Federal Reserve Chairman Ben Bernanke has set an inflation target that may turn into a bull’s eye on the Republican party. Bernanke wants to cut the current "core" inflation rate of 2.9 percent to 2 percent. Over the next two years that would increase the unemployment rate from 4.8 percent to 5.5 percent, throwing two to three million more Americans out of work. Last week, Bernanke "paused" the Fed’s two-year policy of raising interest rates, but to contain inflation, rates will have to go up. Unemployment will go up with them. If Bernanke doesn’t raise rates enough to increase unemployment, inflation, driven by surging oil prices and rising wages, will escalate. Robert J. Gordon, a professor of economics at Northwestern who studies the trade-off between unemployment and inflation, contends that over the next two years both will increase simultaneously. "I think the Fed is facing an absolutely classic case of stagflation," Gordon told Edmund L. Andrews of The New York Times, "a situation in which they cannot win."
Gordon’s "they" might just as easily apply to the incumbent party. Right now security issues—"cut and run" vs. "stay what course?"—dominate the political foreground. These issues might be salient in November, and possibly in 2008, though whether to the credit or debit of the GOP remains to be seen. But American politics knows no more certain a predicative metric than that increasing unemployment or rising prices in an election year defeat the incumbent party. The phenomenon is called "economic retrospective voting." In the long sweep of political history, it appears that, more perhaps than any other factor, the answer to Ronald Reagan’s question in his first debate with Jimmy Carter in 1980—"Are you better off now than you were four years ago?"—decides elections.