The November election will be reviewed with a microscope in an attempt to determine the reasons for the outcome. A common theme that was consistently at issue was inflation and the economy. Per Jon Burn-Murdoch, a chief data reporter from the Financial Times, he noted “Every governing party facing election in a developed country this year lost vote share, the first time that has ever happened.” He also noted it wasn’t “just the first time since WW2 that all incumbent parties in developed countries lost vote share. It’s the first time since this data was first recorded in 1905. Essentially the first time in the history of democracy.” Voters on a global scale determined that inflation was their biggest concern and whether it was right or wrong whoever was in charge was going to get the blame.
Following the COVID recovery, we began to see rising prices in 2021 with a peak of nearly 9% in 2022. The Federal Reserve took notice, as required by their mandate, and correspondingly raised interest rates to help slow inflation. A period of increasing prices with higher interest rates during a period of growth that isn’t exactly booming is going to be felt here and abroad. The possible surprising point is that it was a global referendum. We saw sentiment change during COVID and now we are seeing a similar referendum in the past few years. There is always more than one issue that impacts a voter’s decision. However, many people have not enjoyed the post COVID era and have voted for a change on a global scale. Brazil President Jair Bolsonaro faced rising costs to fuel and electricity in 2022 and lost the election to his opponent. In England, Prime Minister Lis Truss faced some of the highest inflation in decades, and despite efforts to curb prices, served only 44 days in office. Some countries have faster mechanisms to change leadership than the US, it allows for quick changes in sentiment. However, sometimes a quick change does provide a lot of confidence in that change or trust to give that leader a shot at implementing their own policy. In the US we have the opportunity to express our sentiment every two years for Congress and four years for the Presidency. It doesn’t necessarily mean the next person will fix inflation; they may simply be riding shotgun for whatever period of inflation exists.
It is often best to look at our own history to see if something may rhyme with our current environment. Many voters still remember the inflation era of the 1970s and just like any injury, you may heal but you remember the injury later. Even if our inflation since 2021 is temporary, the pain is still real and remembered; voters globally reminded us of that. Presidents Gerald Ford (’74-77) declared inflation “Public Enemy Number One” and Jimmy Carter (’77-81) called it the “nation’s most pressing problem.” If you go back and review the administrations from the mid-1960s to Reagan in the 80’s you will see a rotation of political parties as voter sentiment also rotated. Inflation continues to show us that it has been atop voters’ minds globally over decades. In the 80’s, ultimately it was the Fed chairman Paul Volcker (1979-1987), who got firm with interest rates by raising them to 20% in order to slow inflation and curb price increases, thus ending the cycle.
In the end, a country’s sentiment can simply change and rotate, it’s part of the checks and balances of our own system. Presidents change and Federal Reserve Committees rotate, with inflation being the letter grade you received, but rather than your grade being based on overall performance, sometimes it may simply be based on inflation. There are over 8 billion people and statistically it seems improbable that one person can control inflation on a global scale. Certainly, policy and ideas can have an impact, but like the weather, inflation may be one of the stronger determinants of change in global politics. We have historical references of what can happen if inflation would continue to go up. The good news is we have seen a reduction in inflation since 2022. The Fed has recently implemented its second cut in interest rates making it look like we will avoid a period like the 70s or 80s.