I want to understand the main claims of this post better. My understanding is that you have made the following chain of reasoning:
OpenPhil funded think tanks that advocated looser macroeconomic policy since 2014.
This had some non-trivial effect on actual macroeconomic policy in 2020-2022.
The result of this policy was to contribute to high inflation.
High inflation is bad for two reasons: (1) real wages decline, especially among the poor, (2) inflation causes populism, which may cause Democrats to lose the 2022 midterm elections.
Therefore, OpenPhil should not make similar grants in the future.
I’m with you on claims 1, 2, and 3. I’m not sure about 4 and 5. Let me focus on my confusions with claim 4.
In another comment, I pointed out that it wasn’t clear to me that inflation hurts low-wage workers by a substantial margin. Maybe the sources I cited there were poor, but it doesn’t seem like there’s a consensus about this issue to my (untrained) eyes.
The fact that prediction markets currently indicate that Republicans have an edge in the midterm elections is not surprising. FiveThirtyEight says, “One of the most ironclad rules in American politics is that the president’s party loses ground in midterm elections.” The only modern exception to this rule was the 2002 midterm election, in which Republicans gained seats because of 9/11.
If we look at ElectionBettingOdds, it appears that the main shock that pushed the markets in favor of a Republican win was the election last year. (see Senate, and House forecasts). It’s harder to see Republicans gaining due to inflation in the data (though I agree they probably did). EDIT: OK I think it’s more clear to me now that the spike in the House forecast in May 2021 was probably due to inflation concerns.
High inflation is bad for two reasons: (1) real wages decline, especially among the poor, (2) inflation causes populism, which may cause Democrats to lose the 2022 midterm elections.
It’s quite nuanced. There are real wage declines on average, but some poor people might have seen small real wage increases, others might have seen real wage losses. For instance, older people’s wages seem stickier according to the wage tracker here. OpenPhil’s grantee EmployAmerica has an interesting analysis of the various factors, and one could perhaps reasonably disagree with that. But my analysis doesn’t hinge on the claim that real wages have definitely decreased, and I think the main idea still holds even if there have been small wage increases for some populations.
I agree that parties usually lose ground in the midterms, but even if you take that into account, the Democrats are doing particularly poorly.
I’ve lost a few citations due to a software error—which I’ve now fixed, but for completeness I wrote:
“Real income can predict midterms and naïve extrapolation of current income decline predict Democrats losing 50+ seats.”
Here are some of my reasons for disliking high inflation, which I think are similar to the reasons of most economists:
Inflation makes long-term agreements harder, since they become less useful unless indexed for inflation.
Inflation imposes costs on holding wealth in safe, liquid forms such as bank accounts, or dollar bills. That leads people to hold more wealth in inflation-proof forms such as real estate, and less in bank accounts, reducing their ability to handle emergencies.
Inflation creates a wide variety of transaction costs: stores need to change their prices displays more often, consumers need to observe prices more frequently, people use ATMs more frequently, etc.
Inflation transfers wealth from people who stay in one job for a long time, to people who frequently switch jobs.
When inflation is close to zero, these costs are offset by the effects of inflation on unemployment. Those employment effects are only important when wage increases are near zero, whereas the costs of inflation increase in proportion to the inflation rate.
I want to understand the main claims of this post better. My understanding is that you have made the following chain of reasoning:
OpenPhil funded think tanks that advocated looser macroeconomic policy since 2014.
This had some non-trivial effect on actual macroeconomic policy in 2020-2022.
The result of this policy was to contribute to high inflation.
High inflation is bad for two reasons: (1) real wages decline, especially among the poor, (2) inflation causes populism, which may cause Democrats to lose the 2022 midterm elections.
Therefore, OpenPhil should not make similar grants in the future.
I’m with you on claims 1, 2, and 3. I’m not sure about 4 and 5. Let me focus on my confusions with claim 4.
In another comment, I pointed out that it wasn’t clear to me that inflation hurts low-wage workers by a substantial margin. Maybe the sources I cited there were poor, but it doesn’t seem like there’s a consensus about this issue to my (untrained) eyes.
The fact that prediction markets currently indicate that Republicans have an edge in the midterm elections is not surprising. FiveThirtyEight says, “One of the most ironclad rules in American politics is that the president’s party loses ground in midterm elections.” The only modern exception to this rule was the 2002 midterm election, in which Republicans gained seats because of 9/11.
If we look at ElectionBettingOdds, it appears that the main shock that pushed the markets in favor of a Republican win was the election last year. (see Senate, and House forecasts). It’s harder to see Republicans gaining due to inflation in the data (though I agree they probably did). EDIT: OK I think it’s more clear to me now that the spike in the House forecast in May 2021 was probably due to inflation concerns.
It’s quite nuanced. There are real wage declines on average, but some poor people might have seen small real wage increases, others might have seen real wage losses. For instance, older people’s wages seem stickier according to the wage tracker here. OpenPhil’s grantee EmployAmerica has an interesting analysis of the various factors, and one could perhaps reasonably disagree with that. But my analysis doesn’t hinge on the claim that real wages have definitely decreased, and I think the main idea still holds even if there have been small wage increases for some populations.
I agree that parties usually lose ground in the midterms, but even if you take that into account, the Democrats are doing particularly poorly.
I’ve lost a few citations due to a software error—which I’ve now fixed, but for completeness I wrote:
“Real income can predict midterms and naïve extrapolation of current income decline predict Democrats losing 50+ seats.”
Sources are:
https://www.vox.com/2022/2/21/22936218/inflation-biden-midterms-democrats
https://www.mischiefsoffaction.com/post/2022-midterm-forecast
So it’s beyond the scope of this post to quantify the exact impact, but it might not be trivial.
Here are some of my reasons for disliking high inflation, which I think are similar to the reasons of most economists:
Inflation makes long-term agreements harder, since they become less useful unless indexed for inflation.
Inflation imposes costs on holding wealth in safe, liquid forms such as bank accounts, or dollar bills. That leads people to hold more wealth in inflation-proof forms such as real estate, and less in bank accounts, reducing their ability to handle emergencies.
Inflation creates a wide variety of transaction costs: stores need to change their prices displays more often, consumers need to observe prices more frequently, people use ATMs more frequently, etc.
Inflation transfers wealth from people who stay in one job for a long time, to people who frequently switch jobs.
When inflation is close to zero, these costs are offset by the effects of inflation on unemployment. Those employment effects are only important when wage increases are near zero, whereas the costs of inflation increase in proportion to the inflation rate.