Nebraskanomics: Ernie Goss & Erin Norman on Inflation

Nebraskanomics: Ernie Goss & Erin Norman on Inflation

Creighton University economist Ernie Goss and Erin Norman, a polling and messaging expert for the State Policy Network, join Jim to discuss the impact of rising inflation on Nebraska’s economy and voter sentiments. A transcript of this discussion is available below.

You can also listen to the audio version of Nebraskanomics on Apple Podcasts and Spotify.

Episode Transcript

Jim Vokal: Concerns and curiosity about inflation are rising in Nebraska and across the country. At the beginning of 2022 Google searches in Nebraska showed more people looking for answers about inflation than many of the search terms related to taxes, which are always a hot topic on Nebraskanomics. Today we have two great guests who will walk us through what may be driving the current spike in inflation, and how Americans want policymakers to respond. Joining me now is Creighton University economist Dr. Ernie Goss, who will provide the economic commentary today, and Erin Norman will share analysis of polling and voter sentiments about inflation. Erin is the senior messaging strategist at the State Policy Network, which is a network for state policy think tanks, including the Platte Institute. Thank you both for being here today.

Ernie Goss: Thanks, Jim.

Erin Norman: Thanks.

Jim Vokal: All right, Ernie, we’re going to start with you. Consumers are noticing rising prices in many parts of their daily life but what do we really know and what do we not know in terms of the causes of this current round of inflation or its potential to stick around in the future?

Ernie Goss: Well, what we know at least from an economist standpoint is it was created by the Trump administration’s stimulus package plan spending and the Biden spending packaging plan, and the infrastructure bill, although that hasn’t—the spending there has not really been rolled out yet. And, a big, big factor of importance is the increase in the money supply by the federal reserve. Thirty-five to 40%, Jim and the audience there, 35 to 40% increase in the money supply. So what’s happened is and luckily, a lot of folks stash this in their bank accounts, and have yet to begin spending it. So, we’ve got still more room to go that would be one thing to point out. A second point Jim, is the current rate of inflation year over year is 7%. That’s the highest in 40 years, but it’s not that comparable, or there’s less comparability, because in 1982 CPI was computed differently, and in fact, if we computed it the way they did in 1982, today’s rate would be even higher than 7%. So that’s what we, I think at least I know, to address your question.

Jim Vokal: Appreciate that. All right, Erin, let’s now turn to the sentiment of voters and U.S. voters were much more cognizant this year of inflation, and they have a more partisan skew of course, especially when it comes to campaign time. But more recent figures show that the partisan difference has narrowed, though. Can you talk about your poll results you’ve analyzed on inflation, give a sense who voters hold responsible for the inflation, and what they expect as a response.

Erin Norman: Sure. So State Policy Network has been watching consumer confidence and tracking public opinion on inflation for several years, although a lot of the data we have has been focused in the last six to 12 months, as we’ve really seen inflation start to tick upward. So we did a post-election study in November of 2020 and we asked that classic “Are you better off than you were four years ago” question, and the results were pretty even. Thirty-four percent said no, they were worse off, 31% said they were better off, and 36% said they were the same. But in that emotionally charged post-election environment, there was a clear partisan difference. Forty-one percent of Democrats said they were worse off compared to 2016, and only 23% of Republicans said the same thing—so an 18-point gap. Then in September of last year, of 2021, we asked a question specifically about inflation again as those numbers really started to drive upward. And at that time we found that 84% of Americans were concerned about inflation, but that partisan gap narrowed, from 18 points to only 10 points. And then we asked the question again in November last year again, as those numbers for inflation kept going up, and concern jumped from 84 to 89%, and that partisan gap at the same time narrowed. So this is really showing us that inflation is becoming a key concern for the American people and it’s no longer something that’s charged as “I’m unhappy about everything because my guy is out of office.”

This is a real concern for Americans that’s impacting everybody equally, sort of regardless of their partisan affiliation, in terms of who people blame for inflation. Blame for these types of complicated issues usually gets thrown across the board. We know there’s a huge divide in terms of political blame, so people who would have blamed Trump now blame Republicans in Congress, and vice versa, but sort of beyond these tribal associations, people just want things to get better. We do know from some recent Gallup polling that in the next six months Americans expect things to get worse, so sort of regardless of who they blame or what they see the real problem or the fault being, the kind of hard truth is there’s a lack of faith in the current political leadership that there’s a handle on this problem, that they know what to do, and that they’re willing to do it.

Jim Vokal: Dr. Goss, I’m putting you on the spot here a little bit, but do those results surprise you at all?

Ernie Goss: Not at all. You know, Jim, if you take the wage growth—and both the Trump administration and the Biden administration had very solid nominal wage growth—that’s non-inflation adjusted—if you adjust it for inflation, you’re talking about a -1.3%. That’s a 7% inflation rate, that’s the nominal rate of growth in wages 5.7, minus the 7% change in prices, so you get minus 1.7% real wage growth, or inflation-adjusted wage growth. So it’s not surprising at all that folks are out there very disappointed, very unhappy, and it cuts—as Erin said—it cuts across party lines. And if you look, going forward, it doesn’t look much better if you look at the areas where you saw the great growth. For example, used car prices up 34%. I mean, lots of folks there, buying, trading in, or selling their cars…well, the happy person is this person who sells the car and doesn’t have to replace it. The unhappy person is the person who has to buy a used car. So, that’s good, rents growing by 14% over the last year, but housing prices up by 18.9%, now that’s the Case-Shiller home pricing index, so there’s very few areas where it has not been touched by inflation, Jim.

Jim Vokal: Well, let’s get a little bit more Nebraska-specific, Dr. Goss, our state has a very diverse economy and the history of withstanding recessions better than most. And even though we’ve experienced the same initial uncertainty as every other state, we’ve reopened and recovered rather quickly in the pandemic, but some of our pre-existing economic challenges still exist and are even more severe,. particularly our workforce shortage. How might inflation impact Nebraska’s key industries and our ability to grow and compete in the years ahead?

Ernie Goss: Well, it’s actually that these shortages are affecting the inflation rate in Nebraska. For example, and those you know, you think about competition across state lines. Well, in some cases, leisure and hospitality industry, for example, there you’re seeing a huge upward pressure on prices because of the inability to find and hire qualified workers, so you’ve got this labor shortage. And Nebraska has got the lowest unemployment rate in the nation at 1.9% and that’s the lowest ever for Nebraska, and in fact the lowest ever recorded for any state in the U.S. That reflects the difficulty in finding and hiring qualified workers, so employers have had to push up wages, which means they’ve had to push up their prices, and luckily they’ve been able to do some of that. But it’s also pinching their profit margins also, and in Nebraska, unfortunately historically, Nebraska has—when you get unemployed there is a tendency and higher proportion of those unemployed workers leave the state, so that’s the big problem. In other words, finding and hiring those workers and getting them to move from Detroit to Omaha or from New York to Lincoln, Nebraska, that’s the real key. And it really has not happened, has not been happening to a great extent. We’d of course like to see more of that, so there is some education for we Nebraskans to make and educate other folks about the job opportunities in Nebraska, so that’s what we’re seeing right now.

Jim Vokal: Appreciate that. All right, we’re gonna go back to you Erin, and we’re always lucky and pleased to have Nebraska leaders join us, listening here in our audience. So maybe you can help them out as I get to this next question. From what you’ve heard from voters on the topic, what advice would you give a candidate or an office holder on how to approach their policy priorities and messaging in an inflationary period?

Erin Norman: So, the most important piece of advice I would give to office holders is really to meet Americans and Nebraskans where they are. So, economic issues, we’re seeing them top of mind among all Americans, and specifically getting call outs for inflation, which is kind of unusual in terms of things that people will tell us are top of mind that they think are the biggest issues facing the country or their state. And so Americans really need to feel like they can trust their elected officials to deal with an issue like inflation, that’s for the average person really complicated and multifaceted. Leaders need to acknowledge that the pain caused by inflation and these economic situations are real and kind of agree with them that that issue is of top importance and treated as such. When we’re thinking about prioritizing policy and messaging that doesn’t mean we can’t you know you can’t look at other policies and deal with other problems, but it all needs to be tied back to how is this going to address the cost of living issues in the near term and prevent this in the long term. You know, we saw the Biden administration and other folks on the left take a different approach at the end of 2021, probably most famously with the Washington Post article telling people to expect less. That’s going to fall flat every time. Office holders, candidates, really need to connect with people and establish that trust, and that’s first and foremost going to come from dealing with the issues that are really impacting Americans today.

Ernie Goss: You know, Jim, I’d like to say, and I really agree with what Erin’s saying. I’d like to also say that president Biden took the wrong approach, which is to blame someone else. And what he initially said, now he’s walked it back, is that “Well, it’s because greedy businesses have pushed up prices, which push up the inflation rate.” Well, that’s the wrong direction. What happened is inflation ticked up, and we call it in some cases cost-push—economists do—cost-push inflation. And it’s this cost-push that accounts for it. In other words, these businesses, their margins, that’s the difference between their revenues and what the cost of what they sell. That has been squeezed. So they have been able to push, now they have pushed a good portion of the increase in cost to their consumers, but not enough. In other words, business profits are down—what I measure here at Creighton University.

So, blaming someone else is not the approach I would recommend for a politician. This has been going on too long, Jim. Federal reserve chairman Powell said it was “transitory.” Well, life’s transitory. It depends on your time frame. And the time frame now is pushing the credibility of everybody, him, the board, to say that. They’ve given up on that “transitory,” and as Erin said earlier, the outlook and the consumers are already seeing it. They don’t see it improving, and I as an economist see that in the pipeline. I do see inflation coming down, but not the first half of 2022, it’ll be the second half or maybe even into 2023.

Jim Vokal: That’s great perspective from both of you. We’re going to wrap up our discussion today with a question for both of you—has the return of inflation prompted any learning from economists on either the government’s financial response or in policies that impact the supply chain, and then the second question, do voters appear to have come to any conclusion about what does or doesn’t work from their perspective? Dr. Goss, I’ll let you hit that one first.

Ernie Goss: Oh, boy, that’s a good one. Now, it’s well the voters are going to blame whoever’s in office and we’re talking about the Congress and the Senate both held by the Democrats [that] are in charge there, and of course the presidency, the Democrats in charge. So that’s right now. But as soon as the Republicans are, if they become in charge, then they will accept it. But what’s driving this is, again, we’re now into the demand-pull inflation. In other words, now workers are getting higher and higher wages, so they’re pushing up prices, on the cost-push side, we’re talking about transportation cost is a significant driver, and transportation bottlenecks, I should say. In our surveys, transportation bottlenecks [are] a big issue, and also as we talked about earlier, the supply of available workers both that is pushing up costs and I see no end to that. At least, I do see an end to it, but it’s not in the first half of 2022. So in terms of policy responses, what we need to see is Build Back Better with the plan that the Biden administration pushed—do not pass this. I don’t care what 17 Nobel Prize-winning economists said, they are dead wrong. It will contribute to inflation, it will. And luckily, I mean one day, I think Biden might just put his big arm around the senator from West Virginia, Manchin, and Sinema and just give them a big hug, because they saved his butt. Because if that had been passed, we would be looking at some really long-term inflation potentially to the end of the Biden administration’s term, their tenure in the White House.

Jim Vokal: Before I get to Erin, Dr. Goss, any other learning that we’ve figured out from economists watching the response?

Ernie Goss: Sorry… you’re right, I didn’t address that, because I think we economists are slow learners. That’s one thing, that’s one of the reasons I didn’t address it. …Think about all the students in my class. I just came from class. There’s not a student in there, or most faculty members even, that have ever seen inflation. They’ve never seen higher interest rates. We’re now entering an era that is surprising economists because we thought inflation was gone forever. Well, it’s not gone, so the learning we’re doing is inflation is back and we economists have to be at the forefront of making recommendations to cure the the inflation. Now, what do I mean by that? The federal reserve, which is dominated by lawyers and economists, they’re going to have to look and see and learn that this is not transitory, that they’re going to have to raise interest rates, which they will beginning as early, well probably maybe earlier than March the 15th, but no later than March 15th and 16th they’re going to do that. But they’re also going to pull back on their bond buying program. That’s not talked about much. We are learning now that these low mortgage rates that we’ve been living with for a long time are going to come to an end, so that’s where we’ve learned and we learned the term stagflation may come back now. I’m not suggesting stagflation [will occur]. Stagflation is excessive inflation and a downturn in overall economic growth— we’re still talking about growth—it’s just being overwhelmed by the increase in inflation.

Jim Vokal: All right, Erin, last word. Do voters appear to have come to any conclusion about what does or doesn’t work from their perspective?

Erin Norman: I would say that I would agree in part with what Dr. Goss said that, you know, voters are always gonna tend to blame whoever’s running the show at the moment the wheels start to come off. They’re also predisposed to believe what their political tribe is saying and there’s been no shortage of that over the last, you know, 6 to 12 months. I think Dr. Goss pointed out by president Biden’s tendency to blame other people or to call the inflation transitory and that it would go away—and there are people out there who are gonna follow their tribe—and that’s gonna be from their point of view what happened and the perspective on what works. The thing that voters typically are drawn to on more complicated issues like inflation and economic and monetary policy, they’re in favor of concrete actions that intuitively make sense to them. And that’s going to be a real challenge for us here, because the thing is if my money doesn’t go as far as it used to, the thing that makes intuitive sense to me is government subsidies and more money. And we know that that’s actually going to make the problem a lot worse, so the key for us is really going to be to explain in simple terms why that isn’t a good thing, why that’s going to cause more harm than good, and that’s a challenge, because the problems that people are facing are that they don’t have the same spending power that they used to, and in their minds that means what they need is more money. So, it’s hard, and I think that’s something we really need to focus on, and coming up with clear-cut examples and messaging on how we can push back on that idea.

Jim Vokal: Dr. Goss, any other parting shots here?

Ernie Goss: Well, I go by Ernie, anyway, and I only ask my wife and kids to call me Dr. Goss—you know how that works. But anyway, I think the parting shot would be really what Erin said, I think, is very salient here and that is—they’re not trying to make it worse—they will make it worse by subsidies. In other words, you dig yourself a hole and then when you’ve dug yourself a hole, quit digging. And now we need to quit digging. The infrastructure bill, which I supported many elements of that, and the program as well, but now I see the Continuing Resolution for Congress, I see that non-defense spending is growing by an astronomical level, the next year. Defense spending up by 1.7%, the latest number I saw. That’s not enough on the defense side in my judgment, but that’s a policy question. But on the non-defense side, you’re going to make the problem worse. In other words, the problem—I’ll give an example, Jim. Rent controls. That’s “Okay, we’re gonna help the renters out by stopping the growth in inflation at the rent level.” I mean, this happened back in the Nixon and the Ford administration. We had “Whip Inflation Now,” that’s the WIN program, and they had wage and price controls. These do not work! Then in other words, cut it out with the subsidies as Erin was saying, but also some of the policy responses that make no sense. The rent controls will make it absolutely worse. After the WIN, after Nixon and Ford, when you took the lid off the price controls it spiraled, it got worse. And that would be the wrong response. The government needs to let the market, where appropriate, to solve this problem. It won’t be solved with politicians, in my judgment, by meddling in terms of subsidies, meddling in terms of trying to target spending—“Well we need to spend more money here.” No, you’ve spent too much already, and the spending needs to come down.

Another issue we didn’t talk, I didn’t mention it, Jim and Erin is that the stimulus packages—that would be the two [CARES & ARPA] and the infrastructure bill—put a lot of money in the hands of consumers. The savings rate in the U.S. went to record levels in 2020 and early part of 2021. They’re still there. If consumers break it out, that could mean even higher inflation, so we’ve got to be ready. We have to encourage individuals not just go on spending sprees. And that’s the real key. We don’t want inflation expectations although to rise, and in fact, I’m contributing to it, we’ve contributed to it today. But you gotta be honest with people out there, and I think politicians and economists and public policy people have to be honest. Americans are not stupid.

Jim Vokal: Ernie, Erin, thank you for being two great guests on Nebraskanomics. and we look forward to talking to you again.

Ernie Goss: Thank you so much.

Erin Norman: Thanks, Jim.

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