The Economics & Politics of Biden’s Economy
For over three years, the United States economy has been, and still is, subject to inflationary pressures unseen in nearly two decades, diminishing consumer and market confidence. The causes of inflation are as variable as they are complex, from the sustained, aggressive spike in consumer demand following the coronavirus recession to the then-lagging production and restructuring supply chains indicative of a globalized economy still wracked by a global pandemic and ongoing turmoil.
Other such reasons stem from a sustained and aggressive return to the labor market between 2021 and 2022, putting upward pressures on wages and corporate entities increasing prices for any number of reasons, including to pay the increased number of workers those higher wages and to sustain their revenue streams derived from the exploding demand. However, the world, not just the US, was wracked with such pressures.
With rising inflation and decreasing consumer confidence, especially with the increasing hikes meant to combat inflation further increasing prices, fears of a recession loomed in the United States. Yet come 2023, the economic situation had changed rather markedly. In July 2023, Morgan Stanley, an accredited investment banking institution, stated that a recession was averted. So what happened?
Several factors have contributed to this economic turnaround. Yet, the Biden Administration, in a bid to shore up public confidence and polls, has circulated a new term meant to link the economy’s recent performance to Biden’s own: Bidenomics. From his first day in office, President Biden was keen on rejuvenating the US economy, which had been wracked with issues that stemmed from not only the pandemic but decades of economic developments that have stretched well up to even Biden’s time as a US Senator.
The Economics of Bidenomics
President Biden, in announcing his economic plan, stated that an economy under his administration would be built “from the middle out and the bottom up,” suggesting that the US economy should support working Americans and middle-class Americans.
Unlike the Trump administration, which relied on tax cuts and limited government intervention to stimulate business development and investment, harkening back to President Reagan’s strategy. The Biden administration, meanwhile, has been decidedly Keynesian, named for the famous British economist John Maynard Keynes, who advocated for the use of government spending.
In President Biden’s plan, this approach had manifested in a few key policies. The Infrastructure Investment and Jobs Act, injected roughly $1.2 trillion into constructing, repairing, and upgrading various networks of infrastructure, from the traditional road and bridge networks to improving broadband networks in rural regions, improving water infrastructure, public transportation, and climatized energy infrastructure.
The COVID-era American Rescue Plan continued Trump-era actions that allocated nearly $1.9 trillion in stimulus checks for Americans, continued employment benefits for those out of a job, the expansion of a child tax credit to alleviate costs for families with younger children, loans and subsidies for businesses, and aid to local and state governments. The Inflation Reduction Act authorized investments into clean energy and domestic industries to incentivize their growth while also lowering prescription drug costs by letting Medicare negotiate drug prices down.
The CHIPS Act authorized federal investments into the domestic semiconductor industry to expand production, increase jobs in this sector, and drive costs down for electronic goods, which had seen prices increase due to supply connections with Taiwan, the biggest chip manufacturer in the world. Finally, to finance these programs, the Inflation Reduction Act incorporated a 15% tax increase on the wealthiest Americans, those that made more than $400,000 a year, in order to accrue $1.9 trillion in revenue over a decade.
The Politics of Bidenomics
Biden’s economic plan, despite its ideals and goals, was, and still remains, subject to intense scrutiny and criticism in Washington, given the highly fraught and polarized nature of the 117th and 118th Congresses. Much of Biden’s economic plan had begun under the 117th Congress, which saw slim Democratic majorities in the House and Senate.
Due to the Senate being locked exactly 50/50, the minority utilized the filibuster to inflate the needed votes to pass legislation to 60. Moreover, the outsized influence of centrist Democrat Joe Manchin of West Virginia and then-Democrat Kyrsten Sinema of Arizona forced Biden to compromise on his legislative agenda to see them through Congress.
Much of what was proposed in his “Build Back Better” plan was whittled down significantly, with the administration compromising on issues such as increasing the federal minimum wage to $15 dollars an hour and lowering the marginal corporate tax rate he sought to 15%. Nevertheless, Biden was able to get his bills through the chamber.
In the wake of their passage, criticism has come from the Republican Party. Key opponents include Speaker Kevin McCarthy of California and several Republican presidential candidates, including Florida Governor Ron DeSantis and former President Donald Trump. Speaker McCarthy criticized the plan as possessing “blind-faith in government spending and regulations,” in line with traditional Republican views of the role of government intervention in the economy.
Governor DeSantis considered Biden’s plan an “economic malaise” and has proposed an alternative plan that calls for ‘reining in’ the Federal Reserve and pushes for 3% GDP growth. Former President Trump has repeatedly attacked Biden’s economic plan on social media in order to undermine the Democratic president.
Voters remain skeptical of Biden’s handling of the economy, with roughly 34% of voters approving of how the President handles the economy, a 26-point drop from 2021. Likewise, 63% of voters have disapproved of Biden’s economic performance, and 51% say the economy is heading in the wrong direction.
The economy plays a significant part of how voters view the governing administration, and the negative perception is reflected in Biden’s approval rating, which sits at 54.3%. Despite these indicators, Democrats and the Biden Administration are standing by the strategy. Administration officials stated that the plan's impacts have yet to be fully felt by Americans and that a waiting game has begun insofar as turning public opinion is concerned.
Impact of Bidenomics
As with all things economic and political, there have been positive consequences that can relate to Biden’s plan. To start with the positive, though, the economy has seen a marked dip in inflation, going from a high of 9.1% in July 2022 down to 3% in July 2023.
A total of 13 million jobs have been added to the economy over three years, and unemployment has remained low since Biden took office, averaging at 3.6%; for comparison, in July 2021, the unemployment was hovering around 5.3%, when adjusted for seasonal unemployment. The jobs market remains hot, with roughly 187,000 added to the economy in July 2022, likely due to a return to in-person workplaces and increased investment into domestic industries requiring more personnel.
The most telling impact, at least for economists, is that gross domestic product, the aggregate amount of goods and services sold in a country, grew by about 2.4% in the second quarter of the 2023-24 fiscal year, suggesting that more goods and services were bought and sold across the country. Due to this, wages have increased by 3.5%, hourly wages up 12%.
However, with positive consequences, there are also negative ones. The most glaring is that, despite the aggregate drop in consumer prices across the country, there are still many that suffer from high inflation at the individual level. Food prices and gas prices have remained high for many across the nation, impacting citizens’ wallets, particularly those of low-income households.
This has not been helped by the fact that, despite the growth in wages, this growth is not across the whole economy; in fact, there are several sectors where wages have stagnated. Housing prices have also contributed heavily to continued inflation rates, especially in states such as Florida that have seen influxes of new residents, resulting in a significant shortage, resulting in an affordability crisis that persists to this day.
In general too, household debt has remained staggeringly high, at roughly $17 trillion, up 16% since 2021. This is through a number of increasingly expensive outlays for households, from increased consumer prices to college tuition. For borrowers, interest rates are still blisteringly high, with the effective federal funds rate (FFR) being at 5.08%.
The FFR is the principal tool used by the Federal Reserve to combat inflation, which still sits a point above the target rate of 2%, as of the writing of this article. Moreover, some policies that were in place to alleviate costs, such as the child tax credit and Biden’s student loan relief plan, have either been sunset, such as with the former, or challenged in court and still in progress, the case of the latter.
Despite some successes, Biden’s government will still have much to tend to when it comes to sustaining the economy’s recovery, as there are still areas that have to be maintained and issues that remain to be addressed, and to the degree of which they will be addressed can markedly change the landscape of the coming 2024 presidential election.