Midterm elections represent the next big item on the international political agenda. On November 8, all the members of the House of Representatives and a third of those of the US Senate will be renewed. Symbolically, this is a first crucial political judgment on Joe Biden's presidency, grappling with the war in Ukraine, the increase in interest rates and inflation that shows no signs of stopping. The Economist Barry Eichengreen teaches Economics and Political Sciences at the University of Berkeley in California, where he studies the financial origins of economic crises and the relationship with the emergence of populist movements.
How does the US economy fare in the midterm elections?
“The economy, at least superficially, continues to look strong. Growth still has momentum and unemployment is at historically very low rates, but financial tightening is making its way into the system. The current monetary policy will have important effects first on the real estate market and then on the economy in general. The chances of a recession next year are high. But we are only a few weeks away from the midterm, now the current situation counts, not what will happen in 2023".
How does American public opinion view the increasingly direct US support for Ukraine?
“American elections revolve around domestic issues, not foreign policy. Most Americans don't have a firm opinion on US support for Ukraine. Even those who broadly agree with the Biden administration's support for Ukraine hope the war does not escalate into a dangerous military escalation.
With the Inflation Reduction Act, Joe Biden has developed a powerful plan to support the economy. Is it a popular size?
"I would say no. The Inflation Reduction Act never promised to make a significant dent in inflation, and no one outside the Beltway ever thought it would. The news largely sank under the headlines. It is neither popular nor unpopular, so it will have no implications for Biden's campaign."
So what are the arguments that will "shift" votes in this election?
“Inflation is seen as an indictment of those who are administering, so its persistence will be bad for Democrats. Social issues, starting with the right to abortion, will galvanize Democrats and bring out additional segments of voters, especially women, who might otherwise abstain. Will economic or social issues dominate? I'm a "sad economist," so I'm inclined to think Republicans will gain a lot of traction in November. There are also politicians, the governors of Texas and Florida, for example, who are trying to make immigration a primary election issue. But those governors are positioning themselves as candidates in the 2024 presidential election, so their moves are unlikely to matter much in the midterm, except perhaps in places like Arizona, which are on the front lines.
Does Donald Trump still have real potential to influence American political life?
"Its electoral base is still very solid."
Inflation is the real big unknown in the US and European economy. These inflation numbers have not been seen in decades. Should the Fed have intervened on rates sooner?
“Yes, the Fed has fallen too far behind the curve. You failed to recognize the signs that the economy was overheating before it was too late.'
What is your opinion on this phase of inflation?
“It will depend on what central banks do, in particular whether they stay on the 'right course' by continuing to raise rates, even as unemployment starts to rise. The culture of stability is deeply ingrained in modern central banks, including the Fed. They understand that by “de-anchoring” all inflation expectations, the risks of maintaining financial stability would be too high. An analogy is with the European policy towards Russia. Europe delayed the Russian oil embargo to avoid short-term pain. But this has given Putin more resources with which to carry out his war on Ukraine. So now Europe has to take even more drastic measures, at even higher costs".
If inflation were to remain at high levels, in the United States and in Europe, what would be the effect on the formation of political consensus?
«We know historically that inflation corrodes consensus. It will make it harder to agree on anything. High inflation will be seen as an indictment of those in power right now. And the identity of the "incumbent", whether left or right, varies according to the individual countries».
The energy crisis is upsetting the European economy, increasing nationalistic pressures and the temptations to safeguard the economies of individual European countries outside common policies. Do you see a risk of rupture for the European Union?
«The moment is complicated, there are many risks for the Union. There has been a lot of 'sniping' between Germany and other member states on the generous energy subsidies that Berlin has activated for its companies and its citizens. But I think that all in all the crisis will increase the degree of European integration, on the awareness that the Union needs a common energy policy and a more integrated energy market. And of course it needs a real common foreign and security policy.'
In the United States, how do you evaluate the progressive increase in consensus in Europe of right-wing political parties?
«Personally, I am concerned about the risks of compromising social freedoms, for example women's rights in Italy. Of course, from this point of view, the risks in Italy are no different than in the United States. I am generally concerned about the risks looming over the checks and balances of parliamentary democracies. Hungary, where the press and the judiciary are under threat, is a good example of these risks. Once again I repeat, the United States is not immune to these scenarios: in a good number of states the integrity of the electoral process risks being seriously compromised. I also fear that right-wing leaders may adopt irresponsible economic policies."
Is Italy a concern?
«I am worried about a possible break between the new Italian government and Brussels on the need to agree on structural economic reforms. I am concerned by the tendency of these right-wing parties and governments to demonize immigrants. We live in a world of immigration, we will continue to live in a world of immigration, whether these parties and governments like it or not."
Can the United States in this historical moment really afford to have an economically weak and politically fragmented Europe?
"Absolutely not".
The war in Ukraine, the geopolitical competition between the USA and China, the energy crisis, the measures for the ecological transition that are changing all the paradigms of the economy, the shortening of international value chains. What is your updated definition of globalization?
“There are still many deeply integrated national economies in the world. However, the idea that their interdependence grows more and more over time is over. China-US trade will also survive, in the absence of an overt conflict between China and the US over Taiwan. Avoiding that conflict is perhaps the main issue on today's geopolitical agenda."
