Call it what it is – Trumpflation

Sharply rising prices in 2022 and 2023 made “Bidenflation” a talking point among Republicans. Inflation, Republicans claimed, was due to a 2021 Democratic budget bill that gave people significant amounts of money while the U.S. economy suffered the effects of Covid. When that money was spent, prices rose.

Reality belies this Republican fiction. Presidents have limited control over the prices companies charge. The primary responsibility for controlling inflation rests with central banks. If anyone is responsible for our recent inflation, it is Jay Powell, Trump's nominee for Federal Reserve.

A simple test also shows that the Democrats' spending bill did not cause high inflation. In 2021, few countries provided significant extra money to people. If the Republicans are right, inflation in the US should have been much higher than in other developed countries.

Inflation in the US was 8% in 2022. In Canada, Denmark, Germany, New Zealand and the UK, inflation ranged between 6.8% and 7.9%. On the other hand, Belgium, Italy, the Netherlands, Spain and Sweden had inflation rates between 8% and 10%. In these and other countries, inflation rose from around 2% to around 8% (plus or minus a little). By early 2024, inflation rates in these countries had fallen from 8% to around 3% – within striking distance of the 2% target set by most central banks.

Obviously, inflation was a global phenomenon. not due to misguided US policy. The main cause was supply chain problems in 2022, which were largely resolved by the end of 2023. While the Democrats' spending bill did not cause inflation, it kept unemployment in the US low compared to other developed countries (see “A tale of two politics” in March-April 2024 Washington Spectators). Instead of Bidenflation, we actually had Bidengrowth.

Still, we could have done a better job of fighting inflation. But our failure was not Joe Biden's fault. Despite its limited power, the Biden administration's targeted policies helped curb inflation.

President Biden released oil from the U.S. Strategic Oil Reserve and got other countries to follow suit, resulting in lower gasoline prices. He called in the National Guard to help unload ships on the West Coast when there were fewer dockworkers available due to Covid. He lowered prescription drug prices by allowing imports from Canada and negotiated with the pharmaceutical industry for price caps on drugs sold in the U.S. (including insulin).

Even more telling, President Trump signed a law in 2017 allowing hearing aids to be sold over the counter rather than through a doctor (which costs about $5,000). Most experts agreed that a doctor's visit was unnecessary, but the Trump administration failed to enact regulations to make this cheaper option available to millions of Americans. It was left to the Biden administration to make it a reality.

However, spending on these goods and services represents only a small portion of what people buy and reduces inflation by only a few tenths of a percentage point. The bigger picture of inflation is that since the 1990s, foreign goods and immigration have kept inflation low in the U.S. The Trump administration tried to limit both, opening the door to higher inflation in the U.S.

Fewer foreign goods deprive consumers of cheaper goods, reduce competition, and increase inflation. The same is true of a reduced labor supply resulting from immigration restrictions. Inflation remained low during the Trump administration because the economy wasn't really booming, there weren't massive supply chain problems driving up prices, and the Trump administration was relatively ineffective at keeping out foreign goods and immigrants. As economies reopened after the Covid pandemic, labor shortages exacerbated by Covid drove up wages as companies tried to hoard workers. Combined with supply chain problems, these factors led to higher prices.

In fact, Trump's actions were driving up prices even before Covid. Trump imposed tariffs on Chinese goods, but also on goods from Canada, Mexico, India and the European Union. Unlike almost all economists, he believes foreign companies pay these taxes, just as he believes Mexico paid for its “glorious wall.” In fact, the wall was not built because Mexico understandably did not want to pay for it and Congress did not want to provide the funds. Tariffs are levied on the price of goods entering the U.S., just as sales taxes are levied on the price of goods purchased. Consumers pay the taxes and face higher inflation.

Of course, consumers buy a lot of other things, as well as goods made abroad. That's why a 10% tariff doesn't lead to 10% inflation, but rather to inflation about a percentage point higher. By far the largest household expenditure is housing. Housing costs have risen more than almost anything else over the past five years. Several Trump policies contributed to inflation.

When the housing bubble burst in 2008, housing construction in the U.S. collapsed. The economic sector shut down and construction workers found other employment or retired. The housing industry never really recovered. Almost a decade later, when the supply of excess homes disappeared, there were not enough construction workers to build the new homes people wanted. Trump's immigration policies, aimed at keeping foreign workers out of the U.S. labor market, increased the labor costs of building new homes and, subsequently, housing prices. Covid then made things much worse, as people sought larger homes and additional homes in more rural areas.

Climate change also contributes to inflation in the housing market. Hot and humid weather makes it more difficult to work outdoors. Lower labor productivity, in turn, increases labor costs and prices.

In addition, climate change leads directly to price increases (see “Will inflation destroy Biden’s presidency?” in March-April 2022 Washington Spectators). Home (and car) insurance costs rise during weather-related disasters, including heavy rain and wildfires. Warmer water hurts the fishing industry and raises the price of fish; higher temperatures on land reduce crop yields and raise food prices. Climate change also makes building homes more expensive. Building homes requires a significant amount of wood. When winters are milder, trees do not grow as much and the wood needed to build homes becomes more expensive. Higher prices for new homes then drive up the cost of used homes.

Remarkably, Trump refuses to believe that climate change is real. He complains about wind turbines killing birds and toilets that don't flush. His main anti-inflation policy is “drill, baby, drill.” The fossil fuel use he promotes is causing climate change and increasing inflation. Housing is a major victim of this madness, with real estate prices now far higher than what the American middle class can afford.

Finally, Trump's biggest policy success, the Tax Cuts and Jobs Act of 2017, also increased housing costs. In addition to providing major tax breaks for large corporations and the wealthy, the law increased the standard deduction, leading to a sharp decline in the number of U.S. households itemizing their deductions. Many households can no longer deduct mortgage interest on their tax returns. In addition, the $10,000 cap on the SALT (state and local taxes) deduction means many middle-class homeowners cannot deduct all of their property taxes. These changes increased the cost of owning a home and also pushed more people into the rental market, which in turn increased rents.

The inflation outlook will look much worse if Trump becomes president for a second time, as 16 Nobel Prize winners in economics recently warned. Trump wants to devalue the dollar, which all Imported goods are getting more expensive. He's announcing more tariffs and has even hinted that he might replace the income tax with higher tariffs, which would require tariffs of over 100% just to keep government revenue from falling. Even more worrying, Trump has promised to roll back Biden's policy of banning junk fees and repeal the Affordable Care Act, which saves low- and middle-income households thousands of dollars a year on health insurance. And he plans to extend his 2017 tax cuts, even though doing so would drive up the national debt and create the same demand-side inflationary forces that Republicans blame President Biden for.

Tax cuts for corporations and the wealthy, as well as immigration and import restrictions, are leading to higher inflation in the United States. This is not Bidenflation. It is Trumpflation.

Steven Pressman is a part-time professor of economics at the New School for Social Research, professor emeritus of economics and finance at Monmouth University, and author of Fifty prominent economists (Routledge, 2013)