Excellent comment—thanks! Sorry I should have been more clear, I think current Republicans are very populist (Trumpist), which I define here and this is bad. I have tried to clarify my claims below. For the strongest claim the general lesson would indeed be trite, if you make bad policy that affects everyone badly, you won’t be reelected.
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Concretely, in order of strength, I provide evidence for the following claims on the adverse effects of looser macroeconomic policy:
Very strong claim: The first-order effects of too loose policy on the ’21 margin were unequivocally bad and will leave most worse off, even the poor, because we way overshot on inflation. Policy in ’21 added few jobs and real wages are down even for the poor (who suffer the most when their real wages go down even by a little). The second-order effects are that Dems will lose House, Senate, and Presidency. Populists (like Trump) will be elected, whose incompetence will make things even worse. The effects of looser policy in richer countries spill over into poorer countries, where inflation is higher, more persistent (hyperinflation), which leads to less growth, wellbeing, populism and instability.
Medium strength claim: Looser policy on the ’21 margin was good for the poorest 10% Americans (~30m) as it created more jobs and higher wages, but bad for the middle class (~150m) as their real wages went down. The first-order effects for wellbeing are still positive on average, as the poorest benefit much more than the middle class lost (a simple rule of thumb is that $1 is worth 1/X times as much if you are X times richer and poorest Americans are more than 5x poorer [utility is logarithmic in consumption]). However, because 150m have lost in terms real income, which can predict midterms and naïve extrapolation of current income decline predict Dems losing 50+ seats, the resulting populist incompetence will have, at the very least, high downside risks (like Trumpists starting trade wars). This will harm everyone (in expectation), even the poorest, in the longer-run.
Weak claim: Looser policy, even on the ’21 margin, was good for all Americans as it created jobs, increased real wages for most Americans (at least over the medium run) and led to GDP growth in the US and even for the world economy. However, even if real wages increased and inflation is transitory and mild over the medium-run, because voters are too sensitive to high short-term inflation, and inflation coincides with the midterms, and think it’s more persistent than the market, Dems will lose at least the House. Renewed gridlock and polarization will have bad effects and we could have avoided this by moving more slowly to a higher inflation target and being more expansionary under the curve in the longer-term.
Excellent comment—thanks! Sorry I should have been more clear, I think current Republicans are very populist (Trumpist), which I define here and this is bad. I have tried to clarify my claims below. For the strongest claim the general lesson would indeed be trite, if you make bad policy that affects everyone badly, you won’t be reelected.
—
Concretely, in order of strength, I provide evidence for the following claims on the adverse effects of looser macroeconomic policy:
Very strong claim: The first-order effects of too loose policy on the ’21 margin were unequivocally bad and will leave most worse off, even the poor, because we way overshot on inflation. Policy in ’21 added few jobs and real wages are down even for the poor (who suffer the most when their real wages go down even by a little). The second-order effects are that Dems will lose House, Senate, and Presidency. Populists (like Trump) will be elected, whose incompetence will make things even worse. The effects of looser policy in richer countries spill over into poorer countries, where inflation is higher, more persistent (hyperinflation), which leads to less growth, wellbeing, populism and instability.
Medium strength claim: Looser policy on the ’21 margin was good for the poorest 10% Americans (~30m) as it created more jobs and higher wages, but bad for the middle class (~150m) as their real wages went down. The first-order effects for wellbeing are still positive on average, as the poorest benefit much more than the middle class lost (a simple rule of thumb is that $1 is worth 1/X times as much if you are X times richer and poorest Americans are more than 5x poorer [utility is logarithmic in consumption]). However, because 150m have lost in terms real income, which can predict midterms and naïve extrapolation of current income decline predict Dems losing 50+ seats, the resulting populist incompetence will have, at the very least, high downside risks (like Trumpists starting trade wars). This will harm everyone (in expectation), even the poorest, in the longer-run.
Weak claim: Looser policy, even on the ’21 margin, was good for all Americans as it created jobs, increased real wages for most Americans (at least over the medium run) and led to GDP growth in the US and even for the world economy. However, even if real wages increased and inflation is transitory and mild over the medium-run, because voters are too sensitive to high short-term inflation, and inflation coincides with the midterms, and think it’s more persistent than the market, Dems will lose at least the House. Renewed gridlock and polarization will have bad effects and we could have avoided this by moving more slowly to a higher inflation target and being more expansionary under the curve in the longer-term.