Submitted for Insight Kansas by Michael A. Smith
October 16, 2024
This year’s presidential campaign has featured shocking statements and dramatic moments, including two assassination attempts. More recently, former President Trump made alarming comments about “enemies within” that hint at the use of military force against his political opponents, while Vice President Harris is struggling with a reticence among men of color to vote for her. Despite all this, the election itself may come down to a far more traditional, pocketbook issue.
A new Bankrate survey shows that 41% of Americans are concerned about inflation. More generally, Gallup finds that the economy is the top issue this year, with 52% of voters calling it “extremely important.”
Inflation surged after the covid pandemic due a variety of factors including clogged supply chains, worker shortages, and pent-up consumer demand. One study by MIT researchers found that federal spending was the biggest driver. This included stimulus checks and support for state governments. That spending also had positive effects, likely averting a recession and possibly even a depression. After their spike, inflation rates today are back down to 2.4% annually, a level last seen in February 2021. Most economists attribute this control primarily to the Federal Reserve’s policy of raising interest rates. So, why are voters still upset?
First is the fact that controlling interest rates does not return prices to pre-inflationary levels. Instead, Fed policy has slowed the increase in prices, causing them to stabilize at a point that is 21.4% more expensive than before February 2020. The last time Americans experienced high inflation was in the 1970s. Many older Americans have forgotten, while many younger Americans were not around to experience it. Should the Fed keep going and fight inflation even harder– perhaps even starting a cycle of deflation? If they did, the result could be traumatic. When the Fed finally brought inflation to heel in the early 1980s, interest rates were far higher than they are now, unemployment was in the double digits, and the farm economy was absolutely devastated. By contrast, today’s unemployment rates are historically low.
Americans are also, specifically concerned about housing. Post-pandemic demand for housing is surging, but supply is not keeping up. Loosening up building restrictions and zoning codes seem like good answers, but the American system of government throws up a roadblock: state laws– including here in Kansas– delegate most of these regulations to local governments, creating a patchwork of codes and zoning laws that builders and rehabbers must navigate in order to create and rehabilitate more housing. The recent rejection of Accessory Dwelling Units (ADUs) in Prairie Village, and denial of rezoning for a homeless shelter in Lenexa, are both examples of the Not In My Backyard (NIMBY) politics that keeps housing choices limited. In addition, when developers do move in, they often prefer to build upscale apartments or large, single-family units in exclusive neighborhoods where the profit margin is greatest, doing little to relieve the shortage of affordable homes. The current anti-immigration political climate also contributes to the problem by threatening to limit the number of workers in the construction industry. If Trump is elected and proceeds with plans for mass deportations, the problem will only worsen. Of course, immigrants need homes, too, but research shows that they contribute far more to lowering the cost of housing by working in construction, than they contribute to raising it through increased demand.
Inflation is a tough problem. Prices are not going back to pre-pandemic levels–the cost of doing so is simply too high. Popular policies like exclusive NIMBY zoning and anti-immigration legislation make the problem worse. Having been confronted with high inflation for the first time since the early 1980s, Americans are now re-learning what to do–and what not to do–in response.