Honesty would have been the best inflation policy – John Gustavsson

When the pandemic hit, supply chains were disrupted while governments simultaneously pumped more money into the economy to keep it afloat. More dollars for fewer goods naturally leads to inflation.

When the United States and most of the rest of the developed world decided to go into lockdown, economic turmoil and inflation were inevitable. That's not to say the lockdowns were a mistake, but that, like all government actions, they entailed trade-offs. Policymakers could and should have argued that inflation is an inevitable and justified side effect of efforts to save potentially hundreds of thousands of lives. Whether voters accepted that or not, they would at least have been warned.

With supply chain disruptions and stimulus packages driving inflation, rising interest rates were also predictable. When inflation rises above its target, the Federal Reserve will always raise rates to cool it down. Policymakers could have explained that the economic consequences of a global pandemic would be felt for years after the health crisis subsided.

But if inflation was predictable, why did politicians say it wasn't? Why was it considered for so long to be at worst “transitory” and at best nonexistent? Part of the answer lies in Keynesianism, a school of economic thought that emphasizes the need to manage expectations and keep consumer confidence high.

Politicians trained in this mindset tend to believe that if you tell people something bad is going to happen, they might panic, and the bad thing might be even worse than it already would have happened. Or worse, you might end up making something bad happen that wouldn't have happened otherwise, like a self-fulfilling prophecy. Tell consumers inflation is coming, and they might run to the stores and stock up on supplies before prices can rise. This sudden oversaturation of demand will then make inflation worse, and possibly even lead to shortages (such as the infamous toilet paper shortage in spring 2020).

These concerns may not be entirely unfounded, but dishonesty is still a bad idea. Many consumers have lost faith in these politicians who never saw a crisis coming, including the recent wave of inflation, making them look incompetent. Other consumers have since found out that politicians knew what was coming and didn't tell them. Both points serve to fuel populism by eroding trust in politicians.

Moreover, interest rates have been low for a decade and inflation has not been a serious problem since the 1980s, long before many voters were adults or even born. As a result, inflation seemed to many to have come out of nowhere—a perception reinforced by politicians who pretended to be equally surprised. Whenever something bad happens that the public is not mentally prepared for, some turn to conspiracy theorists and extremists for answers. Uncertainty about the origin of inflation and the perception that politicians are clueless understandably lead voters to be skeptical when those same politicians claim to know for sure that inflation is now over. This, in turn, is a gift to those political forces whose strength rests on distrust of the general public.

If President Joe Biden and Vice President Kamala Harris had admitted when they took office that inflation would be a serious problem throughout their term, they could have explained why the Federal Reserve had to raise interest rates. Instead, to this day, they act as if inflation was caused by a rise in “corporate greed” that presumably came out of nowhere. No reasonable explanation has been offered as to why a comparable or even greater rise in greed did not occur during the far more business-friendly presidency of Donald Trump.

Blaming inflation on “greedy corporations” leaves consumers wondering why they have to pay higher mortgage rates on top of higher food and gas costs. Why can't politicians just stop these greedy bigwigs? And why has Donald Trump never had this problem? Having put herself on that leash, Harris responded by proposing price controls on food to maintain her narrative that “corporate greed causes inflation.”

At the same time, the lie of “corporate greed” leaves the government defenseless against the claim that its own wasteful spending caused inflation. While it is true that spending has not helped and has arguably made things worse, a comparison of the U.S. inflation rate to any other major industrialized nation shows that overall inflation in the United States has been virtually the same as in the Eurozone and the United Kingdom since 2021. At the same time, the U.S. has experienced faster economic growth than those economies during that time.

The “corporate greed” narrative weakens when it becomes clear that inflation has occurred everywhere in the developed world. Did policymakers everywhere, even in social democratic countries like those in Scandinavia, simply let corporations get away with their spontaneous, limitless greed? Had the administration been honest, it could have cited the international inflation rates mentioned above to argue positively that things could have actually been worse and that it is absurd to claim that Biden’s policies caused a wave of inflation that swept across the entire developed world. To bolster that argument, however, it would have to admit that inflation was a foreseeable consequence of the pandemic that it failed to warn voters about.

This is not an isolated case, nor is it specific to Democrats. No one wants to be the politician who proclaims, Winston Churchill-style, that they have nothing to offer but blood, sweat, toil, and $12 footlongs at Subway. All that talk of “15 days to slow the spread” and similar rhetoric was too optimistic, too, and everyone knew it. Before that, in the run-up to the 2008 financial crisis, few, if any, politicians dared talk about the rapidly bursting housing bubble and the catastrophe they may not have anticipated. known would come, but they knew for sure that it was possible.

While it may make sense in the short term to keep expectations high, in the long term it has a negative impact on society and institutional trust. Trust is a two-way street, and American politicians who want people to trust them again should also dare to trust people with the truth.

More honesty about inflation four years ago would have given Democrats the tools to counter Donald Trump's claims that he would lower prices and end inflation. Instead of getting bogged down in crazy price control measures, Harris could have focused her attacks on Trump's inflation-promoting tariff proposals.

At this point, I believe the only way to restore trust is to break the rules of political communication. Donald Trump has done this and was seen as refreshing because of his unorthodox language. He seemed honest and blunt (which he is neither and was not, but that's another matter).

What we need now is a Domino's ad.

In 2010, Domino's Pizza launched an advertising campaign to admit one thing: Your pizza sucked. The ad detailed that the only good thing about Domino's was their fast delivery. Their tomato sauce tasted like ketchup, the cheese was plastic, and the crust bore an uncanny resemblance to cardboard. What kind of way was that to win customers? Well, the ad ended with Domino's employees and executives acknowledging the criticism and saying that it motivated them to do better.

The campaign went viral because of its honesty and originality – and it worked. Domino's market share grew.

A political equivalent would be a 30-second, maximum 60-second commercial in which a politician looks directly into the camera and shares some very hard facts and some sincere apologies. This type of commercial could really break American politics. No flashy graphics, no dramatic soundtrack, just the honest truth spoken by politicians who break the fourth wall and address the American people as if they were adults who could be reasoned with. There are a nearly endless number of issues that could be covered (inflation, welfare, and business cycles are arguably the top three), and politicians on both sides should get involved. It's time to stop pretending, admit past deceptions, and start educating.

That won't happen during the campaign, but that's OK. This kind of “brutal honesty advertising” will be necessary outside of election season, regardless of the outcome in November. To say that the public must be constantly lied to and deceived in order to be governed effectively is an argument against democracy, and that argument is at least as big a threat to democracy as any idea promoted by Donald Trump. Politicians on both sides who want to turn the tide against populism should take a leaf out of Domino's playbook instead.