The economy is the dominant issue in the upcoming elections. Politically, economic issues come down to two statistics: inflation and unemployment. Candidate Ronald Reagan famously created the sum of those two as the “misery index” and won a huge victory over President Jimmy Carter because that sum had risen so much during Carter’s administration. He asked if Americans were better off now than we were when Carter took office.
We can ask the same question about our current elected officials. It’s important to ask, as well, whether any public official really has much control of economic conditions, with their global dimensions. Every Congressional Democratic candidate bears the weight of the economy’s performance under President Biden. Gov. Gavin Newsom should also be held to account for the choices he has made for California.
Gasoline prices are the single most painful representation of inflation. When President Biden took office, national retail gas prices were $2.59 a gallon. They are now $3.82 a gallon. Did President Biden have anything to do with that? In the short term, he has released oil from our strategic petroleum reserve in the hopes of keeping prices from rising more. He has also begged Saudi Arabia to produce more petroleum, though it publicly refused. Perhaps a different president would have been able to elicit an increase in Saudi production. However, OPEC generally acts in its own best interests, and the steps Biden took that alienated Saudi Arabia were right for any American president: criticism for the killing of Jamal Khashoggi, and our attempt to form a buyer’s cartel to keep prices paid to Russia low. So, on gas prices, give President Biden a near-term pass.
In the longer term, however, he bears some blame. By discouraging fossil fuel exploration, production and transportation, President Biden has induced a drop in investment that could have increased supply. This is by design. If Biden claims credit for being the greenest president in American history, then he must also bear the blame for future price hikes due to reduced supply.
In California, average gas prices are $5.57 per gallon, the highest in the nation. Sixty-three cents comes from California’s taxes. Newsom rejected a proposal to suspend California’s gas taxes during the current spike in crude oil prices due to Ukraine, with the shortfall made up from California’s budget surplus. Instead, he distributed cash payments to favored groups. In making the choice not to lower the gas tax, Gov. Newsom deserves 11% of the blame for our gas prices, near-term.
Beyond just gasoline, inflation is caused by the government printing money faster than the growth of the economy. All told, including three major budget bills and the forgiveness of student loans, Biden has already added $4.8 trillion to the amount of money that has to be printed over the next decade, according to the Committee for a Responsible Federal Budget. President Trump, however, increased the deficit by $7.5 trillion over his four years. Both presidents overreacted fiscally to COVID; both presidents own the inflationary result.
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As for unemployment, it remains low nationally. It was 6.2% when President Biden took office; it is 3.5% now. In California, Gov. Newsom can be blamed for making no changes in the tax and regulatory burdens that send businesses outside of California. Thirty-seven states have lower unemployment. When he took office, however, California’s unemployment rate was 4.3%; it is 3.9% now. That should protect him.
Nationally, however, the misery index makes a case to replace the Democratic Party monopoly in Washington. The national misery index was 7.9 (6.2 unemployment, 1.7 inflation) when that monopoly began, in January 2021; it now is 11.7 (3.5 unemployment, 8.2 inflation). When Reagan defeated Carter, it was 19.7 (7.2 unemployment, 12.5 inflation). Biden is approaching Carter territory. Whether fair or not, the president’s party gets the credit or the blame for the American economy.
Tom Campbell is a professor of economics and of law at Chapman University.