Prices, inflation and the overall economy have been top of mind for voters no matter their partisan preferences.
Supporters of former President Donald Trump often say they felt their money went further during his administration, and they want that back. Supporters of Vice President Kamala Harris are excited about corporations paying more of the tax burden and her call for what she describes as a ban on price gouging.
So just what is the current state of the economy, and how might it play into how Texans vote? For some insight, Texas Standard turned to economist Tom Tunstall, the senior research director at UTSA Institute for Economic Development.
Listen to the interview in the audio player above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Inflation has come to be a kind of proxy among a lot of everyday Americans for how the economy is doing. Where does inflation stand now, and how good is it as a kind of general economic barometer?
Tom Tunstall: Well, inflation obviously was very high starting really when we began to come out of the pandemic. And a lot of pent-up demand pushed up prices for different items depending on where people were. Initially, construction materials, hardware went up because people were building in-home offices.
Later on, it had been a while since people had been able to travel, and so the travel industry picked up in volume, and that had an effect on prices.
But across the board, we’ve really seen, up until recently, double-digit increases across a wide variety of items. That rate of increase has slowed significantly as of the last report that we saw, which pegged it at just below 3%.
Inflation is still increasing, but not nearly as fast as it had in two or three years previous to that.
So, professor, say I’m at a cocktail party and ask you, how’s the economy doing? What do you say?
Well, the economy is certainly slowing down.
You have to consider where we’re starting from at the bottom of the pandemic. You know, unemployment rates were extremely high. Demand was building up because people couldn’t go outside. And so we saw a huge increase in hiring post-pandemic or even in the latter stages while we were still in it.
And that was an unsustainable measure of growth. And it was large because we had seen so much unemployment and, you know, just a weakened economy. I mean, gasoline prices were below $2 a gallon, at least here in Texas, for a while.
So, that growth rate that we had isn’t really sustainable. And so we’re sort of seeing the slow days. It’s not really a slowdown, but the rate of growth is not as fast as it had been. And I wouldn’t be surprised to continue to see sort of revisions from the Labor Department or whatever, going back and forth appearing to be higher then maybe lower because there’s just a lot of factors coming into play and making it hard to measure the first time around.
The Republican candidate is saying if he’s elected, on day one he’ll fix the economy, bring prices down and return to prosperity. But short of sending out checks like we saw during COVID, what can a president do?
Well and that rhetoric sounds all fine and good, but it certainly lacks specifics.
You know, the president, and I think one of the things that’s been interpreted by Vice President Harris’ comments about price gouging – and the other party has jumped on this – suggests wage and price controls. Those have been tried. And I think that would be, frankly, political suicide.
But the jawboning doesn’t hurt. We’ve seen corporations producing record profits. And they’re using those profits to either buy back stock or to pay dividends to shareholders. So I think just the idea of jawboning on the issue could have an impact.
Executives on earnings calls, early on were sort of bragging about the fact that they had the ability to raise prices. And from a PR standpoint, that really doesn’t sit very well. So, you know, just bringing the issue to light could have an impact.
The other thing a president can do is, in terms of either the Federal Trade Commission or the Department of Justice Antitrust Division, could take a closer look at industry concentration that may enable companies in certain industries with very few firms, especially very large firms. It gives them the ability to raise prices that other sectors might not be able to.
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How much of what we’ve seen with inflation is about greed? I mean, this is a narrative that the Democratic candidate appears to be pushing – crackdown on price gouging, force companies to pay a greater share of taxes. Will that take care of it?
Well, we can thank business schools for that development: the idea of maximizing shareholder value, which one could argue that’s the same thing as greed. But again, that’s what’s taught in business schools.
And, and if you look back at the philosophy corporations had prior to the 80s, Johnson & Johnson’s credo, for example, was to make a fair profit and to serve all of their stakeholders, not just the shareholders. And that philosophy, I think, has been taken a little too far.
One could argue that corporations have a greater duty to serve the larger community, not just its, shareholders It’s that maximizing shareholder value that led to, I think, really questionable decisions like raising the price of insulin, which was invented in the 1920s and was being sold – in some cases still is being sold – for far more than its cost of production.
Of course, the flip side of that is you raise taxes on corporations and many say, who do you think’s going to be paying that bill?
Well, yeah. And I would sort of liken that to the argument about raising individual tax rates. If you look at during, for example, the Eisenhower administration, tax rates were as high as 91% on individuals. And yet, there were still wealthy people. And we did some some really cool things from an infrastructure standpoint.
I’m more talking about consumers. When we talk about, for instance, raising taxes on corporations. I think the proposal is something like 28%, that the Democratic candidate’s put out there. When you have those price increases, wouldn’t it be expected that corporations will be passing along those increases in terms of price hikes to consumers?
Well, I think to some extent that’s true. But I think there’s also a desire to maintain market share. And one of the ways you do that is by being, in a lot of cases, a low-cost competitor.
And I think companies are also seeing, fast food is probably the most obvious example, where maybe they went too far and now they’re starting to lose market share. People are either eating at home or eating out less frequently, because it has become so expensive to buy it.
And they’re, whether it’s value meals, whatever you want to call it, you know, various kind of bargains because they’re trying to win back customers that they sort of drove away by raising prices.
I know this issue of the economy or perceptions of the economy can have a big effect on election outcomes. But is there a disconnect between presidential politics and economic reality?
Absolutely. And I think, any party – and right now the Democrats are at fault for this – but trying to take too much credit for the stock market, for example, which is hitting record highs, both the S&P 500 and the Dow.
And to people in and, in particular, candidates, if you bring this up, my response would be: What are you going to say if for some reason the Dow falls significantly through no particular action of your own? Are you going to be touting the stock market the same way? And I suspect the answer would be no.
Reagan’s famous line was, in terms of reelecting either the same party or the same person: Are you better off now than you were four years ago? Right? You know, that’s a tough question to answer because, four years ago, we were still in the midst of a pandemic with high unemployment rates. And that, because it was four years ago, tends to recede in the collective memory.
And now the focus is on, especially over the last year or so, the really high rates of inflation that we’ve seen, even though really the rate of increase is falling.
I’m not sure there’s much more to be done. In fact, right now, I think as much as anything, the Federal Reserve is more worried about whether or not they decide to lower interest rates soon enough to keep the economy from going into a recession. And so I think that’s going to be the big challenge for whoever is sitting in the Oval Office come January.
