With unemployment standing at 3.7 percent, down from 6.3 percent when President Biden took office, and labor force participation up 1.5 percent over the same period, it's hard to imagine American labor has been disserved by the President's fiscal policies. Macro-indicators show economic growth is strong and a recession unlikely. A year ago, almost every economist forecasted a recession for 2023, but real GDP growth stands at 4.9 percent for Q3, and Q4 will be strong as well, although likely lower.
For the most part, Americans who want work can find work—and this isn’t by accident. From the first day of his presidency, President Biden has directed his team to investing in rebuilding America by funneling public funds towards high fiscal multiplier projects, most notably infrastructure, which not only fix our broken roads, bridges, and railways while paying for themselves over the long run, but also put Americans to work in the process. To date, the administration has supported the creation of 18 million new jobs—800 thousand of which are in manufacturing—and has done so in a manner that has kept clean energy and energy independence at the forefront of the employment agenda.
Every administration in modern history has had a dedicated agenda for growing middle-class jobs. Few presidents would get past the primary debates without a well-crafted strategy for increasing middle-class employment. However, this administration’s is markedly different from those of recent past. Biden’s team recognizes that achieving the administration’s goal of growing the economy ‘from the bottom up and from the middle out’, is not a natural corollary of unfettered free market capitalism. Biden’s top economists, most notably Cecilia Rouse and Jared Bernstein, both fierce advocates for government playing a pivotal role in economic determination, are cognizant that it takes both hard work and a steady hand to allow the market to do its job of creating value and incomes, while also ensuring corporate incomes are shared equitably among those who need them most.
In direct contrast to Republican’s coveted ‘Reaganomics’, which emphasized deregulation, low taxes, and Adam Smith’s invisible hand to determine economic outcomes in the 1980s, ‘Bidenomics’ leans on a two-pronged approach of allowing markets to do the heavy lifting of creating private wealth, but then supplements the effects of free market forces with state-driven growth. The involves allowing small businesses to continue working their magic of driving American output and exports, while also making public investments which put people to work rebuilding the nation’s crumbling infrastructure.
For Biden, this strategy has proved highly effective. The economy has grown and, along with an expanded tax base, President Biden has reduced fiscal deficits and lowered the nation’s federal debt-to-GDP. The Trump presidency saw federal debt-to-GDP rise from 102 to 125 during his term, while President Biden has overseen steady declines. To be sure, most of the Trump-era debts were resultant to the Covid-19 pandemic; however, Trump’s tax policies prior to the pandemic were rather emblematic of the Reaganomics tradition of achieving short-term gains by blowing a hole in the federal tax handle and implementing tax cuts that limit fiscal space for navigating future recessions. Republicans wax lyrical about Democrats spending the country into insolvency, but they too often forget that the largest percentage increase in national debt outside of wartime came under President Reagan.
So given that jobs are increasing, debt-to-GDP is declining, and an all-but-certain recession has been avoided, why has Bidenomics fallen flat on its face in the court of public opinion? Shouldn’t public perception be that Bidenomics is thriving?
The obvious culprit here is inflation—although inflation isn’t the only reason why the Bidenomics campaign has failed so miserably, and its role in public perception is a bit more nuanced than what has been portrayed in the press. Inflation, as measured by personal consumption expenditure, has fallen to 2.9 percent in November, down from 7 percent in the summer of 2022. The Fed, through a series of rate hikes, has successfully disinflated the US economy while avoiding a recession—a result which history has shown us is quite difficult to engineer.
The problem isn’t inflation; it’s prices. Inflation (upward change in prices) has been on a steady decline for a year and a half and is nearly in line with the Fed’s two percent mandate. What is troubling voters, according to consumer polling, is the magnitude of the early adjustments in prices following the pandemic, as well as the length of time we have spent in an above-target-inflation environment. Polling indicates that what voters really want is deflation—or at least lower prices for consumer staples. However, any economist would tell you deflation would be a recipe for disaster. Deflation would impinge job creation, investment, and corporate profitability. A healthy economy needs a little inflation, and this is why the Fed has been measured in its decisions to raise rates.
Fortunately, wages have increased alongside other price increases, offsetting most of the strain felt by higher consumption costs. However, it hasn’t been enough. Since President Biden took office in 2021, real median household income is down $2,000, and per capita real disposable personal income is down more than $4,000. But wages failing to keep pace with inflation is not a new phenomenon. A number of presidents have faced similar circumstances and navigated them rather effectively. George W. Bush was reelected following four years of declining real median household income and so was Barack Obama.
Where the Bidenomics campaign failed is its blatant disregard for consumer sentiment. No matter how good the economy is doing, if people don’t feel the economy working for them, then it isn't. You can’t force voters to feel they are doing well financially, no matter the story being told by economic indicators—and voters resent you when you try. Eleven months from re-election both Bush and Obama benefitted from much higher consumer sentiment, and they were able to capitalize on that sentiment by securing a second term. President Biden is not so lucky.
By nearly all accounts Bidenomics is working. But until the voters feel it’s working, the President can’t count on the economy to carry him next November.