Next Meeting - 05/12/25, 7 PM, Ozark-Dale Library
Talking Points
As the name implies, "talking points" are arguments and information that Democrats can use when speaking with individuals about common public concerns and misconceptions. They are especially useful in countering any lies, half-truths, and prejudice sometimes spouted by our opposition.
Additional talking points dealing with other topics may follow in the future. Please feel free to suggest other topics for talking point development.
Short Video Talking Point:
Malcom Kenyatta on why Dems should run for office in Alabama
https://www.youtube.com/shorts/V3x63wZqaZI
Since inflation was such a big issue in the 2024 election and since Democrats may be blamed (erroneously) in the future for inflation during the Biden Administration, our next "talking point" will deal with this topic.
Talking Point: Inflation During Biden Administration
Inflation was a key issue for voters in the 2024 election, with much of the blame placed on the Biden-Harris administration. Despite the fact that price increases had moderated significantly over the course of the four years of the Biden Presidency, the public perception was that inflation remained high in 2024. Part of that incorrect perception was based on false and misleading claims by Republican leaning media and GOP candidates, and part of that perception was due to the public's confusion between the concept of high prices and the concept of inflation (rate of price increases). Although Democrats did stress that Covid related supply chain issues contributed heavily to the high inflation experienced early in the Biden-Harris administration, they did an inadequate job of explaining the concept of the supply chain and how the supply chain disruption impacted inflationary pressure. We will attempt to explain now.
We will start with a classic explanation of inflation: “Too much money chasing too few goods.” At the end of the Covid pandemic, the American public had a pent up demand for goods and experiences denied to them during the pandemic. At the same time, worldwide industrial output (including commodities like oil) was depressed due Covid related production complications and a prior lack of product demand.
During the Covid-19 pandemic, the economy was in terrible shape. According to the U.S. Bureau of Labor Statistics, in 2020 (the last year of Trump's first term) “Total civilian employment fell by 8.8 million over the year.” “The unemployment rate increased in 2020, surging to 13.0 percent in the second quarter of the year before easing to 6.7 percent in the fourth quarter. Although some people were able to work at home, the numbers of unemployed or on temporary layoff, those working part time for economic reasons, and those unemployed for 27 or more weeks increased sharply over the year.”
Despite Trump Administration stimulus payments sent to most Americans, high unemployment led to very low consumer and industrial demand. This low demand caused many businesses and industries worldwide to either shut down or reduce their capacity significantly. Oil and gasoline prices were particularly depressed because Americans were staying home to avoid Covid, and industrial energy demand was also suppressed. Oil demand collapsed in April 2020, so much so that there was inadequate storage capacity in many areas of the United States, and oil speculators “had to pay up to $40 per barrel to get out of their contracts.” Yes, the price of crude oil actually went negative for awhile. Although, the price of gasoline never went negative, it was significantly lower during 2020. Many domestic oil rigs were shut down, because the cost to pump oil exceeded the price that producers could obtain for their product.
In mid-December 2020, the rollout of the Covid vaccine began and when Biden took office in January 2021, vaccinations began in earnest. However, it was not until mid April, 2021 that the vaccine eligibility was authorized for all residents 16 and over, and not until mid June 2022 were vaccinations authorized for children. After a significant portion of Americans were vaccinated, certain restrictions were lifted in 2021 and the economy began to improve. However, as earlier Covid travel and lockdown restrictions were lifted, certain segments of the population refused to be vaccinated and there was a Covid resurgence in the fall of 2021 and the winter of 2022. It was not until March 2022, that Covid was sufficiently reduced so that the economy could really start to return to normal.
In an effort to jump start the Covid devastated U.S. economy, the Biden administration, in conjunction with Democrats in Congress, passed the American Rescue Plan in March 2021, a $1.9 trillion economic stimulus bill, offering stimulus checks to individuals, assistance to state and local governments, money for vaccine distribution, extended unemployment benefits, funds to reopen schools for in-person instruction, and an expanded child tax credit. Many have argued that injecting $1.9 trillion into the economy as the Covid pandemic was winding down was both unnecessary and inflationary. However, those arguments require the benefits of 20/20 hindsight. In March 2021, the vaccine, although promising, was just beginning to be widely distributed, and its long term impact for improving the economy was unknown. It should also be noted, that in other major world economies that did not provide this level of stimulus (including European, Chinese, and Japanese economies), post Covid GDP (gross domestic product) growth significantly lagged that of the United States. In some countries GDP actually decreased. Therefore, although the American Rescue Plan may have contributed to increased inflation, it has also led to the most robust GDP growth in the world. Post pandemic wage growth, especially for most working class people, has outpaced the increased cost of living.
In any event, the increased money injected into the economy, coupled with the pent up desires from American consumers, led to a goods and services demand that the devastated supply chain could not meet. The Law of Supply and Demand states that when demand exceeds supply, prices will go up. That includes prices for commodities necessary to produce other goods. For example, Americans, having been cooped up in their homes, suddenly desired to travel and were willing to pay higher airline fares and gasoline prices to do so. Since it took time to restart the oil rigs and reschedule oil tankers, the increased demand and diminished capacity caused oil prices to skyrocket from their pandemic lows. Oil prices impact the costs of nearly everything. For example, high oil prices increased fertilizer costs paid by farmers to produce food. Oil prices increased transport costs for food and just about everything else.
Labor costs were also a contributor to inflation. As the pandemic wound down, there was both a labor shortage and a lagging productivity associated with the labor force available. During the height of the pandemic induced economic downturn, there were company layoffs and incentives for employees to take early retirement. As the pandemic ended, many of the laid off employees were no longer available, having found other work. Many older and experienced workers (from the baby boom generation), facing the Covid issue of personal mortality for the first time, made a decision not to return to the workforce at all. As the economy began to improve, companies were forced to compete for workers and pay higher wages. Many workers, previously employed in lower paying jobs, like fast food service, moved up into more responsible and higher paying jobs. This led to the very obvious shortage of workers in the fast food industry. For the employees who moved up into higher paying jobs, their productivity suffered for awhile as they had to be trained and had to gain experience in their new positions. Even when companies were fortunate enough to retain their experienced employees, these companies often had to offer work from home options, sometimes resulting in a reduction of employee productivity.
How can we visually relate the Covid pandemic impact on the suppy chain to the inflationary pressures imposed on the costs of goods and labor? First, think of a freight train normally traveling down the track (pre-Covid economy). Each freight car of the train represents a desired deliverable:
a particular good or service;
a particular wage or labor compensation;
a particular business profit or return on investment.
Under these normal economic conditions (train rolling smoothly down the tracks), the economic train engine is powered by the following:
prices paid;
labor provided;
business investment provided.
Now, think of a freight train stalled on the tracks (our economy during the height of pandemic), and the energy necessary to get it up to speed and rolling smoothly once again. With the train stalled, the engine and each freight car (representing a deliverable – each good or service, each wage, each profit or investment return) has inertia that must be overcome to travel normally again. The train engine revs up to overcome its own inertia, and begins to slowly move forward, picking up the slack in the car coupler to the first freight car. Then it encounters the inertia of the first freight car and has to have sufficient power to overcome that inertia. With the engine and first car moving slowly, the train picks up the coupler slack to the second freight car and then encounters its inertia. Although slow movement has alleviated some of the inertia from the engine and first freight car, the added inertia of the second car adds to the train engine load. Additional engine load is added for each additional freight car until the last car begins to move. Only at that point, can the train begin to pick up speed, allowing the conductor to eventually reduce power to maintain the train's optimal traveling speed.
In terms of our economic model, what was going to provides the increased energy necessary to restart the train and start it rolling again? Was it private investment? Probably not. Many investors had just taken a beating early in the pandemic, when demand suddenly dropped off and they were stuck with goods they couldn't sell. Was it labor and increased labor productivity? Probably not. The labor force had been disrupted by pandemic related layoffs, workers were reluctant to reenter the workforce for fear of catching Covid, and Covid related business and safety practices often reduced labor productivity. Was it higher prices paid? The answer was “Yes”, to the extent that buyers had funds to purchase the goods and services to satisfy their pent up demand, and “Yes”, to the extent that suppliers had those desired goods and services available for sale.
As both consumer demand and prices began to increase, the train engine was re-powered and the first few freight cars began moving slowly. Then the question became whether there was sufficient power to overcome the inertia in the remaining areas of the economy (the remaining freight cars), or would the cumulative freight car inertia overwhelm the limited engine power, thereby causing the train to stall once again (economic recession). In other words, would the initial demand and consumption cause companies to start providing business investment; and would the business investment be sufficient to cause the workforce to be reestablished; and would this workforce create sufficient goods and services to be provided for sale; and would the workers spend their wages on these goods and services? If the answer to any of these questions was “No,” an additional economic stimulus (engine help) from the federal government would be necessary to keep the economy (train) from stalling again.
When the Biden Administration took office in January 2021, it evaluated both the Covid pandemic situation and the economic situation at that time and determined that an additional economic stimulus package would be necessary. The American Rescue Plan was passed in March 2021. By the time that the impact of the American Rescue Plan began to be felt, in mid 2021 and early 2022, most Americans had been vaccinated and were starting to be less fearful about Covid and a worsening US economy (despite the Covid resurgence). Some might argue that given the time of its implementation, the size of the American Rescue Plan was excessive, especially in light of the earlier Trump Administrative stimulus payments. They might argue that the extra economic stimulation led to increased demand, resulting in higher prices.
We may never know for sure if an economic recession could have been avoided without the additional Biden Administration stimulus. Clearly, however, without the additional stimulus, even if the train (economy) had not completely stalled into recession, it would have taken much longer for the economy (train) to get back up to normal speed.
Year to year annual inflation rates reached a peak of 9.1% in June of 2022, meaning that from June 2021 to June 2022, consumer prices increased 9.1%. In that same period, energy prices (mostly fuel) increased nearly 42% and peaked during the start of the summer driving season, when consumer demand ran into an oil/refinery supply chain issue that was either directly caused by the pandemic or manufactured by oil/refinery suppliers attempting to recoup losses incurred during the pandemic.
From its peak in June 2022 (reflecting price increases from the prior year) annual inflation rates steadily decreased. In June of 2023, the annual inflation rate dipped to 3.0%, reflecting a more normalized supply chain, a more satisfied consumer demand, along with energy prices that had decreased nearly 17% from the previous year.
The September 2024 annual inflation rate (reflecting price increases from September 2023) was only 2.4%, approaching the Federal Reserve target of 2% and in line with pre-pandemic inflation rates occurring in much of Trump's first term. In October 2024, the annual rate ticked up to 2.6%. It is unclear whether this figure is a statistical abnormality or reflects inflationary concern due to Donald Trump's future plans to implement widespread tariffs, considered by most economists to be highly inflationary.
As can be seen, most of the high inflation occurred in the last two quarters of 2021 and all of 2022, the period of pent up consumer demand and the period when many businesses had not yet reconstituted their industrial and distribution capacity to meet that demand. The annual inflation rates reported in early 2023 (from early 2022 to early 2023) remained high, but most of the actual price increases occurred in 2022. Price increases after 2022 were caused mostly by a combination of residual labor cost and productivity issues, along with the psychological willingness of many consumers to anticipate future inflation and accept higher prices that could not be justified by higher production costs. In many cases, producer costs remained unchanged or actually declined, leading to the charge of “greedflation” being leveled against some of those continuing to raise consumer prices. As consumer demand began to wane and production costs began to stabilize, prices stabilized also. Suppliers were extremely reluctant to lower sticker prices, but many have recently offered coupons and discounts to attract price conscious consumers back to their products. Two of the best defenses against inflation are smart consumers and a competitive environment.
By the time of the 2024 election, the inflation rate had been reduced to substantially below 3 percent, approaching the Federal Reserve's target rate of 2%. So why was inflation such a huge issue in the 2024 election? In reality, the issue with voters wasn't actually inflation (the rate of price increases). It was the actual price increases, which, when compared with the pandemic depressed prices at the end of the first Trump Administration 4 years earlier, were quite large. Never mind that the inflationary factors caused by the pandemic had been tamed by the Biden administration. Biden and the Democrats were blamed for the price increases resulting from the pandemic and the pandemic related supply chain issues occurring several years earlier.
