Will Trump Be Called On His Inflation Lie?

I’m not holding my breath

I have very little patience with the infighting among Democratic-leaning pundits over what Harris should have done differently. There are some longer-term trends that make me worry about the future of U.S. politics, notably the steady drift of less-educated voters away from Democrats even though Democrats are objectively on their side economically. But this election was decided by low-information voters, whose take on the Biden years was basically this:

And no, I’m not inventing this diagnosis ex post. Almost 30 years ago Shiller, after a careful survey, found that “People do not tend to see inflation as a process that naturally tends to affect wages and salaries as well as goods prices.” Stantcheva has confirmed that result. They attribute wage gains to their own efforts, and don’t see any connection with price increases.

Donald Trump centered much of his campaign on catering to this public perception, promising, for example,

From the day I take the oath of office, we’ll rapidly drive prices down and make America affordable again … Prices will come down. You just watch. They’ll come down fast.

And low-information voters believed him.

Now that the election is over, however, we’re seeing headlines like this:

This was totally predictable.

Of course, post-election Trump is, on this issue at least, telling the truth. Cutting prices — as opposed to reducing the rate at which prices are rising — is very hard. Partly this is because employers are very reluctant to cut wages, because they fear the effects on employee morale (a phenomenon closely linked to the perception that wages are earned, while prices are someone else’s fault.) A recent survey by Truman Bewley — who did pioneering work on downward wage rigidity — finds that companies also believe that they face kinked demand curves — they will gain fewer customers if they cut prices than they will lose if they raise prices.

And there’s clear evidence that prices are downwardly sticky. A recent paper by Dennis Bonam and Bart Hobijn looks at pricing in Britain as the economy recovered from Covid — they focused on Britain because it made the relevant data available. What happened in the post-Covid recovery was a big shift in the composition of demand away from services toward goods. Goods prices soared because of overloaded supply chains, but service prices didn’t fall. Here’s the distribution of person-to-person service price changes in 2021:

There’s a big spike at zero, reflecting the reality that many service businesses faced weak demand but weren’t willing to cut prices.

So with goods prices soaring and service prices flat, overall inflation temporarily surged. Could this have been avoided? Only by keeping the economy so weak that demand for goods didn’t stress the supply chain, which would have meant a much slower recovery. Accepting the temporary rise in inflation was clearly the right policy for the economy (and basically all advanced countries did just that, which is why inflation was a global phenomenon.)

But it was politically disastrous for incumbents. And Trump went all in on promises to bring prices back down again. Anyone who knew much about economics knew that he couldn’t possibly deliver on those promises — but again, he won thanks to strong support from low-information voters.

The question is, will voters who backed him because they believed his promises on prices turn on him when he fails to deliver, and actually drives prices up with tariffs?

I wish I had any confidence that they will. People dislike inflation, but they really, really hate admitting that they were fooled.

In fact, I hope someone doing surveys after Trump takes office will ask Trump voters two questions: Did he promise to lower prices? Did he succeed?

My prediction is that substantial numbers of voters will either deny that Trump said he would reduce prices or insist that prices are down even if they aren’t.

MUSICAL CODA

Oh yes you will.