Biden Can No Longer Expect Updrafts from a Normalizing Economy
2022 was supposed to be the year we returned to normal. The war in Ukraine and China's new COVID epidemic say otherwise.
I want to thank all of you who wrote in or commented on last Friday’s post about how I make and drink coffee. I want to thank even those of you who think I’m an effete coffee snob, and also the handful of you who recommended thousands of dollars in equipment that I could use to be even more effete.
This weekend, for paid subscribers, I’ll have a roundup of your coffee tips and some responses to your questions and comments.
I also want to thank the hundreds of new subscribers who came here from my guest column in Andrew Sullivan’s newsletter at the beginning of the month. If you haven’t seen it, that column is here, and I answered some reader mail about the column here.
Now, I have some bad news for Democrats.
Late last year, I said there was reason to think Democrats' performance in the midterm elections might not be as weak as polls (and November 2021 election results) seemed to presage: The public was unhappy about COVID and the economy, but fundamentals relating both of those matters were likely to improve by the midterms, with lower inflation and less disruption to daily life.
Well, I no longer think fundamentals are likely to improve materially between now and the election.
In the case of COVID, that's because the fundamentals have already improved. Case rates are down sharply. Most restrictions have been lifted and key institutions have returned to normal or near-normal operations. We’re not all the way back: a lot of schools and daycares still have unreliable and abnormal operations (though this is not as bad as it was in the fall) and there are lingering rules like the recently extended transportation mask mandate. But we’ve had enough normalization that I no longer think it’s clear COVID conditions will be more normalized on Election Day than they are now.
It's possible that even more restrictions will be rolled back and life will feel even closer to normal. It's also possible that blue-state governments especially will drag their feet on removing restrictions, or that new outbreaks or new variants will push conditions farther away from normal.
As for the economy, my view as of late last year was the economy was renormalizing, productive capacity was rising, one-time drivers of inflation (like excessive stimulus payments in the American Rescue Plan) were rolling off, and consumers were likely to see more gently rising prices and fewer shortages of products and services in fall 2022 than in fall 2021.
Unfortunately, there have been two big events that are interfering with that renormalization.
One is Russia's war in Ukraine, which disrupts the global economy in several ways, most significantly by driving up energy prices. The other — not yet getting as much attention as it should — is the COVID outbreaks hitting China, and the resulting disruption to trade. Shenzhen, an important center for global trade, is locking down for at least a week, disrupting operations at Foxconn and other major companies.
We're likely to see more lockdowns across China as the country tries (and fails) to contain Omicron, especially because vaccination rates for Chinese seniors are disastrously low, which hinders the country’s ability to simply ride out a rapid wave of infections. Lockdowns in China will further disrupt global supply chains, creating new product shortages and pushing up prices — at the same time that the Ukraine crisis is making it more expensive to buy fuel.
As an economic matter, both of these events mean more pain for the world: higher prices, lower output, lower standards of living. As a political matter, they are terrible for incumbents all over the world, including Biden and the Democrats here in the US.
So, if you're a Democrat, that really sucks. What is there to do about it? I have four ideas:
Use the inflation-fighting tools that are available to the President and Congress. Back in January, I wrote about some of the supply chain, trade, immigration and regulation powers the president can use to push inflation down. It’s unfortunately not a hugely powerful set of tools — primarily, inflation will be tamed through the Federal Reserve’s interest rate hikes, which will themselves cause some economic pain — but they push in the right direction, and recent events make them more politically necessary than ever.
Ease the rise in gasoline prices. I wrote a few weeks ago that the president should ask Congress to pass a gasoline tax holiday. After war broke out in Ukraine, I wrote that he should work to break the financing constraints that are slowing the increase in domestic oil production — with subsidies and loan guarantees, if necessary. He should find ways to get more oil from non-Russia sources onto the global market, even if that means easing pressure on Saudi Arabia, Iran and Venezuela. I would add that he should end the moratorium on new oil and gas leases in the US — this won’t get more oil pumping right away, but it will remove a very obvious example that Republicans can point to of how his administration is standing in the way of expanded domestic production. Environmental groups will hate all of this, but they should understand something about the Ukraine crisis: It increases the odds of them getting their way in the medium- and long-term. This crisis highlights the benefits of decarbonization: not only will it slow climate change, it will reduce the power of petrostates over our economy. We need more investments in renewable energy (and we need to keep nuclear power plants open instead of closing them in stupid local disputes). But in the short term, one of the most important things we need to do to counter Russia’s power is to replace the lost Russian oil and gas exports, and the enviros should chill a little bit as we find ways to do that.
Do everything possible to promote normalization of COVID conditions. One part of preventing a return to abnormal is keeping virus outbreaks in check, and keeping hospitalization and death rates as low as possible. Booster shots are an important tool for that. Tens of millions of Americans who were willing to get two COVID shots haven’t yet gotten a booster. The Biden administration should focus more on booster promotion. Effective antiviral drugs like Paxlovid are also key to ensuring we can operate society normally in the context of endemic COVID, and it’s important that the administration succeed in its efforts to inform the public about these treatments and distribute them in a timely manner to the Americans who need them succeed. The other part of preserving normal on COVID is political: Biden should continue to lift federal activity restrictions that are in place, he should pressure local and state governments to do the same, and he should lead by example from the top in returning to normal. The mask-free State of the Union was a good (if belated) start to this — but the president needs to make sure that institutions dominated by Democrats do not backslide as we head into the elections. And the transportation mask mandate should be allowed to lapse on schedule in April.
Blame Russia and China. We face crises driven by the actions of the Russian and Chinese governments. Russia created this energy crisis with its outrageous and unjustified invasion of Ukraine. China failed to warn the world about COVID, was uncooperative in investigating its origins, and now is watching its unsustainable COVID-zero policy fall apart in a way that will again weigh down the world economy. Republicans are already making fun of Biden for blaming Vladimir Putin for higher gas prices, and many voters are likely to be unsympathetic when he seeks to shift the blame — after all, isn’t one of the jobs of the president to dissuade foreign governments from creating trouble for us? But it’s true that we’re being harmed by malevolent, autocratic governments abroad, and Biden might as well say so.
Of course, finding a way to address and message the external factors causing inflation and plague is not exactly where you want to be entering a midterm election. Advice on these topics will only go so far — Democrats face tough fundamentals and are likely to be punished by voters. But, you play the hand you’re dealt, and these ideas might at least help cut some losses.