President Stagflation’s ‘Shocking’ Ignorance: Rising electric bills become political problem for Trump, GOP

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1. Rising electricity bills in the United States, now increasing at 5.5 percent year-on-year—roughly double the rate of headline inflation—are becoming politically salient. Yet the framing of this issue in purely partisan terms misses the deeper economic structure at play. Electricity markets are quintessentially intertemporal, capital-intensive systems, and their pricing is shaped as much by credibility and expectations as by fuel costs. Lucas and Sargent’s rational-expectations critique is particularly instructive here: households and firms do not simply respond to current prices, but rather to the anticipated trajectory of policy and investment. When politicians issue time-inconsistent promises—such as pledges to halve electricity bills within eighteen months—rational agents immediately discount them. The credibility gap becomes priced into risk premia on utility financing, which in turn feeds back into household tariffs. In this sense, Trump’s rhetoric is not merely unrealistic; it is counterproductive, worsening the very expectations it seeks to defuse.

   In the short run, the proximate drivers of higher bills are rate-base pass-throughs from transmission upgrades, climate resilience investments, and electrification demand growth (particularly from AI data centres and EV adoption). Wholesale natural gas prices have actually fallen since 2024, but this disinflationary impulse is more than offset by regulated cost recovery cycles. Politicians blame either “windmills and solar” or the repeal of subsidies, but such rhetoric is largely orthogonal to the economic reality: renewables, once installed, depress wholesale marginal costs through the merit-order effect. The difficulty lies in financing, not generation cost. By repealing federal subsidies, Republicans have increased the cost of capital, raising financing spreads and shifting risks back to utilities and ratepayers. In the medium term, this credibility failure is precisely the mechanism Lucas and Sargent identified: once agents believe that subsidies and support may be reversed, the discount rate rises, and even efficient investments become more expensive. Thus, bills rise not because renewables are intrinsically costly, but because the political economy has rendered their financing riskier.

   The longer horizon reveals the political economy logic most starkly. Electricity pricing is not merely a technical problem but a distributional one: should the cost of grid modernization be borne by taxpayers through subsidies, by ratepayers through tariffs, or by utility shareholders through lower returns? Persson and Tabellini’s models of distributive conflict and Alesina–Drazen’s insights on war-of-attrition dynamics apply with force here. Where political coalitions cannot agree on an equitable sharing rule, reform is delayed, capital investment is deferred, and ultimate costs rise. In electricity, this dynamic produces underinvestment in resilience, rising blackout probability, and further voter anger—an intertemporal spiral in which the absence of credible, coordinated policy amplifies both economic inefficiency and political instability.

   The Consumer Price Index electricity subcomponent, while useful as a measure of salience, is frequently misinterpreted in this debate. It aggregates highly regionalized regulated tariffs and does not isolate wholesale drivers from transmission and distribution costs. Using such an index as a proxy for “policy success” reflects the very fallacy Lucas and Sargent warned against: attempting to manage outcomes without modelling the structural mechanisms that generate them. Politicians who seize on the CPI subindex to apportion blame are, in effect, conducting a policy debate in reduced form, ignoring the structural equations underneath.

   In conclusion, the political theatre surrounding U.S. electricity bills is an object lesson in Lucas–Sargent political economy. Short-term partisan blame games alter expectations and embed risk premia; medium-term subsidy reversals damage credibility and raise financing costs; long-term distributional conflict over who pays for the grid generates delayed investment and ultimately higher household bills. Unless the U.S. establishes a credible intertemporal commitment to energy investment—balancing efficiency with fairness—voters will rationally expect, and therefore actually experience, persistently rising electricity costs regardless of which party occupies the White House.

2. The AI bubble, Bitcoin, and staggeringly stupid energy policy are coming together in a perfect storm.

3. Its a problem for you, not for them. They’re rich.

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