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The last three years have upended everything about the way we expect the economy to work. That’s at least partly why many rich people don’t seem to be sweating economists’ warnings that Donald Trump’s policies would cause inflation which has finally come down to a normal level to spike again.
Inflation dings all wallets, whether you’re a Wall Street banker or a public school teacher. But it hurts in different ways.
Higher prices for rent and food, areas where blue-collar workers tend to spend a bigger chunk of their income, hurt the middle- and low-income groups hardest. And, historically, high inflation has also hurt wealthy people because it eats into corporate profits and creates a drag on the stock market.
But the pandemic-era inflationary period played out unlike any other in history, and wealthy people made out like bandits.
“It’s been a good run for higher-income people with assets,” said Kent Smetters, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School. “There’s no question the stock market has gone up quite a bit more than inflation … we’ve had almost two years in a row of 20% increases, and that’s pretty amazing.”
It’s also been a wildly good run for homeowners, as property values have soared and inflation has eroded the nominal value of their monthly mortgage payment.
And while it is true that people at lower income levels have seen an uptick in wages, which have outpaced inflation for the past two years, those raises weren’t evenly distributed, and they hardly make a dent in the income inequality that was entrenched well before 2020.
Point is: Many rich Americans who might have once had an icky feeling about the prospect of surging inflation in the past suddenly don’t seem too worried about it. And that may be because the only real inflation we’ve seen in decades was a multi-year profit bonanza for them.
And that has provided a permission structure for some wealthy Trump supporters to shrug their shoulders at his inflationary economic agenda.
While Trump doesn’t have a detailed policy plan, he has promised a huge tax cut for corporations, mass deportations of undocumented immigrants and exorbitant tariffs on imports. He’s also casually floated the idea of hijacking the Federal Reserve’s authority on interest rates, the primary tool for managing inflation.
Nearly 70% of economists surveyed by The Wall Street Journal said prices would rise faster under Trump than under Harris, and 23 Nobel Prize winners endorsed Harris’ proposals over Trump’s “counterproductive” economic agenda.
“I think it really would feel like a return to 2021 levels of inflation, in terms of how quickly it seems to come from out of the blue,” Josh Bivens, chief economist with the nonprofit EPI Action, told me.
But it won’t be the same flavor of profit-driven inflation we’ve seen over the past three years.
Pandemic-era inflation, with its many supply chain bottlenecks, gave some corporations monopoly-like power over parts of the economy when their competitors couldn’t get more output out the door, Bivens said. “This one will be a more broad-based, chaotic, supply-side push-up of prices.”
The Trump campaign and his supporters continue to highlight the fact that the economy didn’t experience inflation in Trump’s first term. But everything in the economy was different from 2017 to 2019 than it is today.
“In 2018-2019, we would have had to do spectacularly different things to generate inflation,” Bivens said. “But the shocks of the past couple years have really changed that. Between the pandemic and the Russian invasion of Ukraine, and the good part a really fast recovery from the Covid shock, we’re now an economy that can generate inflation if you do the wrong things.”
