President-elect Donald Trump owes his political comeback in large part to voters’ concerns over the soaring price of everything from gasoline and housing to coffee and bagels.
Inflation has since come down to levels close to normal thanks in large part to a steep rise in interest rates. But in an ironic twist, some of Trump’s own policies – which he heavily promoted on the campaign trail – could send inflation soaring once more if enacted. Specifically, economists caution that his proposed policies on tariffs, immigration and taxes may do more to exacerbate inflation than curb it.
In my introductory economics classes, I teach my students about the unintended consequences of policies and how they can sometimes be counterintuitive. Common-sense economics often falls short, and this is evident in several policies proposed by Trump, where the expected outcomes may not align with their actual impacts.
Exit poll data reveals that Americans felt the sting of rising prices in recent years, as inflation-adjusted wages strained household budgets.
Even as the Federal Reserve has managed to bring inflation much closer to its 2% target, many Americans continue to describe prices as “too high,” an echo of the past several years’ cost increases that persistently outpaced wage growth.
When inflation outpaces wage growth, the purchasing power of each dollar erodes, leaving workers struggling to afford the same goods and services. This erosion has been felt particularly hard in recent years, but it’s part of a long-term trend of sluggish wages.
Inflation-adjusted wages have been largely stagnant for decades, with certain metrics revealing a dismal reality. For example, the federal minimum wage, created in 1938 and set at US$7.25 since 2009, is now worth less than half of what it was over 50 years ago. Back in the late-1960s, the minimum wage was worth the equivalent of $14.50 per hour in today’s money after adjusting for inflation.
Median weekly earnings paint a similarly bleak picture. Today’s........