who has paid throughout their working lives into Social Security. The latter is not some “Ponzi scheme” as many Republicans have called it. Obama then brackets that warning with an attack on a party that votes for tax breaks for private jets and does the bidding of billionaires. The framing of Obama’s message about the consequences to ordinary people of the Republican party’s economic plans — to the extent they can be described as plans — is fair game and emotionally motivating. Democrats have not been spending nearly enough time spelling out the meaning of Maganomics.

The benefit of Democratic economic populism is that it can appeal to everyone and is grounded in a fair diagnosis of what motivates their Republican opponents. America’s three richest people have wealth that exceeds its bottom 160mn. Republicans only have two concrete economic plans. The first is to make Trump’s regressive 2017 tax cuts permanent. The second is to hold the US sovereign debt ceiling hostage to spending cuts on all the rest. The first is inflationary. The second would undercut whatever real wage growth American employees have been enjoying. I wish Biden had developed his oil company windfall tax proposal sooner. Net profits for the oil majors is running at something like quadruple the rate of this time last year. Again, most people can get behind such an intuitive proposal. As it stands, I am not sure even these powerful messages would have been enough to save the Democrats since so many Americans are no longer reachable with unrefracted messaging.

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And now a word from our Swampians . . .

In response to “Elon Musk’s coming out election party”:
“Democracy is being Musked, mugged. [Shoshana] Zuboff is right. I want the laws, the rules, made by the people I and others vote for, not some (now disbanded!) private sector Truth Council. There is no ‘one real truth’. We imperfect humans need to adopt the scientific method to truth discernment. In science, we are very careful of the funders. In surveillance capitalism, they are in plain sight yet we just don’t seem to care. But we must learn to care. My bet is that the upcoming climate Minsky Moment might be — ever so slightly — pivotal.” — Mike Clark, Oxfordshire, England

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