Inflation, Inflation, Inflation and Social Security

October 16, 2022

The media have been hyping inflation pretty much non-stop for the last year and a half. They tell us that this the only thing people care about. They don’t care about whether they have a job, how much the job pays, whether they have health care, or any other economic issue. People care about inflation: full stop.

And, what do you know, this is bad news for Joe Biden and the Democrats. Yeah, it’s true that pretty much every other wealthy country in the world is facing a comparable rate of inflation, but that doesn’t matter. We have high inflation and it’s Joe Biden’s fault. The Democrats just have to accept this.

The insistence, that inflation is the only economic issue voters care about, reminds me of the situation a quarter century ago when there was a big push by Republicans, and many Democrats, to cut and/or privatize Social Security. The story at the time was that Social Security faced a crisis and something had to be done.

The “liberal” position was that it was best to get out front and propose more modest cuts, which would hit the middle class, while protecting the poor. The concern for the poor was nice, but the fact is that most middle-income people rely on Social Security for most of their retirement income. It is hard to say that the benefits that now average just over $1,600 a month are all that generous. There is not much room for cutting without serious hardship.

At the time, my friend and longtime colleague, Mark Weisbrot and I questioned whether people really saw Social Security as being in crisis. We knew that’s what all the political experts said. I even remember being in a meeting with one of the leading Democratic pollsters, who was very adamant on this point. He recounted his experiences in focus groups, where if you told people that Social Security was not in crisis, they got angry to the point they wanted to throw things at you.

This all struck Mark and me as very strange. After all, how could people become convinced Social Security was in a crisis? Were tens of millions of people reading through the Social Security Trustees Report and studying other long-range projections of demographics and economic growth?

That didn’t strike us as very likely. It seemed more plausible that people thought Social Security was in a crisis because everyone they heard talk about it on TV or the radio said Social Security was in crisis. If that is all you ever hear about Social Security, then you might come to believe the program is in a crisis.

Thankfully, we got through this period without any cuts to Social Security. Mark and I made a minor contribution to preserving the program with our book, Social Security: The Phony Crisis.

What Does This Have to Do with Inflation?

The reason for bringing up this history with Social Security is that the political dynamics around the inflation debate are very similar to the dynamics around Social Security in the 1990s. The media constantly assert that inflation is the only economic issue that people care about. Republicans are happy to go along with this assertion and Democrats are intimidated into silence.

But, just as it was hard to believe that people had studied demographic and economic trends to determine that Social Security faced a crisis, it is also hard to believe that people only care about inflation.  After all, it was not ancient history when we had more than 10 million people unemployed. In fact, that was true in January of 2021, the month president Biden took office. The unemployment rate is now down to 3.5 percent, a half-century low. Doesn’t the opportunity to have a job mean anything to people? After all, most people who are working do need a job to pay the bills.

There is also the issue of job quality. While many people are still in low-paying jobs doing unpleasant work, the tight labor market has meant that millions of workers have been able to quit jobs that they don’t like. In the last year, there were 51.5 million voluntary quits from jobs. (This number is for total quits, some people quit more than once, so the actual number of people who quit jobs would be somewhat lower.)

The new opportunities for workers in low-paying jobs has meant that wages have outpaced inflation for workers at the bottom end of the wage ladder. Real average hour earnings for production and non-supervisory workers in the leisure and hospitality industry (hotels and restaurants), rose by 3.9 percent from February 2020 to September of this year.

To be clear, these workers are not doing well. A worker supporting a family on $20,000 a year before the pandemic, will still be struggling if their real earnings increased to $20,800, but they are better off than they were in 2019. The media have largely ignored the story of workers quitting bad jobs for ones that pay better and/or offer better working conditions.

It’s not just workers at the bottom who are doing better today than they were before the pandemic, tens of millions of homeowners were able to take advantage of the low mortgage interest rates that we had until the Fed rate hikes started. They refinanced their homes at rates that were often a percentage point or more below the rate they paid before the pandemic.

This could mean $2000-$3000 a year in interest savings for a typical homeowner. Are we really supposed to believe that these interest savings won’t cover paying $1 more for a gallon of milk at the supermarket? Obviously, no one is happy about paying higher prices for food and other items, but the families that were able to refinance are almost certainly better off today, even with the higher prices, than they were before the pandemic.

There is a similar story with the tens of millions of people who are now able to work from home as a result of changes workplaces implemented in the pandemic. These people are saving thousands of dollars a year in commuting costs. Are we really supposed to believe that these people are all worse off due to inflation, in spite of these savings?

It is worth noting that the average hourly wage has almost kept pace with inflation since the start of the pandemic. It’s down by just 0.7 percent (it dropped 3.9 percent during the “Reagan Boom”), so there is not that much ground that workers need to make up through paying lower mortgage interest or savings on commuting costs.

So, given the economic reality, is it plausible that everyone feels they are being devastated by inflation? That one doesn’t seem to fit, just like the story that everyone believed Social Security was in a crisis back in the 1990s didn’t make sense.

We know politicians can’t stick their necks out and say that inflation isn’t that bad, the media will mercilessly trash them for being out of touch. But people whose jobs don’t prevent them from telling the truth can point out what the data show. Most families are not being devasted by inflation, and that fact will not change no matter how many times the media and Republican politicians assert the opposite.  

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