Before his second stint, former President Donald Trump operated a 2024 campaign, vowing to decrease the costs of practically everything. “The moment I secure victory, I will promptly slash prices. Starting from the very first day,” he asserted.
Since taking back his presidential role, Trump stated, “The economy is flourishing. The stock market is currently elevated compared to when I assumed office.” However, everyday individuals — those external to the administration — aren’t necessarily perceiving things so favorably.
Main Points
- Generally speaking, prices hardly ever diminish. When they do, it usually indicates the economy is experiencing substantial distress.
- Price surges can be puzzling, given that other facets of the economy, such as employment and incomes, might be performing optimally.
- The president possesses limited capacity to unilaterally enforce price reductions.
Electric bills have increased by 11% since January. Grocery expenses have climbed by roughly 2.7% relative to the preceding year as of September, with commodities like coffee seeing a nearly 21% hike and ground beef experiencing an 11.5% surge over the past year. Furthermore, there hasn’t been widespread assistance for residential costs on a national scale.
Trump is presenting a lesson previously demonstrated by former President Joe Biden: It’s exceedingly challenging to curtail costs, maintain an efficient economy, and gratify the electorate. (In fact, his approval score has reached its nadir during his second term, primarily influenced by expenses.) Nevertheless, Trump has recently floated a few concepts to ease the burden of living costs, encompassing a $2,000 payment for those in the lower- to middle-income bracket, and a housing initiative that might involve 50-year mortgages.
Is it truly within the power of the U.S. president to bring down prices? Catherine Rampell, the economics editor for the Bulwark and a host on MS NOW, suggests it’s improbable. “The general level of prices, encompassing all elements within an economy, virtually never declines,” she conveyed to Today, Explained co-host Noel King. “And that’s intentional.”
Rampell and King addressed inflation, deflation, the strain of matching the lifestyles of others, among other topics. An excerpt from their discussion is featured below, trimmed for conciseness and clarity. The complete podcast offers a more extensive exploration, accessible on platforms such as Apple Podcasts, Pandora, and Spotify under Today, Explained.
Catherine, I consider myself a thrifty American. I meticulously monitor prices, and I can’t recall any significant price decreases throughout my adulthood, except during the major financial meltdown, where I remember housing being unusually affordable.
It seems like this indicates that prices rarely ever diminish?
Yes, that’s a reasonably accurate assessment. In fairness, the prices of particular items can fluctuate. You mentioned the housing market crash. If, for instance, an oil processing plant goes out of service, the rates on oil and gasoline are likely to climb. Once that facility is back up and running, the prices may fall.
It’s similar with additional supply disruptions such as bird flu. When a bird flu outbreak occurs, many chickens perish, leading to increased chicken and egg costs. After the flocks are replenished, prices generally begin to decrease once more.
There can be oscillations for specific commodities, particularly those highly susceptible to supply shocks like energy and edibles. The overall cost of goods — the sum total of items within an economy — basically never dips. You are currently expending more than you did a year prior, a decade prior, or two decades prior.
And yet, as politicians campaign, they constantly reiterate, no matter what office they seek, “I am committed to enhancing affordability.”
Why does the public give credence to politicians who pledge to reduce living costs, even as we suspect that prices will likely increase a year from now?
I believe it’s partially due to a lack of intuition. People recall life being less expensive, especially pre-pandemic. It appears justified to ask those in public service, be they elected representatives or Federal Reserve figures, why things cannot revert to their previous state.
When you explain that the Federal Reserve aims for a 2% price increase instead of a decrease, none of it is particularly clear, which is understandable. Most Americans don’t prioritize it because price upticks are gradual, giving them ample time to adjust. A 2% average yearly price increase, as we had for many years, doesn’t feel overwhelmingly impactful, specifically when incomes rise by an equal or greater amount.
As a result, life feels roughly as affordable as it did one, two, or five years before. Recent conditions differ due to the rapid inflation spike in the years after the pandemic. The lower prices experienced more recently are still vivid in people’s memories.
Remember when President Biden declared the economy was exceptional? That was not the experience for many, actually millions, of people. President Trump declares, “Prices are decreasing during my administration.” That is also false.
Is the president suggesting, “Disregard what you observe?” Is this contributing to American’s discontent regarding price points?
I expect so. It’s possible to deceive the American populace on several topics, but they understand their bank accounts and their expenses at the checkout line. It becomes harder to pull the wool over people’s eyes when they are actively handling their accounts.
To be fair, while Biden claimed a robust economy, many favorable trends existed. The job market was thriving, since the economy encompasses a multitude of facets. Yet, abundant jobs failed to register with the masses, because, despite being employed, their life was incrementally becoming less affordable.
I want to emphasize that even as wages and prices were simultaneously rising [under Biden], I believe the psychological impacts of these trends differed. Salary increases seem to reflect individual merit at work, recognized by employers. Job transitions might also result in pay gains fueled by personal drive and effort. Conversely, inflation appears externally imposed, depriving individuals of their increased earnings. There is a grain of truth to this narrative, but it’s also misleading, as wage growth partly derives from workers demanding higher pay to offset inflation.
Both President Trump and President Biden would have benefited from decreasing prices, is that right?
Absolutely.
That would have been tremendously beneficial. The question is, can any American leader really overall make life less costly for us?
There is no adjustment lever located under the Resolute desk that has the capacity to turn prices down.
Darn.
Although I’m uncertain they’d have truly desired this outcome, as price reductions typically entail multiple adverse outcomes. Often, when a particular price falls conspicuously, it suggests underlying economic issues. For instance, Donald Trump has lately pledged to slash gasoline prices to $2 a gallon, representing a substantial decrease from prevailing rates. Do you know the last time gas was $2 a gallon?
No, when?
It occurred in spring 2020.
Oh God. Okay. I wouldn’t want a repeat of that.
Exactly. What defined spring 2020? A global pandemic gripped society, causing people to stop commuting and factories to shutter. Energy needs dwindled across businesses. Consequently, fuel demand plummeted, resulting in cheaper fuel and gasoline.
The overall decline in prices — not just one conspicuous commodity like gas — frequently indicates an unhealthy economy where nearly everything is sold at greatly reduced prices. Consumer expenditure declines, leading all businesses to slash prices to attract clients. When people observe falling prices, they hesitate to purchase, fearing prices might decrease further.
This creates a self-reinforcing pattern. As prices drop, spending decreases, leading to even lower costs. This situation is known as a deflationary spiral. We witnessed a manifestation of this during the Great Depression, as well as in Japan during the 1990s and Greece during its debt crisis.
The goal is to prevent the economy from this kind of pattern. Even imperceptible price stagnation can be detrimental. That is why the Federal Reserve seeks a 2% rate of inflation, rather than 0%, or negative inflation. Entering negative price growth can be economically calamitous.
I saw a piece in the New York Times recently that featured a couple whose high-interest mortgage forced them to forgo outings and budget carefully. This made me wonder if such budgeting isn’t simply a fact of life.
Should we alter our perceptions regarding prices and affordability, considering we consistently desire additional funds?
Everyone approaches financial decisions differently, making judgment easy. However, we all have limitations. It’s reasonable to feel frustrated seeing others seemingly advance while you struggle to afford basic needs like housing and vacations.
Policymakers should aim to ensure that people can acquire essential resources without constantly envying their neighbors and feeling deprived.
Source: vox.com
