Inflation (Economics)

Subterms

    More stories

    • 113 Shares119 Views

      in Elections

      The Fed’s Decisions Now Could Alter the 2024 Elections

      by

      The state of the economy will affect voting next November, and the Federal Reserve may find itself in a delicate position, our columnist says.What’s happening in the economy now will have a big effect — perhaps, a decisive one — on the presidential election and control of Congress in 2024.To a remarkable extent, the economy is what matters to voters, so much so that one long-running election model relies on economic data to produce accurate predictions without even considering the identities, personalities, popularity or policies of candidates, or the strategies, messaging or dirty tricks of their campaigns.Right now, that model, created and run by Ray Fair, a Yale economist, shows that the 2024 national elections are very much up for grabs.The economy is strong enough for the incumbent Democrats to win the popular vote for the presidency and Congress next year, Professor Fair’s projections find. But it’s not a slam dunk. Persistent — though declining — inflation also gives the Republicans a reasonable chance of victory, the model shows. Both outcomes are within the model’s margin for error.It means small shifts in the economy could have an outsize influence on the next elections. That could put the Federal Reserve in a hot spot, even if the central bank tries to avoid it.The Fed strives to be independent. But policymakers’ decisions over the next 12 months could conceivably decide the elections.The Fair ModelProfessor Fair’s pioneering U.S. elections model does something that was fairly radical when he created it in the 1970s.It analyzes politics without really considering politics.Instead, Professor Fair focuses on economic growth, inflation and unemployment. With a few tweaks through the years, he has used economics to analyze elections since 1978, based on data for elections going back to 1916.What he’s found is that the economy sets the climate for national elections. The candidates and the political parties must live within it.Professor Fair makes his econometric models available on his website as teaching tools.“I encourage people to plug in their own assumptions and see how that will change the outcome,” he said.Professor Fair doesn’t even try to predict final election results. Just for a start, he doesn’t do state-by-state tallies or electoral college projections, or examine the potential impact of third-or fourth-party candidacies.But what his model does extremely well is provide a standard, historically based framework for understanding economic effects on the popular vote for the two main American political parties.What the model is showing is that the economy’s surprisingly strong growth and low unemployment since the start of the Biden presidency have already helped the incumbents considerably, while the uncomfortably high inflation levels during the period have helped the Republicans. Based on the history embedded in the model, if these critical economic factors shift, there’s room for a decisive change in the popular vote. But probably not much room.The Inflation EffectThere was jubilation on Wall Street over the past week over the positive news about inflation. The overall Consumer Price Index for October dropped to 3.2 percent annually from 3.7 percent the previous month — and from a peak, in this business cycle, of 9.1 percent in June 2022. At the same time, core inflation, which excludes fuel and food prices, fell to 4 percent in October, the smallest increase since September 2021.Inflation is still running well above the Fed’s target of 2 percent, but it’s declining, and traders are assuming that, at the very least, Fed officials won’t need to raise interest rates at their next meeting, in December. And there’s more.The Wall Street consensus, which is captured by the futures market, is that further encouraging inflation news will be coming, and that the Fed will start lowering rates by the spring. The sooner the Fed acts, this thinking goes, the more likely it is that a significant increase in unemployment — and a full-blown recession — can be avoided.There are political implications.Because interest rate cuts have lagged effects on the economy, the sooner such cuts occurred, the more likely it would be that the economy surged before next year’s election. An increase in economic growth in the first nine months of an election year — without a spike in unemployment — would help the presidential incumbent’s party, Professor Fair’s model shows. (If Republicans controlled the White House now, strong economic growth would help them more than it does the Democrats, history and the Fair model suggest.)On the other hand, a decline in inflation won’t help the Democrats much at this stage, Professor Fair said, because high inflation has already been baked into the vote prediction — and, presumably, into voters’ consciousness. The model averages the first 15 quarters — or 45 months — of a presidential administration, and we are already in the 11th quarter of the Biden presidency.For the overall inflation effect to diminish considerably, the basic math requires actual sustained deflation — a continuing fall in prices — in the months ahead. Historically, that has only happened during major economic declines, accompanied by soaring unemployment, as was the case in the Great Depression. A major recession would probably mean a Democratic debacle next year.A Looming NightmareBut a major recession in the next 12 months is not the consensus view among economists or in financial markets.Instead, a more benign prospect beckons. The probability of a “soft landing” — a decline in inflation without a recession — has grown in most forecasters’ estimations.But for the political outlook and for the Fed, the timing is tricky.A growth surge that is not accompanied by a big increase in unemployment would help the incumbent party, and large rate cuts by the Fed might well set off more economic growth. But the Fed will be reluctant to start reducing interest rates while inflation is still above 3 percent. Instead, as long as inflation is high, the Fed has vowed to keep interest rates “higher for longer,” and, in effect, it already has.Since July, short-term rates have stayed above 5.25 percent, mortgage rates are still above 7.5 percent and consumer borrowing is straitened. The longer this goes on, the greater the chances of a calamity in the financial system. Yet if the Fed eases interest rates too soon, and sets off another wave of inflation, the damage to its already tarnished reputation as an effective inflation-fighter would be severe.So the Fed is in a difficult spot. If the central bank doesn’t start to lower interest rates by the summer, it could be reluctant to do so at all in the autumn, because it would inevitably be seen as taking a partisan stance.As Ian Shepherdson, chief economist of the research firm Pantheon Macroeconomics, said in an online discussion, “there’s a lot hanging on the timing” of the inflation data in the weeks ahead. If the inflation issue isn’t resolved soon, he said, we will have to deal with “the nightmare of whether the Fed wants to be starting a shift in the policy cycle as the election approaches.”Incumbent presidents always want the economy to look great on Election Day. The one case in which it is well documented that a president put pressure on a Federal Reserve chairman to cut rates — and the central bank did so — involved President Richard M. Nixon and Arthur F. Burns in late 1971 and 1972. Mr. Nixon didn’t limit his improper actions to browbeating the Fed. There was also the Watergate break-in at the Democratic National Committee headquarters, and the subsequent cover up. An investigation revealed the secret White House taping system — which recorded Mr. Nixon’s rough treatment of Mr. Burns.But there is substantial evidence of other instances of presidents and their emissaries trying to influence the Fed, without success. President Donald J. Trump repeatedly berated the current Fed chair, Jerome H. Powell, for not lowering rates sufficiently. President Lyndon B. Johnson bullied William McChesney Martin to the point of physically manhandling him. And Paul Volcker revealed that, in President Ronald Reagan’s presence, James Baker, the chief of staff, told Mr. Volcker that the president “wants to give you an order”: Don’t raise rates as the 1984 election approaches. Mr. Volcker said Mr. Reagan looked on silently.In an oral history, Mr. Volcker said the meeting occurred in the White House library, not the Oval Office, probably to protect the president. “Whatever taping machines they had were probably not in the library,” Mr. Volcker said. “I didn’t want to say that we were going to raise rates,” Mr. Volcker recalled, “because we weren’t so as near as I can recall, I said nothing.”Mr. Powell has said he considers Mr. Volcker to be a role model. Generous and forthcoming in private conversations, Mr. Volcker was sometimes taciturn in public. It will be wise to emulate that reticence at critical moments in the months ahead.The Fed needs to be seen as independent and tough, and to squelch inflation, as Mr. Volcker did. Then, quite likely, it will need to cut rates aggressively to help the economy.The calendar may not cooperate. The tougher the Fed is now, the more delicate its position will become as the election approaches. More

    • 113 Shares99 Views

      in Elections

      Global Markets Cheer on Better Than Expected Inflation Data

      by

      A better-than-expected Consumer Price Index report triggered a big surge in stocks and bonds, as investors bet that interest rates will begin to fall.Upbeat investors see Tuesday’s inflation data as a possible turning point in the Fed’s battle against soaring prices.Michael M. Santiago/Getty ImagesGood news for global markets Yesterday’s impressive rally in U.S. stocks and bonds has gone worldwide this morning, as investors see central banks making gains in their fight against inflation. Adding to the good news was a breakthrough in the House last night that could avert a government shutdown.S&P 500 futures signal further gains at the opening bell. The question now is whether this represents a false dawn on inflation, or the start of a durable decline in rising costs — and interest rates.Here’s what’s exciting investors: Yesterday’s cooler-than-expected Consumer Price Index data has shifted discussion in the markets from potential interest rate hikes to cuts, and what that might mean for stocks. President Biden, whose poll ratings have been hurt by inflation, also cheered the numbers.Other promising data points came out this morning. Inflation in Britain fell to its lowest level in two years. And consumer spending and industrial output in China rebounded last month, a hopeful sign for the world’s No. 2 economy.Market optimists have moved up their bets on rate cuts. Futures markets this morning pointed to the Fed starting to lower borrowing costs by May, sooner than previous estimates of closer to the end of 2024.Less aggressive is Mohit Kumar, the chief financial economist at Jefferies, who wrote today that big rate cuts would begin after the presidential election next year. Jefferies predicts the Fed’s prime lending rate going to 3 percent by the end of 2025 from its current level of 5.25 to 5.5 percent.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.We are confirming your access to this article, this will take just a moment. However, if you are using Reader mode please log in, subscribe, or exit Reader mode since we are unable to verify access in that state.Confirming article access.If you are a subscriber, please  More

    • 125 Shares99 Views

      in Elections

      Bad Feelings About the Economy Sour Arizona Voters on Biden

      by

      The White House has hailed new investments and new jobs, yet many voters in a battleground state are chafing at inflation and housing costs.If President Biden hopes to replicate his narrow victory in Arizona, he will need disillusioned voters like Alex Jumah. An immigrant from Iraq, Mr. Jumah leans conservative, but he said he voted for Mr. Biden because he could not stomach former President Trump’s anti-Muslim views.That was 2020. Since then, Mr. Jumah, 41, said, his economic fortunes cratered after he contracted Covid, missed two months of work as a trucking dispatcher, was evicted from his home and was forced to move in with his mother. He said he could no longer afford an apartment in Tucson, where rents have risen sharply since the pandemic. He is now planning to vote for Mr. Trump.“At first I was really happy with Biden,” he said. “We got rid of Trump, rid of the racism. And then I regretted it. We need a strong president to keep this country first.”His anger helps explain why Mr. Biden appears to be struggling in Arizona and other closely divided 2024 battleground states, according to a recent poll by The New York Times and Siena College.Surveys and interviews with Arizona voters find that they are sour on the economy, despite solid job growth in the state. The Biden administration also fails to get credit for a parade of new companies coming to Arizona that will produce lithium-ion batteries, electric vehicles and computer chips — investments that the White House hails as emblems of its push for a next generation of American manufacturing.Breanne Laird, 32, a doctoral student at Arizona State University and a Republican, said she sat out the 2020 elections in part because she never thought Arizona would turn blue. But after two years without any pay increases and after losing $170,000 trying to fix and flip a house she bought in suburban Phoenix, she said she was determined to vote next year, for Mr. Trump.She bought the investment property near the peak of the market last year, and said she watched its value slip as mortgage rates rose toward 8 percent. She said she had to max out credit cards, and her credit score fell.Arizona’s housing market fell farther than most parts of the country after the 2008 financial crisis, and it took longer to recover. Few economists are predicting a similar crash now, but even so, Ms. Laird said she felt frustrated, and was itching to return Mr. Trump to power.“I’m even further behind,” she said. “I see the value in voting, and plan to vote as much as possible.”Voters waited in line to cast their ballots at dawn in Guadalupe, Ariz., in 2020.Adriana Zehbrauskas for The New York TimesA majority of Arizona voters in the recent New York Times/Siena survey rated the country’s economy as poor. Just 3 percent of voters said it was excellent.Arizona experienced some of the worst inflation in the country, largely because housing costs shot upward as people thronged to the state during the pandemic. Average monthly rents in Phoenix rose to $1,919 in September from $1,373 in early 2020, a 40 percent increase according to Zillow. Average rents across the country rose about 30 percent over the same period.Home prices and rents have fallen from their peaks this year, but even so, economists say that the state is increasingly unaffordable for middle-class families, whose migration to Arizona has powered decades of growth in the state.Arizona’s economy sprinted out of the pandemic, but economists said the speed of new hiring and consumer spending in the state has now eased. The state unemployment rate of 4 percent is about equal to the national average, and the quarterly Arizona Economic Outlook, published by the University of Arizona, predicts that the state will keep growing next year, though at a slower pace.Arizona has added 280,000 jobs since Mr. Biden took office, according to the federal Labor Department, compared with 150,000 during Mr. Trump’s term. Phoenix just hosted the Super Bowl, usually a high-profile boost to the local mood and economy.Barely a week goes by without Arizona’s first-term Democratic governor, Katie Hobbs, visiting a groundbreaking or job-training event to talk up the state’s economy or the infrastructure money arriving from Washington.Arizona Gov. Katie Hobbs on stage during the 2023 Inauguration Ceremony at the Arizona State Capitol in Phoenix.Rebecca Noble for The New York TimesMr. Biden was even farther behind Mr. Trump in another poll being released this week by the Phoenix-based firm Noble Predictive Insights. That survey of about 1,000 Arizona voters said Mr. Trump had an eight-point lead, a significant swing toward Republicans from this past winter, when Mr. Biden had a two-point edge.Mike Noble, the polling firm’s chief executive, said that Mr. Trump had built his lead in Arizona by consolidating support from Republicans and — for the moment — winning back independents. Respondents cited immigration and inflation as their top concerns.“Economists say, ‘Look at these indicators’ — People don’t care about that,” Mr. Noble said. “They care about their day-to-day lives.”Bill Ruiz, the business representative of Local 1912 of the Southwest Mountain States Carpenters Union, said the Biden administration’s infrastructure bill and CHIPS Act were bringing billions of dollars into Arizona, and helping to power an increase in union jobs and wages. Carpenters in his union were working 7 percent more hours than they were a year ago, and the union’s membership has doubled to 3,400 over the past five years.“We’re making bigger gains and bigger paychecks,” he said. “It blows me away people don’t see that.”Political strategists say Mr. Biden could still win in Arizona next year, if Democrats can reassemble the just-big-enough coalition of moderate Republicans and suburban women, Latinos and younger voters who rejected Mr. Trump by 10,000 votes in 2020. It was the first time in more than two decades that a Democrat had carried Arizona and its 11 electoral votes.The same pattern was seen in last year’s midterm elections, when Arizona voters elected Democrats running on abortion rights and democracy for governor, attorney general and secretary of state, defeating a slate of Trump-endorsed hard-right Republicans.Abortion is still a powerful motivator and a winning issue for Democrats, but many Arizona voters now say their dominant concerns are immigration, inflation and what they feel is a faltering economy.Grant Cooper, 53, who retired from a career in medical sales, is the kind of disaffected Republican voter that Democrats hope to peel away next year. He supports abortion rights and limited government, and while he voted for Mr. Trump in 2020, he said he would not do so again.He said his personal finances and retirement investments were in decent shape, and he did not blame the president for the spike in gas prices in 2022. Still, he said he plans to vote for a third-party candidate next year, saying that both Mr. Biden and Mr. Trump were out-of-touch relics of a two-party system that was failing to address long-term challenges.“They squibble and squabble about the dumbest things, rather than looking at things that could improve our economy,” he said. “The Republicans are fighting the Democrats. The Democrats are fighting the Republicans. And what gets done? Nothing.”David Martinez, 43, is emblematic of the demographic shift that has made Arizona such a battleground. He and his family moved back to Phoenix after 15 years in the San Francisco Bay Area, where he still works remotely in the tech industry. He voted for Mr. Biden in 2020, and said he was worried about the threat Mr. Trump poses to free elections, democracy and America’s future in NATO.His working-class friends and extended family don’t share the same concerns. These days, the political conversations with them usually begin and end with the price of gas (now falling) and eggs (still high).“It falls on deaf ears,” Mr. Martinez said of his arguments about democracy. “They feel down about Biden and inflation and his age. They’re open to giving Trump a second term or skipping the election entirely.”Camille Baker More

    • 138 Shares179 Views

      in Elections

      For Both Trudeau and Biden, Polls Suggest an Uphill Political Path

      by

      The economy, and particularly inflation, has soured voters on both leaders, polls indicate, though well in advance of upcoming votes.When Prime Minister Justin Trudeau and President Biden next meet, they will have something to commiserate over: their dismal standings in polls.President Biden and Prime Minister Justin Trudeau have seen their poll ratings slump.Kenny Holston/The New York TimesFor months now, Mr. Trudeau’s Liberal Party has been rapidly sinking in public opinion surveys, while more recent polls suggest that the Conservatives under Pierre Poilievre would win any election held now.Similarly, new polls by The New York Times and Siena College have found that Mr. Biden is trailing Donald J. Trump in five of the six most important battleground states.[Read: Trump Leads in 5 Critical States as Voters Blast Biden, Times/Siena Poll Finds][The detailed Times/Siena Poll data]Comparing the political situations in Canada and the United States is a fraught business because of a variety of differences between the countries and their political systems. And, of course, Americans don’t vote for another year, and Canada’s next federal election is likely to be two years off.But disaffected voters in both countries share a major concern: inflation, and the economy in general.“There’s ample evidence that inflation is destructive to an incumbent government’s performance and how people feel about it,” David Coletto, the chairman and chief executive of Abacus Data, told me.Mr. Coletto’s latest poll found that 39 percent of committed voters would vote for the Conservatives and 26 percent would vote Liberal, while the New Democrats were backed by 18 percent of those voters. (In Quebec, the Bloc Québécois was supported by 34 percent of committed voters.)That is a long way down for Mr. Trudeau from his early days as prime minister, when his leadership approval ratings hit an eye-watering 73 percent in one poll. The current Abacus poll found that 53 percent of respondents had a negative view of Mr. Trudeau, with just 29 percent holding a favorable view.Many factors, Mr. Coletto said, contribute to that dissatisfaction, but inflation, higher interest rates, housing costs and a general feeling of ennui about the economy are at the top.Voters polled in the Times/Siena survey, by a 59 percent to 37 percent margin — the largest gap relating to any issue in the survey — said they had more trust in Mr. Trump than Mr. Biden on the economy.Some of the criticism of Mr. Trudeau’s economic record, Mr. Coletto said, is based on perceptions that don’t match reality. In an earlier Abacus survey, Mr. Coletto found that most Canadians incorrectly believed that inflation was higher in Canada than in other countries. International Monetary Fund statistics for October show that Canada’s 3.6 percent rate is well below Germany’s 6.3 percent or France’s 5.6. Similarly, Mr. Biden gets little or no credit for the significant job creation under his watch.“But it doesn’t calm nerves to say, ‘Folks, things are good here relatively speaking,’ when relative to where they were five years ago, things are not better,” Mr. Coletto said. “And that’s how people evaluate their situation because people don’t live in those other countries where inflation still remains very high.”High housing prices, inflation and interest rates are all weighing down Mr. Trudeau’s poll numbers.Nathan Denette/The Canadian Press, via Associated PressThe other big factor for Mr. Trudeau, Mr. Coletto said, is simply that many voters are tiring of a leader like him, who has been around since 2015 and led his party through three successful elections. Mr. Biden may only be in his first term as president, but he has been a national political figure since first being elected to the Senate 50 years ago.Mr. Biden’s age, 80, is also an issue. In the Times/Siena survey, 71 percent of respondents said he was “too old” to be effective as president. Only 39 percent thought that of Mr. Trump, who is 77.“Inflation kills governments plus time kills governments,” Mr. Coletto said.While the standing of Mr. Trudeau’s Liberal government has never before dipped this low in the polls, there have been other periods when his popularity has ebbed, only to recover. And relatively few Liberals have publicly suggested it might be time for the prime minister to step aside despite his repeated vow to fight the next election. Similarly, calls for Mr. Biden to retire from prominent Democrats remain limited.“Is the prime minister going to stay, or go?” Mr. Coletto said. “I have no idea. But where his leadership is today is a very different place than it was five months ago.”Trans CanadaNew Zealand’s curling team is living in the Chartwell Colonel Belcher Retirement Residence while it trains in Canada.Todd Korol for The New York TimesThe latest, and youngest, residents of the Chartwell Colonel Belcher Retirement Residence in Calgary are the members of New Zealand’s curling team, who have come to Canada to hone their skills.The trial of David DePape, who the police say broke into Nancy Pelosi’s San Francisco home and bludgeoned her husband in 2022, when she was still speaker of the House, is underway. Mr. DePape, a Canadian, was living illegally in the United States at the time. His lawyer is not contesting prosecutors’ evidence.Following its bankruptcy filing, WeWork closed four Canadian locations. A Canadian real estate investor told The New York Times that the bankruptcy signified the end of projections that flexible office space would one day account for a significant portion of commercial office rentals.Marcel Dzama, the Winnipeg-born artist, spoke with Julia Halperin about his collection of 250 handmade masks.Kathleen Mansfield, a Toronto pharmacist, is among a group of people who told The Times Magazine about why they wanted space to be their final resting place.A first-class dinner menu from the Titanic dated April 11, 1912, which was found in a photo album from the 1960s that once belonged to a community historian in Dominion, Nova Scotia, is expected to sell for upward of $86,000 at auction.A native of Windsor, Ontario, Ian Austen was educated in Toronto, lives in Ottawa and has reported about Canada for The New York Times for the past 16 years. Follow him on Twitter at @ianrausten.How are we doing?We’re eager to have your thoughts about this newsletter and events in Canada in general. Please send them to nytcanada@nytimes.com.Like this email?Forward it to your friends, and let them know they can sign up here. More

    • 63 Shares159 Views

      in Elections

      Biden and a Feel-Bad Economy

      by

      Since Tuesday’s big Democratic electoral victories, I’ve been seeing some speculation to the effect that the 2024 election may be marked by a reverse coattail effect: that President Biden, whose poll numbers have supposedly been weighed down by a bad economy, may be lifted up by local candidates who have been racking up wins over social issues.Well, I’ve been delving into some economic and political history — which is, after all, most of what we have to go on in such matters — and I’m having some problems with this narrative.First, Biden is not, in fact, presiding over a bad economy. On the contrary, the economic news has been remarkably good, and history helps explain why.Nonetheless, many Americans tell pollsters that the economy is bad. Why? I don’t think we really know; what we can say is that historical experience throws some cold water on one popular view about the sources of American discontent.Finally, could Biden have pursued alternative policies that would have left him in a better political position? The lessons of history suggest no. If economic perceptions are a big problem for Democrats next year (which remains far from certain), this may be more a matter of bad luck than of bad policy.Start with the state of the economy. The simple reality of the past year or so is that America has accomplished what many, perhaps most, economists considered impossible: a large fall in inflation without a recession or even a big rise in unemployment. If you don’t trust me, listen to Goldman Sachs, which on Wednesday issued a report titled “The Hard Part Is Over,” noting that we’re managing to combine rapid disinflation with solid growth, and that it expects this happy combination — the opposite of stagflation — to continue.What went right? Back in 2021, Biden administration economists published an essay on historical inflation episodes, arguing that the closest parallel to current events was the inflation surge after World War II, which subsided after the economy resolved wartime disruptions and readjusted to peacetime production. That analysis looked much too optimistic for a while, as inflation went much higher for much longer than the Council of Economic Advisers expected.At this point, however, with a soft landing looking ever more plausible, it seems as if the council, while it underestimated the size and duration of the shock, got the basic story right.Yet voters aren’t happy. The most widespread story I’ve been hearing is that people don’t care about the fact that prices have been leveling off; they’re angry that prices haven’t gone back down to their prepandemic levels.This makes some psychological sense. As of September, consumer prices were about 19 percent higher than they were on the eve of the pandemic. Average wages were also up, by about the same amount, and wages for nonsupervisory workers (the great bulk of the work force) were up considerably more. But human nature being what it is, it’s natural for people to feel that they earned their higher incomes, only to have inflation snatch away their gains. And lecturing voters about why that’s the wrong way to think about it is not, shall we say, a promising political strategy.But here’s where my historical doubts come in.This isn’t the first time we’ve seen a temporary surge in prices that leveled off but never went back down. The same thing happened after World War II and again during the Korean War, the latter surge being roughly the same size as what we’ve seen since 2020. Unfortunately, we don’t have consumer sentiment data for the 1940s, although some political scientists believe that the economy actually helped Harry Truman win his upset election victory in 1948. But we do have such data for the early 1950s, and it suggests that people were relatively upbeat on the economy despite higher prices. Why should this time be different?Also, it seems worth noting that many voters have demonstrably false views about the current economy — believing, in particular, that unemployment, which is near a 50-year low, is actually near a 50-year high.Whatever is really going on, was there something Biden or the Federal Reserve could have done that would have mollified voters?Here’s how I think about it: The supply chain disruptions caused by the pandemic made it inevitable that prices of some goods would rise sharply. The only way to have avoided overall inflation would have been to force major price cuts for other goods and services.And everything we know from history suggests that trying to impose deflation — falling prices — on large parts of the economy would have had disastrous effects on employment and output, something like the quiet depression Britain inflicted on itself after World War I when it tried to go back to the prewar gold standard.So what’s actually going to happen in the next election? I have no idea, and neither do you. What I can say is that if you believe that Biden made huge, obvious economic policy mistakes and could easily have put himself in a much better position, you probably haven’t thought this thing through.The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram. More

    • 125 Shares99 Views

      in Elections

      En Argentina, Javier Milei asciende y el peso se hunde

      by

      Javier Milei se ha convertido en el favorito en las elecciones argentinas de este mes al prometer dolarizar la economía. En respuesta, el peso argentino se desploma.Javier Milei sigue siendo solamente un candidato a la presidencia de Argentina. Pero ya está provocando él solo un choque financiero en una de las mayores economías de América Latina.El valor de la moneda argentina está cayendo en picada por las críticas de Milei, un libertario de extrema derecha que se ha convertido en el principal candidato presidencial al prometer sustituir el peso argentino por el dólar estadounidense.El lunes, Milei prosiguió sus ataques contra el peso al desaconsejar a los argentinos que realicen inversiones en esta moneda. “El peso es la moneda que emite el político argentino y por ende no puede valer ni excremento”, dijo en un conocido programa de radio. “Esa basura no sirve ni para abono”.Solo el lunes, la tasa de cambio no oficial del peso, que refleja la valoración de la moneda por parte del mercado e impulsa los precios en Argentina, cayó el 7 por ciento, y luego otro 10 por ciento el martes por la tarde.A esa tasa de cambio no oficial, el martes por la tarde, con un dólar se compraban 1035 pesos, la primera vez que el peso rebasó la barrera de los 1000 pesos frente al dólar. Antes de que Milei ganara las elecciones primarias el 14 de agosto, con un dólar se compraban 660 pesos. En abril de 2020, al comienzo de la pandemia, la cifra era de 80 pesos.La escalada de la crisis llevó al Banco Central de la República Argentina, que Milei ha prometido cerrar, a emitir una declaración extraordinaria el lunes por la tarde: “Argentina mantiene un sistema financiero líquido y solvente” y añadió que respalda los depósitos bancarios argentinos.El martes, las principales asociaciones bancarias del país instaron a los candidatos a “mostrar responsabilidad en sus campañas y declaraciones públicas”.Milei, un economista excéntrico que quiere poner de cabeza el gobierno y el sistema financiero del país, es el favorito en las elecciones presidenciales argentinas del 22 de octubre, aunque las encuestas dan a entender que la contienda podría llegar a una segunda vuelta en noviembre.Su ascenso ha dominado la conversación a nivel nacional y ha acelerado la caída del peso.La mañana después de que Milei sorprendiera al país al quedar primero en las primarias presidenciales de agosto, las presiones del mercado obligaron al gobierno a devaluar el peso un 20 por ciento.Simpatizantes de Milei durante un mitin de campaña el mes pasado en San Martín, ArgentinaLuis Robayo/Agence France-Presse — Getty ImagesLos comentarios de Milei están generando “una disparada en la inflación o un eventual problema bancario, que es lo que él está alentando”, dijo Marina Dal Poggetto, economista argentina y exanalista del Banco Central de su país. “Lo que estás viendo es un inicio de una corrida que puede frenar o no. Hay que ver lo que pasa el 22 de octubre. Todavía Milei no ganó”.Milei ha aceptado comparaciones con Donald Trump y Jair Bolsonaro, expresidente de extrema derecha de Brasil, y ha sido noticia por negar el papel del ser humano en el cambio climático, criticar duramente al papa y por sus promesas de prohibir el aborto y legalizar la venta de órganos humanos.Pero la pieza central de su campaña han sido sus lecciones, a veces con tono catedrático, sobre política económica, diseñadas para persuadir a los votantes de que él es el único que puede arreglar la galopante inflación de Argentina.El país se encuentra inmerso en una de sus peores crisis financieras en décadas, con una inflación anual que supera ya el 120 por ciento y precios que cambian a la semana, o incluso más rápido, en muchas tiendas y restaurantes.Con los precios tan altos, los argentinos deben viajar con fajos grandes de billetes, que cada día valen menos. El gobierno argentino emitió este año un billete de 2000 pesos, pero ya vale menos de 2 dólares.Para comprar artículos costosos, como propiedades o automóviles, los argentinos pagan con billetes de 100 dólares estadounidenses. Para conseguir esos billetes, a menudo tienen que comprarlos a cambistas ilegales que ofrecen dólares en el centro de Buenos Aires como si fueran narcotraficantes, porque el gobierno federal, escaso de dólares, ha impuesto límites estrictos a la cantidad de la divisa que la gente puede comprar a la semana.Sergio Massa, ministro de Economía argentino y principal oponente de Milei, lo acusó el lunes de intentar deliberadamente desestabilizar la moneda argentina para causar estragos antes de la votación. “Por un voto más, está timbeando el ahorro de la gente”, dijo Massa, un político de centro-izquierda del partido que ha dirigido el país durante 16 de los últimos 20 años.El martes, Patricia Bullrich, candidata presidencial de centroderecha, culpó tanto a Milei como al gobierno actual en una entrevista durante una visita de campaña. Afirmó que el gobierno estaba tratando de bajar los impuestos sin recortar el gasto, mientras que Milei estaba empeorando la situación.El martes, Milei respondió a las críticas de que sus comentarios estaban agravando la crisis económica con un video que publicó en línea con una recopilación de sus intervenciones en las que compara el peso con excremento a lo largo de años de apariciones televisivas. “Es vergonzonzo el espectáculo que están dando los políticos tratando de obtener rédito político del descalabro económico inventando responsabilidades”, dijo. “Si quieren encontrar a los responsables mírense en el espejo, sinvergüenzas”.En un acto con empresarios celebrado la semana pasada, Milei afirmó que cuanto menor fuera el valor del peso, más fácil sería dolarizar Argentina.Si es elegido presidente, es probable que Milei enfrente grandes dificultades para llevar a cabo sus propuestas. Milei ha dicho que probablemente necesitará una inyección de 40.000 millones de dólares para cambiar la moneda oficial de Argentina, aunque no está claro que pueda conseguir tanto dinero. Argentina ya tiene dificultades para pagar su deuda de 44.000 millones de dólares con el Fondo Monetario Internacional.Sergio Massa, ministro de Economía de Argentina y principal oponente de Milei, lo ha acusado de intentar desestabilizar deliberadamente la moneda argentinaAgustin Marcarian/ReutersMilei también ha dicho que el Congreso argentino tendría que aprobar muchas de sus propuestas, que incluyen profundos recortes del gasto público, la eliminación de muchos impuestos y la privatización de todas las empresas estatales del país.Es probable que su incipiente partido político, La Libertad Avanza, controle una pequeña parte de los escaños del Congreso, lo que lo obligaría a forjar alianzas con otros partidos a los que ha calificado de criminales.Argentina lleva décadas lidiando con una inflación alta, y tuvo un episodio de hiperinflación en la década de 1980, cuando los clientes se apresuraban a comprar artículos antes de que los dependientes que llevaban etiquetadoras de precios pudieran hacer otra ronda de aumentos. Pero la escalada de precios, impulsada por una moneda débil, ha vuelto en los dos últimos años.Algunos de los problemas de Argentina se deben a factores económicos mundiales, como la pandemia y la guerra en Ucrania, pero en gran parte, según los economistas, se deben a que el gobierno ha gastado más de la cuenta para pagar universidades, salud, energía y transporte público gratuitos o muy subvencionados. Para financiar todo eso, Argentina ha impreso a menudo más pesos.El resultado ha sido una creciente falta de confianza en la moneda, que ha obligado al gobierno a crear más de una decena de tasas de cambio distintas para el peso, porque su propia tasa de cambio oficial ya no refleja la valoración del mercado.Las nuevas tasas incluyen una para los turistas, otra para los exportadores de soja y otra para los argentinos que viajaban a Catar para ver a su selección nacional de fútbol ganar el Mundial de 2022. El llamado Dólar Blue es la tasa paralela más importante —fijada por un pequeño grupo de empresas financieras y que aparece en vivo en los noticieros de televisión— y es la forma en que la mayoría de los argentinos transfiere sus pesos a dólares en el mercado clandestino.El martes, buscando apaciguar algunos temores del mercado, el gobierno consolidó varias de esas tasas en una nueva que al menos un contador denominó Dólar Elecciones.Natalie Alcoba More

    • 125 Shares189 Views

      in Elections

      In Argentina, a Far-Right Candidate Rises and the Peso Plunges

      by

      Javier Milei has become the favorite in Argentina’s election this month by pledging to dollarize the economy. In response, the Argentine peso is crashing.Javier Milei is still just a candidate to be president of Argentina. But he is already single-handedly delivering one of Latin America’s biggest economies a financial shock.The value of Argentina’s currency is plummeting under criticism by Mr. Milei, a hard-right libertarian who has become the leading presidential candidate by promising to replace the Argentine peso with the U.S. dollar.On Monday, Mr. Milei continued his attacks on the peso by discouraging Argentines from holding any investments in the currency. “The peso is the currency issued by the Argentine politician and therefore is worth less than excrement,” he said on a popular radio show. “That trash is not even good as manure.”The peso’s unofficial rate, which reflects the market’s valuation of the currency and drives prices in Argentina, fell nearly 7 percent on Monday alone, reducing its value by about 15 percent over a week.At that unofficial rate, $1 bought 945 pesos as of Tuesday morning. Before Mr. Milei won a primary election on Aug. 14, $1 bought 660 pesos. In April 2020, at the start of the pandemic, the figure was 80 pesos.The escalating crisis prompted Argentina’s Central Bank, which Mr. Milei has promised to shutter, to issue an extraordinary statement on Monday afternoon that “Argentina maintains a liquid and solvent financial system” and that it backs Argentine bank deposits.Mr. Milei, an eccentric economist who wants to upend the country’s government and financial system, is the front-runner in Argentina’s presidential election on Oct. 22, though the race, polls suggest, could still go to a November runoff.His ascent has dominated the national conversation and accelerated the peso’s decline.The morning after Mr. Milei surprised the nation by finishing first in presidential primaries in August, market pressures forced the government to devalue the peso by 20 percent.Supporters of Mr. Milei during a campaign rally last month in San Martín, Argentina.Luis Robayo/Agence France-Presse — Getty ImagesMr. Milei’s comments are causing “a spike in inflation or an eventual banking problem, which is what he is encouraging,” said Marina Dal Poggetto, an Argentine economist and former analyst at Argentina’s Central Bank. “What you are seeing is the beginning of a run that may or may not stop. We have to see what happens on October 22. Milei still hasn’t won.”Mr. Milei has embraced comparisons to Donald J. Trump and Jair Bolsonaro, Brazil’s former far-right president, and has made headlines for his denials of the role of humans in climate change, his harsh criticisms of the pope and his aims to ban abortion and legalize sales of human organs.But the centerpiece of his campaign has been his sometimes professorial lectures on economic policy designed to persuade voters that he alone can fix Argentina’s soaring inflation.The country is in the midst of one of its worst financial crises in decades, with annual inflation now topping 120 percent and prices at many stores and restaurants changing weekly, if not faster.Sergio Massa, Argentina’s finance minister and Mr. Milei’s principal opponent, accused Mr. Milei on Monday of deliberately trying to destabilize Argentina’s currency to wreak havoc ahead of the vote. “In order to gain one more vote, he is gouging people’s savings,” said Mr. Massa, a center-left politician from the party that has led the country for 16 of the past 20 years.At an event with business leaders last week, Mr. Milei said that the lower the value of the peso, the easier it would be to dollarize Argentina.If elected president, Mr. Milei is likely to face major challenges in accomplishing his proposals. Mr. Milei has said that he will likely need a $40 billion infusion of dollars to switch Argentina’s official currency, though it is unclear he would get that much money. Argentina is already struggling to pay its $44 billion debt to the International Monetary Fund.Sergio Massa, Argentina’s finance minister and Mr. Milei’s principal opponent, has accused Mr. Milei of deliberately trying to destabilize Argentina’s currency.Agustin Marcarian/ReutersMr. Milei has also said that Argentina’s Congress would have to approve many of his proposals, which include deep cuts to government spending, the elimination of many taxes and privatizing all of the nation’s state companies.His nascent Liberty Advances political party would likely control a small share of the seats in Congress, forcing him to forge alliances with other parties that he has labeled criminal.Argentina has struggled with high inflation for decades, including a bout of hyperinflation in the 1980s when customers were rushing to buy items before clerks wielding price guns could make another round of increases. But spiking prices, driven by the weak currency, have roared back over the past two years.Some of Argentina’s problems have been driven by global economic factors, like the pandemic and the Ukraine war, but much of it, economists say, is because the government has overspent to pay for free or deeply subsidized universities, health care, energy and public transportation. To finance all that, Argentina has often printed more pesos.The result has been an increasing lack of confidence in the currency, which has forced the government to create more than a dozen separate exchange rates for the peso, because its own official rate no longer reflects the market’s valuation.The new rates include one for tourists, one for soybean exporters and one for Argentines who were traveling to Qatar to watch their national football team win the 2022 World Cup. The so-called Blue Dollar is the most important parallel rate — set by a small group of financial companies and listed live on television news programs — and is how most Argentines transfer their pesos to dollars on the underground market.On Tuesday, seeking to assuage some market fears, the government consolidated several of those rates into a new rate that at least one accountant called the Election Dollar.Natalie Alcoba More

    • 113 Shares129 Views

      in Elections

      In Argentina, the U.S. Dollar Could Soon Become King

      by

      Americans complain that inflation has eroded the value of their money, but the U.S. dollar looks lovely to the people of Argentina, where consumer prices rose 124 percent in August from a year earlier. The threat of hyperinflation has become a central issue in the presidential election on Oct. 22, which The Times has described as “a new test of the strength of the far right around the world.” The leading candidate in the race, which could go to a November runoff, is a radical libertarian who promises to bring rising prices under control by getting rid of the peso and fully dollarizing the Argentine economy.Buena idea, o mala?I’ll get to the pros and cons of dollarization in a minute, but first a few words on why Argentines would even consider such a drastic step. Argentina is blessed with abundant natural resources. Early in the 20th century, it was richer than Germany or France. “Until the 1930s, the French used the phrase ‘riche comme un Argentin’ to describe the foolishly rich,” the economists Edward L. Glaeser, Rafael Di Tella and Lucas Llach wrote in the Latin American Economic Review in 2018.But Argentina’s economy has been stunted by disastrous economic policies and chronic political instability. There were periods of military rule, hyperinflation, defaults on external debt, protectionism and under-industrialization. Argentina has been a democracy since 1983 but successive governments, whether left- or right-leaning, haven’t managed to match neighbors such as Chile, Uruguay and Brazil in bringing down inflation and stabilizing finances.That record of failure is written on the currency. Since 1970, Argentina has burned through several currencies: the peso ley, the peso argentino, the austral and now the peso convertible. Today there is no single exchange rate with the dollar that all residents can use. As colorfully explained recently in The Buenos Aires Herald, there is the official, or “wholesale,” exchange rate, for international trade; the savers’ exchange rate, which is supposedly for savers but is not widely accessible; and the “blue” dollar, which is essentially the black-market rate. Foreign tourists can buy pesos at yet another rate, the M.E.P., short for Mercado Electrónico de Pagos. There are even temporary exchange rates, such as the Vaca Muerta rate, which is named after where it was announced last month (not because it’s for buying or selling dead cows).Javier Milei, who leads the polls in the presidential race, wants to chuck the whole rickety system, abolish the central bank and adopt the U.S. dollar, as three smaller Latin American countries — Ecuador, El Salvador and Panama — have already done.Milei, it’s important to say, has extreme and I would argue insupportable stands on a number of issues. He wants to drastically cut taxes and spending, as The Times wrote, “including by charging people to use the public health care system; closing or privatizing all state-owned enterprises; and eliminating the health, education and environment ministries.” He is an economist and a member of the legislature who has large dogs named Milton Friedman, Robert Lucas and Murray Rothbard.But let’s separate the message from the messenger and look at the dollarization proposal on its merits. The biggest plus is that it would most likely get rid of Argentina’s high inflation overnight. The money available for spending inside Argentina would be only the dollars that the country already has in reserves or manages to acquire by, say, running trade surpluses with the United States or borrowing. The general price level can’t rise if there is no increase in the supply of dollars, unless the velocity of circulation increases. As Milton Friedman (the economist, not the dog) once said, “inflation is always and everywhere a monetary phenomenon.”Dollarizing the economy is like locking oneself in handcuffs and then throwing away the key. It’s an act of desperation when nothing else works.And like most acts of desperation, dollarization has big drawbacks. By switching to dollars, Argentina would effectively adopt the monetary policy of the United States, thus losing the ability to raise or lower interest rates to suit local conditions. It would lose the profit known as seigniorage that comes from printing money. And dollarization wouldn’t solve the structural problems that have caused high inflation, such as government overspending, as Guillermo Ortiz, a former governor of Mexico’s central bank, told reporters in September.This week I interviewed Iván Werning, an economist at the Massachusetts Institute of Technology who grew up in Argentina and earned his bachelor’s and master’s degrees there before getting a doctorate at the University of Chicago. With two graduate students who are fellow Argentines, he has written two recent papers about dollarization, which he calls a “dangerous delusion,” and has wrestled with opponents on X, formerly Twitter.Werning isn’t persuaded that dollarization really would tie the government’s hands. In an email to me, he pointed out that Argentina tried once before to link to the dollar, through currency board “convertibility,” but abandoned the program in 2002. “Argentina could reissue the peso in short order, in a manner similar to how its provinces have issued government pesos in the past to pay for bills,” he wrote. Ecuador, he said, has found “creative accounting ways” to loosen the constraint of its dollarization, such as having the central bank finance the treasury.The Argentine government doesn’t have enough dollars to replace all of its pesos at current exchange rates, even at the unofficial “blue” rate, Werning told me by phone. There are rich people with lots of dollars squirreled away abroad, but that doesn’t help the ordinary Argentine, he said. So in his view, if the conversion were done today, there could be an extreme shortage of money in the economy, which would most likely cause a deep recession because prices and wages would not adjust smoothly to the dollar scarcity. Postponing the conversion could make matters worse, by triggering an anticipatory burst of inflation, he added.The problem could be solved if Argentina were able to raise more dollars, but in that case it probably wouldn’t need to dollarize in the first place, he said.Understandably frustrated by years of dysfunction, the Argentine people are looking for a quick fix for inflation, Werning told me. But the quick fix would have bad consequences in the long term, he said. He prefers more conventional solutions such as bringing government budgets closer into balance. On that score, he is slightly hopeful.“Today there’s a lot more consensus” about the need to reduce spending, Werning said. The message is coming not just from Milei, the extreme libertarian, but also from Patricia Bullrich, a center-right candidate who served in the cabinet of Mauricio Macri. Even Sergio Massa, a candidate who is the economy minister in the current, center-left government of Albert Fernandez, has talked about cutting spending, although “his actions do not match his words,” Werning said. Whether any of the candidates would be as resolute in office, when anti-austerity protests begin, is another question. But Werning said, “If ever there was a chance” for righting Argentina’s finances, “it might be now.”The Readers WriteDonald Trump and his lawyers persist in re-arguing points and generally annoying the judge because they hope to elicit an intemperate response that could be read as bias. I am a trial lawyer, and I have seen this happen. Because this is a bench trial, a mistrial would take a real circus breaking out. But they may be able to argue on appeal that Trump was denied a fair trial.James M. MillerSarasota, Fla.Your opinion on the “fix” for our budget problem is spot on, but lawmakers’ concern about job security exceeds their willingness to do the best job for the country. And so we languish with incidental actions that appear helpful but don’t make the real change we need.Kathy CrosbyGrand Rapids, Mich.Quote of the Day“America is ungovernable; those who have served the revolution have plowed the sea.”— Simón Bolívar, South American revolutionary leader, in 1830, as quoted by Sheldon Liss and Peggy Liss in “Man, State, and Society in Latin American History” (1972) More