That little thing in the United States| the Republican Party did not set off a "red wave", and the economic issue is not important?

On November 10, 2022 local time, the Clark County Election Department in Las Vegas, USA, election staff are processing ballots. People's visual map

As of November 11, 2022, the outcome of the US midterm elections is still unclear, and final control of Congress remains undecided. According to the current statistics, the Republican Party is close to the majority of the House of Representatives and will most likely gain control of the House of Representatives. Control of the Senate will depend on the results in Arizona, Nevada and the second round of Georgia elections on Dec. 6.

In the opinion of US President Joe Biden, this is already a very good result. Due to voters' general dissatisfaction with the US economy and low support for Biden's administration, there was speculation before the election whether the Republican Party would set off a "red wave", but this did not happen. Democrats still have a chance to retain control of the Senate, and the Republicans have so far gained less advantage in the House. In response, Biden excitedly said on Twitter that the loss of seats by the Democratic Party in the House of Representatives is the best result achieved by the Democratic president in the first midterm election in 40 years.

So, what role the economic issues that were previously regarded as the primary concern of voters in various polls play in this midterm election, and what they mean for the Biden administration in the next two years, is a question worth exploring in depth.

Persistently high inflation that is painful for Americans

Gallup's final polls in the run-up to the U.S. midterm elections in 2022 show that economic issues are more important than in most previous election years. Forty-nine percent of U.S. voters rated the issue as extremely important to their voting decisions, the second highest number in Gallup's final survey of midterm elections since 2002, after 2010, during the period of high unemployment in the United States after the 2007-2009 recession, when 63 percent of people listed the economy as an extremely important issue.

No one would deny that economic problems have dealt Democrats a heavy blow in this midterm election. The US is at its highest level in 40 years and has been going on for months, and the Fed has raised its target range for the federal funds rate to 3.75-4% in just a few months. So far, the data shows that inflation in the United States has not shown obvious signs of easing. Against the backdrop of a pullback in the energy price index, the core CPI rose by 6.6% year-on-year in September, fully demonstrating that inflation is widespread throughout the US economy.

For this thorny situation, the Fed has made it clear that it will insist on continuing to raise interest rates until inflation is truly eased. The Fed is widely expected to raise interest rates to near 5% early next year and may continue for some time, a high interest rate that has not been seen in many years will undoubtedly severely dampen investment activity and household consumption, thus triggering pessimistic expectations that the US economy will fall into recession in 2023.

And for ordinary people, persistently high inflation is obviously painful. Whether it is inflation itself eroding the wealth of ordinary households, or the Fed being forced to take more aggressive measures to raise interest rates, it will create a greater debt burden on ordinary households. According to the US Department of Labor, inflation led to a 3.1% reduction in real weekly wages for Americans in 2021. It is estimated that the average American family will need to spend about 7% more on the same items in the first two years, about $3,500. For the poorer, the hit is even harder, as bills for necessities such as food account for a higher share of their disposable income and have fewer options than middle-income households. That's why a Pew Research Center report in late October noted that Americans continue to be negative about the current state of the economy, and inflation remains a top economic concern for Americans. 81 percent of Republican voters and 66 percent of Democratic voters said they were very worried.

Republicans grabbed the handle and chased and beat hard

At a time when inflation continues to be high, Republicans have repeatedly reminded voters that at the beginning of Biden's administration, in the heated debate on whether to launch the $1.9 trillion American Rescue Plan, congressional Republicans strongly questioned that such a large-scale bailout could bring excessive fiscal deficits and inflation risks to the United States, which had emerged from the epidemic lockdown at that time, and the White House's response was that "the cost of inaction is much higher than the cost of taking radical action." U.S. Treasury Secretary Janet Yellen claimed in an interview that the stimulus package would not trigger a surge in inflation, and even said that even if inflation did, the Fed had the tools to address it. The American Rescue Plan narrowly passed the Senate by a vote of 50 to 49, with Democrats pushing the bill with a simple majority without any Republican support.

The massive stimulus package created the fastest growth in the broad money supply in 150 years, and rising consumer demand contributed to the fastest economic recovery in U.S. history, but it also buried the danger of persistent inflation. On the one hand, the unscrupulous release of water, coupled with the relatively depressed service industry during the epidemic, the American people have converted a lot of cash into strong shopping demand, pushing up prices; On the other hand, the additional pandemic unemployment benefits provided in the stimulus package and the largest child tax credit in U.S. history have reduced the willingness of some people to work under the epidemic, which is one of the important factors that the labor force participation rate has always struggled to return to pre-pandemic levels. It exacerbates labor market shortages and, while raising the cost of production and commodity prices for firms, undoubtedly further fuels inflation.

But the Biden administration and Democrats have denied this. They first attributed inflation entirely to supply chain disruptions and price gouging caused by the new crown epidemic, and then dumped the pot on Russian President Vladimir Putin after the Russia-Ukraine conflict to trigger a surge in oil prices, and repeatedly blamed the greed of domestic oil companies for causing Americans to suffer from high oil prices. However, Republicans will certainly not let go of this handle, lashing out at Democrats' irresponsible fiscal measures and overly aggressive social welfare for putting the US economy in a difficult situation, stifling America's good competitive ecology and innovative spirit, encouraging unearned gains and putting the United States in danger. They remind Americans that the spirit of market freedom and responsible fiscal discipline should be respected for the economy to be truly rejuvenated.

When inflation and the economy become the hotspots of voters in this midterm election, and when major polls show that more voters approve of Republicans' handling of economic problems, it seems that the "red wave" of Republicans is getting closer and closer.

How the Democrats are blocking the "red wave"

Democrats are well aware that economic problems are their party's biggest weakness in this midterm election. Knowing that inflation will not subside in the short term, Democrats have taken a variety of targeted measures to respond to Republican criticism while focusing the election campaign on lowering the cost of living to combat the pain of rising prices, accelerating their party's economic agenda, and vigorously playing up the "loss effect" and extremist picture that Republicans will bring about by controlling Congress, so as to stabilize the Democratic Party's base and weaken the importance of economic concerns in the voting decisions of Democratic voters. Judging from the voting results so far, these strategies have been effective in stopping the "red wave".

The first is to respond to Republicans' accusations about fiscal spending. In recent months, both Biden himself and members of the economic team have touted the current strong U.S. job market and persistently low unemployment rates, highlighting the strong economic recovery as an achievement of the American Rescue Plan, repeatedly pointing to a $350 billion federal deficit cut in fiscal 2021 and a further $1.4 trillion federal deficit this fiscal year in response to Republican criticism of the American Rescue Plan and Democrats' excessive spending.

The second is to vigorously promote the party's economic commitment to voters and make progress. After the passage of the American Rescue Plan and the Bipartisan Infrastructure Act in 2021, Democrats experienced a period of blocked economic agenda. Approaching the midterm elections, the Democratic Party increased lobbying and pressure, and finally persuaded Senators Manchin and Sinema, who had previously blocked the Build Back Better Act, to pass the Inflation Reduction Act in August this year, which is actually a mini-version of the Build Back Better Act. Although the scale was significantly smaller than the original plan, the Democrats were able to give voters an account. In addition, the "Chip and Science Act" passed in August this year is a bipartisan consensus on strengthening the competitiveness of the United States in science and technology and promoting the return of chip manufacturing. At this point, Biden has basically fulfilled his economic promise to voters, helping his support rating, which once plummeted to 30% to rise back to more than 40%.

The third is to launch relevant measures to reduce living expenses in the sprint stage. In addition to touting the Inflation Reduction Act's achievements in providing voters with Social Security and Medicare and lowering drug prices, the Biden administration at the end of August launched a benefit program that provides relief for student loan borrowers, benefiting more than 40 million Americans. Lenders with personal incomes of less than $125,000 and married couples with $250,000 are eligible for a $10,000 or $20,000 loan forgiveness. In addition, while oil prices have fallen significantly, Biden still said that additional strategic oil reserves may be released unplanned, and claimed to make oil companies pay high taxes and face other restrictions to force them to lower oil prices. Measures such as these have also helped to reduce some voters' dissatisfaction with high prices and stabilize the DPJ's base.

Fourth, it has trumpeted the serious consequences of the Democratic Party's loss of its majority. Whether it's the Biden administration's emphasis that voters will lose Social Security, Medicare, and other benefits Democrats give them if Republicans seize control of Congress, the "trickle-down economics" that Republicans espouse and the tax cuts they advocate will exacerbate economic inequality, or the successive Capitol hearings and waves of Supreme Court rulings denying women the right to abortion, all paint a dire picture for Democratic voters of what they will lose. This fear of impending deprivation, and the threat of ultra-conservativeism, is bound to prompt some Democratic voters to consider more carefully whether to shift their votes to Republicans because of their dissatisfaction with the economy.

The move has succeeded in diverting some of the attention from Democrats at a time when they face significant economic challenges, making economic concerns "important but by no means the only important issue" for Democratic voters. According to the Pew final poll, Democratic voters are most concerned about the future of national democracy this fall (80 percent), health insurance (79 percent) and abortion (75 percent). More importantly, only 3 percent of Democratic voters who have a very negative view of the economy have made it clear that they will support the Republican House nominee. Judging by the current voting results, this poll should be accurate and close to reality. This may be an important reason why there is no "red wave".

Economic issues will remain a top priority for the Biden administration over the next two years

Although the series of measures launched by the Biden administration and Democrats in the final period of the midterm elections did help save the situation to some extent, the high attention of economic issues in this election and how the inflation situation will develop in the future still pose a major challenge to Biden's administration.

The Biden administration should be clear that the massive fiscal stimulus of the early days has not subsided in the midterm elections, and the balance sheets of households and businesses are good, providing an important buffer against rising prices. Currently, American households have about $20 trillion in excess savings. With the exception of the bottom fifth of residents, most Americans hold a lot more cash than they did before the pandemic. But if inflation persists, or the U.S. economy falls into a significant recession as the Federal Reserve continues to raise interest rates, Democrats may face a more severe impact in the 2024 election. As we have learned, economic issues will remain a top priority for the Biden administration.

(Ke Jing, Associate Researcher, Institute of International Studies, Shanghai Academy of Social Sciences)