An awful lot of people are still mad about the high prices, and a lot of them blame the government.
That’s what a new working paper from the National Bureau of Economic Research called “People’s Understanding of Inflation” says. About 3,000 people were asked what they thought about the causes, effects, and consequences of a general price increase.
People who answered the survey thought that government actions, especially spending on war and foreign aid, were the main cause of inflation. Problems with the supply chain and higher costs of production, such as those caused by the COVID-19 pandemic or changes in oil prices, were named as the second most important reason.
The rise in prices in the U.S. over the last few years is due to a number of things, some of which are out of the hands of policymakers. Prices went up because of problems in the supply chain, a lack of workers, government stimulus payments, and a huge increase in demand for goods and services after pandemic shutdowns.
Foreign aid hasn’t been a big reason for inflation in the last few years, according to most economists. However, government spending can make prices go up.
The people who answered the survey also thought that inflation was a “unambiguously negative phenomenon” and that there was a “widespread belief” that controlling price increases could be done without big costs, like slowing down the economy or making more people lose their jobs.
What makes things hard for policymakers is that the usual ways they try to control inflation, like raising interest rates, have the same results.
The findings of the paper make it clear that inflation is a puzzle, according to Stefanie Stantcheva, one of the authors and the founder of the Social Economics Lab at Harvard University. “We may not be aware of how much inflation hurts people.”
In addition, people were asked to name the most important effects of inflation.
Most of the people who answered said that it can make it harder to make decisions as a family. Stantcheva told MarketWatch that this is because higher prices can hit people hard on their budgets.
“You have to keep going back to your choices and thinking about them again,” she said.
Inflation impacts Biden’s reelection odds
The results of the paper show how hard it is for policymakers and political leaders to deal with widespread inflation. That’s been the case for President Joe Biden, whose handling of the economy has made people unhappy and lowered his approval rating.
Larry Jacobs, a political scientist at the University of Minnesota, said that inflation now is like the Iranian hostage crisis when Jimmy Carter was president. The crisis happened from 1979 to 1981 and lasted for more than 400 days. The media talked about it a lot.
Jacobs said, “The main effect was that Jimmy Carter couldn’t focus on other things.” “Even though you could say that inflation has done less damage since Biden took office… That doesn’t seem important.
Starting in 2021, the prices of goods and services went up more quickly. In June 2022, year-over-year price increases reached a 40-year high of 9.1%.
The rate of inflation has slowed down a lot since then, but people are still getting used to prices that are much higher than they were before the pandemic. Prices for things like food have gone up 30% since 2020.
A Gallup poll released last month found that voters have one of the least amounts of faith in Biden to suggest or carry out the right course of action for the economy since 2001. And polls of people’s feelings show that Americans are still afraid that prices will go up again.
If the president wants to get rid of inflation, what should he do? Jacobs called it “a magic wand” that makes inflation better “in a way we’ve never seen before.”
Jacobs pointed out that Biden’s only saving grace is that he is likely to be running against Trump in November. Trump’s history of scandals, impeachments, and most recently his felony conviction have made a race that would have been easy for the Republicans into a close one.
But he also said, “Biden is facing one of the worst and most punishing setbacks in domestic policy of any president in the last fifty years.”
“I think he wants to say ‘Give me credit,'” Jacobs said. “And the country doesn’t feel like it.”
