Inflation now tops the list of concerns for many voters in the United States. But if they use this month’s mid-term election to protest inflation, they could tip control of Congress to the Republican Party, with disastrous consequences for their own living standards and American democracy.
Whatever happens with inflation over the next year, it will have very little to do with congress. What matters is the US Federal Reserve’s monetary policy and global developments – such as the war in Ukraine – that affect commodity prices and supply chains. Gasoline prices may be a major source of inflationary pain for US voters, but neither the president nor congress can do much to reduce them in the short term.
Moreover, we know what a Republican Congress would do. It would slash the government benefits that most Americans value. It would eviscerate the recent Inflation Reduction Act’s (IRA) provisions to control healthcare costs and combat climate change. It would limit and raise the costs of family planning (birth control) and reproductive health services for women, and pursue a federal ban on abortion, with dire economic and societal consequences. Following the Supreme Court’s elimination of the constitutional right to abortion, many American women now must travel to other states to receive care. Under a national ban, Americans would have to seek reproductive health services in other countries.
In short, the Republicans would pursue an agenda that will make life worse for most Americans. Kevin McCarthy, who would likely become the Speaker of a Republican-controlled House of Representatives, has vowed to blackmail President Joe Biden and the Democrats to accept the Republican agenda or risk a default on US government debt. As in the past, the Republican threat to block an increase to the federal debt ceiling is deeply irresponsible, but also credible.
A default would have dire implications for the US economy, both immediately and in the decades to come. Tens of millions of families, including military personnel, would immediately lose access to federal programmes that they depend on for their livelihoods. There would be massive losses in global capital markets, striking a major blow to millions of Americans’ retirement accounts.
Moreover, interest rates would spike, and the value of the dollar would plummet as global investors dumped their holdings of US government debt (the world’s benchmark safe asset for the last 100 years). The prices of imported goods and services, which account for about 13 percent of GDP, would jump.
The havoc in global capital markets would likely trigger a recession – both at home and globally, and the loss of trust in US debt would spell the end of the dollar’s role as the world’s dominant reserve currency. Americans would face higher borrowing costs and higher import prices for decades to come.
But the alternative of simply accepting the Republican agenda also would have dire consequences. That, too, would increase the prices of products and services that Americans want. Republicans are eager to do away with IRA measures to control Medicare and drug prices, and to reduce the prices of electric vehicles and other clean-energy products. They would also target the government programmes that tens of millions of Americans rely on, including Medicare, Social Security, Obamacare, housing assistance, school-lunch programmes, and food assistance. And they would block implementation of a student-debt relief programme that will reduce 40 million Americans’ debt-servicing costs.
A Republican-controlled Congress would then pursue a discredited ‘supply-side’ strategy to boost growth with handouts for the rich – the approach that just caused a financial and political meltdown in the United Kingdom, forcing Liz Truss to resign from the premiership after just 44 days. Republicans have openly pledged to reduce income tax rates for America’s wealthiest, defying the majority of Americans who believe that these rates should be increased. They would block implementation of the IRA’s 15 percent minimum tax rate for US corporations – again defying the majority’s will. And they would block the IRA’s funding to strengthen the Internal Revenue Service’s enforcement capacity, which is expected to yield an additional US$204 billion over the next decade.
Cutting taxes for the wealthy and corporations isn’t cost-free. It would reduce tax revenues, and those losses will have to be offset by extra fees and taxes on middle-class and working-class families, or by cuts in the government programmes and benefits they value.
Worse, as they starved these programmes, congressional Republicans, cooperating with their allies in many state governments, would also move to restrict voting rights, so that dissatisfied voters will encounter new barriers when they try to hold the party accountable for its deeply unpopular agenda. America will have been dragged even further down the road toward permanent minority rule.
If Americans cast their ballots for Republicans out of anger over inflation, they will not get lower inflation. Instead, they will see benefits, programmes, and rights valued by the majority of Americans systematically gutted. More to the point, a vote for Republicans is a vote against American democracy itself. It is a vote for the seditious, racist MAGA movement that now controls the party.
Laura Tyson, a former chair of the President’s Council of Economic Advisers during the Clinton administration, is a professor at the Haas School of Business at the University of California, Berkeley, and a member of the Board of Advisers at Angeleno Group. Teresa Ghilarducci is Professor of Economics at The New School for Social Research.
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
