Thirty years ago, Democratic political strategist James Carville focused Bill Clinton’s presidential campaign with the mantra, “It’s the economy, stupid.” America had just experienced a relatively brief, mild recession, owing partly to sharply rising oil prices following Saddam Hussein’s invasion of Kuwait. Between the slow recovery and Ross Perot’s independent candidacy (which peeled votes away from then-President George H.W. Bush), the stage was set for a Clinton victory.

Today, America’s job market remains resilient, with healthy job creation, low unemployment, and almost two job openings for every unemployed person. But dangerously high inflation has left Americans deeply dissatisfied with the economy. At 8.6% as of May, the annual consumer-price-index inflation rate is quadruple the norm of recent decades, and has outpaced wage growth, leaving most families with falling real incomes. Even core inflation—which excludes volatile food and energy prices—is running at 6%, higher than in other major economies. No one under 60 has experienced anything like this in their adult life.

Worse, the odds of a recession are growing. Housing starts and retail sales are stalling, and stock and bond markets (imperfect predictors, to be sure) are signaling problems ahead. There is little monetary- or fiscal-policy ammunition left to deal with a recession, and the fiscal profligacy of the past three administrations has left the country poorly equipped to address exploding Social Security and Medicare spending costs, not to mention the now-apparent need for more defense spending.

With the U.S. Federal Reserve now raising its target interest rate, inflation may ease heading into next year. But a lag in the effects of higher rates, combined with rising inflation expectations (according to consumer surveys and the bond market), suggests that it will be some time to reach the Fed’s 2% target.

In the meantime, polls indicate that Americans will take out their frustration on President Joe Biden and the Democratic Party, starting with the midterm elections this November, when the Republicans will likely take control of the House of Representatives and possibly also the Senate. Once again, “it’s the economy, stupid.”

Biden has repeatedly claimed that today’s surging inflation is transitory, and that nobody forecasted high, persistent inflation. Obviously, he is incorrect, and perhaps ill-informed by his advisors. Lawrence H. Summers, a top economic advisor in the Obama administration, warned his party in early 2021 that its $1.9 trillion of additional spending would likely fuel inflation. And shortly thereafter, I warned of higher inflation and the broader risks to growth. Yet the administration persists in pushing an agenda of big government spending and corporate and personal tax hikes.

Instead of correcting course, the White House has tried to shift the blame for elevated inflation and its own misreading of the economy. Citing factors such as Russia’s war in Ukraine, supply-chain disruptions, and “greedy” corporations, Biden and his spokespeople argue that since high inflation is a global phenomenon, it cannot be due to their policies. Yet whatever the contributions from these other causes, they do not compare to the extraordinary excess demand generated by ultra-loose monetary and fiscal policies in the United States. The spending package in early 2021 was far larger than the gap between actual and potential GDP. Biden’s biggest problem is not poor messaging or public misperception; it is his own policies.

Biden deserves credit, however, for respecting the Fed’s independence as it pursues monetary tightening. That sets him apart from the predecessor to whom he is increasingly compared: Jimmy Carter. In the midst of even worse inflation, Carter demanded that the Fed lower interest rates, which is about as economically illiterate as you can get.

Biden’s success or failure has always depended on three factors. The first is how he handles all the unpredictable issues that arise during any presidency. Second, he needs to show not only that he can learn from the mistakes of Barack Obama’s administration, but also that he is open to continuing—and amending as necessary—some of what worked in the Trump administration, such as Title 42 and the Remain in Mexico illegal immigration policy. Lastly, his economic advisors need his support to win the internal interagency battles and block the costly nonsense being peddled by today’s “progressives.” Unfortunately, so far he has failed on all three counts.

The question now is whether Biden will be wise enough to follow the path that Clinton took after the Democrats’ crushing defeat in the 1994 midterms, when his administration moved to the center to work constructively with the Democratic Party’s moderate majority and most Republicans.

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