Opinion – Paul Krugman: Election denialists are also economy denialists

The people who will lead the US House of Representatives for the next two years — a group that reportedly does not include Kevin McCarthy, who appears to be president in name only — believe a number of false things.

Many, perhaps most, believe that the 2020 election was stolen, or at the very least that Joe Biden is somehow not the rightful president.

Many believe that Covid vaccines do more harm than good, a belief that has contributed to thousands more deaths among Republican supporters.

Many subscribe to, or are at least sympathetic to, the beliefs of the QAnon cult, which claims the world is ruled by a vast conspiracy of pedophiles.

And almost all of them, as far as I can tell, believe that the US economy is in a very bad shape, with the federal government in great danger of going bankrupt.

You’ve probably read a lot about the political delusions of Republican extremists — and these days the vast majority of Republicans in the House are either extremists or opportunists willing to go along with whatever the extremists want. It is important, however, to realize that the Republican Party’s economic ideas are almost as divorced from reality as its political fantasies.

Let’s talk first about the current state of the US economy.

Republicans spent much of last year screaming about a “Biden recession”. And, to be fair, many private analysts expect recent interest rate hikes to cause growth to slow and unemployment to rise this year – although I am hearing more and more talk about the possibility of a “soft landing” that could violate the Sahm rule for recessions (a 0.5 point increase in the unemployment rate), but it won’t look like a severe dip.

One thing is clear, however: there was no recession in 2022. Indeed, the US economy ended the year with continued strong job growth and the unemployment rate returning to what it was pre-Covid.

And inflation? The 2021-22 price surge, after decades of low inflation, was a nasty shock, and I don’t want to downplay the size of that shock or the extent to which many economists, myself included, failed to predict it. Republicans, needless to say, tried to make inflation, which they blamed on federal overspending, a central issue in the midterm elections.

But did they notice that inflation is falling? Did any prominent Republicans recognize the change in status?

The numbers are really impressive. During the year ended November (the most recent data available), the Consumer Price Index rose by 7.1%. But inflation reached an annual rate of just 4.8% in the last six months, 3.6% in the last three months and 1.2% in November.

It is true that inflation was partly contained by events that are unlikely to be repeated, such as the drop in gasoline prices in the second half of 2022. On the other hand, there are good reasons to believe that real estate inflation –which is responsible for around of a third of the Consumer Price Index – has fallen sharply, but this decline is not yet reflected in official statistics.

Add in the latest wage data, which was very encouraging, and a reasonable estimate is that we’ve regained full employment with underlying inflation just 1-2 points above pre-pandemic levels. This isn’t a perfect situation, and squeezing out the remaining inflation may be difficult (or not!), but it’s hardly a picture of catastrophe.

In any case, the financial markets have basically declared the threat of inflation over: they are implicitly predicting around 2% inflation as far as the eye can see. They are also willing to buy federal debt at interest rates that are a bit high, but still low by historical standards, without showing any signs of concern about US solvency.

Still, Republicans are determined to see economic and fiscal disaster and insist, as they always do when Democrats are in the White House, that we must take drastic steps to balance the budget.

That is, after we deal with their first priority: depriving the IRS of the resources it needs to go after the tax-evading rich.

Anyway, as usual, the GOP is insisting that the budget can and should be fully balanced with spending cuts. And, as always, this insistence clashes with the reality that such massive spending cuts would be politically impossible. Indeed, it is likely that they would be politically impossible even if the Republicans succeeded in completely destroying democracy, which some of them seem to want.

Because the federal government, as an old phrase goes, is basically an insurance company with an army. In addition to military spending — of which only a small fraction, even now, goes to defending Ukraine’s democracy — federal dollars go mostly to retirement and health care programs that tens of millions of Americans depend on, including many Republicans.

So the new House majority is living in a fantasy world, insisting on a wholly impractical solution to a largely imaginary crisis. Unfortunately, as we learned on January 6, 2021, political fantasies can have dire consequences in the real world.

Translated by Luiz Roberto M. Gonçalves