By E.J. Antoni
The results of the midterm election have left an unsolved mystery surrounding inflation. Both exit polling and polls taken before the election showed inflation as the number-one issue for voters. Under conventional wisdom, this should have translated into much bigger victories and larger margins in Congress for the party out of power — Republicans.
And yet, inflation didn’t seem to have much of an impact as Republicans underperformed relative to the expectations of those on both the right and the left. How do we square the circle of inflation being the primary issue on so many voters’ minds and yet not changing very many minds? The fact that the pain from inflation is so unequally distributed across the electorate might be the answer.
Since Joe Biden became president, the average family has seen prices rise significantly faster than wages, so that real (adjusted for inflation) annual earnings have fallen $6,100. As interest rates rise in response to inflation, borrowing costs also rise, and that has added another $1,300 a year of financial pain. The average family is effectively $7,400 poorer today than when Biden took office.
But that is just an average figure. There are always people above and below the average. The one demographic whose wages have actually risen faster than inflation is college graduates. They also are more likely than average to vote Democrat.
Young college graduates are even more protected from inflation. Those under 30 are more likely to be on their parents’ health insurance as well as live with their parents, effectively sharing the cost of living. Again, this group disproportionately votes Democrat.
Conversely, retirees on fixed incomes are more likely than average to vote Republican. Unlike the young, especially recent college graduates, inflation squeezes retirees harder than average because their incomes are less likely to adjust to rising prices.
But what is the impact of this dynamic on an election? Looking at a state like Florida, which hosts a disproportionate number of retirees, it makes sense that the electorate leans Republican since people are more likely to vote that way as they age. Inflation, therefore, is disproportionately affecting a group that was already going to vote Republican. Instead of changing the marginal voter’s mind, the issue cemented a voter already in the Republican column.
Meanwhile, college-degree holders, particularly recent graduates, have seen their incomes rise faster than inflation, on average, making the higher cost of living less of an issue for them. Once again, inflation was probably not much of a factor for this group and likely did not change many Democrat votes.
Similarly, those who rely heavily on government assistance disproportionately vote Democrat. Yet many forms of government assistance offer layers of immunity from inflation. Some government benefits feature cost-of-living adjustments that automatically rise to match inflation. Other benefits, like some rental assistance programs or Obamacare, require participants to pay only a small portion of their incomes, or nothing at all, and the rest is government-funded. If the cost of the product or service increases, the government simply pays the difference – the person receiving the government benefit is protected from the higher price.
In terms of election outcomes, inflation affected groups that tended to vote Democrat less than the average American. So there was little motivation to change their votes to Republican, contrary to conventional wisdom and polls.
On the other hand, people who are not on government assistance but have similar levels of disposable income have been hit particularly hard by inflation. With less wiggle room in their budgets to begin with, they have dug into their savings and gone into credit-card debt to make it from paycheck to paycheck. Yet this group is much more likely to vote Republican than their counterparts on government assistance. Once again, the people who were going to switch their vote from Democrat to Republican in line with conventional wisdom, were probably voting Republican anyway.
The disparate impact of inflation on the electorate is even seen geographically. Four of the five major metropolitan areas with the highest inflation rates are in “red” states, while four of the five metro areas with the lowest inflation rates are in “blue” states. The difference is so stark that the inflation rates in the Phoenix, Atlanta, Miami, and Tampa metro areas are about double what they are in the Hawaii, DC, New York, and San Francisco metro areas, respectively.
Ironically, the data indicate that seemingly contradictory statements can both be true: inflation was the number-one issue for voters and inflation didn’t change the minds of many voters. The conventional wisdom committed the fallacy of composition: conflating what is true for the group as being true for all the individuals therein.
E. J. Antoni is a research fellow for regional economics at the Heritage Foundation’s Center for Data Analysis.