Bidenomics, Bidenflation and Biden '24

Steve Prestegard

Jun 29

Greg Ip opined Wednesday:

President Biden kicks off a national campaign Wednesday pitching his economic record to a deeply skeptical public.

The challenge: Biden really has two economic records. One of them begins in late 2021 and consists of a series of legislative wins on infrastructure, semiconductor production and renewable energy, which he then preserved in a debt-ceiling deal with Republicans. These policies could shape the economy for years to come.

That record, though, is overshadowed by the record of his first months in office, when his American Rescue Plan pumped $1.9 trillion of demand into a supply-constrained economy. The result was the tightest job market in memory and a surge in inflation that still hangs over Biden's approval ratings and his prospects for re-election.

In his speech in Chicago on Wednesday, Biden isn't likely to distinguish between these two records: It's all "Bidenomics," a vision intended to "grow the middle class" and build stuff such as roads and factories. This doesn't tell us much about what distinguishes Biden from other presidents, though. Don't they all claim to want a stronger middle class and more roads and factories?

His early agenda was also not particularly novel. The Rescue Plan was old-fashioned Keynesian demand stimulus, notable mostly for its sheer size. Biden's staff designed it with the economy of 2009 in mind, when newly elected President Barack Obama and Biden, his vice president, faced a deep recession to be followed by a sluggish, yearslong recovery.

Biden's team is still sticking to that narrative. In a memo released this week, his political strategists Anita Dunn and Mike Donilon write that Biden "faced an immediate economic crisis when he took office."

Actually, he didn't. By January 2021, the economic crisis brought on by Covid-19 was largely over, even if the health crisis wasn't. As lockdowns were lifted and vaccines approved, businesses were furiously rehiring. Payroll growth averaged 800,000 a month over the last six months of 2020, in percentage terms the strongest such streak preceding a new president's inauguration since 1952.

The American Rescue Plan, in other words, was designed to bolster demand in an economy that already had plenty.

Dunn and Donilon's memo boasts that job creation under Biden has been the strongest of any president going back at least to Ronald Reagan.

Much of that reflected recovery from the pandemic, which would have happened under any president. Still, the Rescue Plan probably explains why the U.S. recovery has been stronger than in countries with less stimulus. With the labor force depressed by retirements, the virus and reduced immigration, the result was the tightest labor market in memory. That particularly benefited historically disadvantaged groups: Blacks, Hispanics and workers without college degrees.

But many of the benefits of that tight labor market have been negated by inflation. It soared from 2% just before the pandemic to a peak of 9.1% last year as gasoline prices leapt in the wake of Russia's invasion of Ukraine. It has since retreated to 4% as gasoline prices dropped, but underlying inflation persists around 4% to 5%.

Inflation is the main reason voters disapprove of Biden's handling of the economy by a two-to-one ratio, according to a May poll by the Associated Press and NORC Center for Public Affairs Research. If inflation doesn't fade of its own accord, the Federal Reserve might have to raise interest rates further and push the economy into recession, which won't help Biden's approval ratings.

Historically, voters haven't punished presidents for economic hardship brought on by events beyond their control. George W. Bush's approval rose after the Sept. 11, 2001, terrorist attacks brought on recession, as did Donald Trump's when Covid first hit in 2020. Since inflation has risen in almost every advanced country since the pandemic, Biden could logically claim it wasn't his fault.

But it's logically inconsistent for Biden to disown inflation while taking credit for tight labor markets since they are mirror images of the same thing: an overheated economy. While economists debate how much stimulus contributed to this overheating, they agree it played a part. Voters are thus less inclined to give Biden a pass, especially since Republicans, and even some Democrats, keep reminding them of the connection.

If Biden's early agenda was all about macroeconomics—unemployment and inflation—his subsequent agenda has been about microeconomics, i.e., the composition of economic growth. Trump's frequent "infrastructure weeks" never actually led to new infrastructure. Biden, by contrast, got a massive infrastructure bill through Congress in 2021 and it went beyond roads to water treatment and high-speed internet. The Chips and Science Act last year was the largest federal commitment to industrial policy in recent history. The Inflation Reduction Act offered game-changing incentives for renewable energy and electric vehicles.

In a report Tuesday, the Treasury Department said those initiatives are making an imprint on the economic data. Factory construction, for example, has shot up, particularly for electronics. Not all of this is due to legislation: Semiconductor companies were increasing their U.S. footprint already in response to growing demand and pressure to diversify away from Asia. Nonetheless, comments of business leaders make it clear the effect on their plans is palpable.

This newly assertive role for the federal government in shaping private investment isn't without controversy. It is bulking up deficits, its "buy American" provisions have upset allies, and it has lowered the bar to interventions of questionable merit.

Nor is it likely to change Biden's political prospects: The effects on voters' lives are small and gradual, whereas the effects of inflation and unemployment are big and immediate.

Still, this part of Bidenomics represents a break with the past in ways stimulus didn't. It is also popular: All three laws are backed by voters by large margins, according to polls by Morning Consult, and the infrastructure and semiconductor bills garnered Republican support in Congress. This likely confers staying power long beyond the next election, when inflation has faded from the headlines.

In an interview, Jared Bernstein, chair of Biden's Council of Economic Advisers, said: "When you're engaged in an investment agenda, you're partly playing the long game."

Jeff Mordock adds:

President Biden is taking a page out of former President Jimmy Carter's playbook by doubling down on policies that have resulted in soaring inflation.

Mr. Biden appeared in Chicago on Wednesday to argue that Bidenomics — taxing the wealthy and spending massively to subsidize industries and on what he calls the danger of climate change — has spurred an American economic resurgence.

He told the crowd more government programs canceling student loans and bringing high-speed internet to rural communities will lead to a revitalized middle class.

"We have a plan that's turning things around incredibly quickly," Mr. Biden said.

"Bidenomics is turning this around. We are supporting targeted investments for strengthening America's economic security, our national security, energy security and our climate security."

Boasting about the economy while many Americans are struggling with high inflation, interest rates that make buying a house or car more expensive and increased spending on household items like groceries, gas and child care may seem like an unusual campaign strategy. But as Mr. Biden tries to convince Americans he deserves four more years in 2024, his campaign is digging in its heels that Bidenomics is working.

Wednesday's event was part of a three-week blitz of events and speeches to tout Mr. Biden's economic agenda. On Friday, he will give remarks from the White House arguing that he has lowered costs for Americans.

He is not the first president to attempt this strategy, but he's hoping for a more successful result than when Mr. Carter tried it in 1979.

Like Mr. Biden, Mr. Carter struggled to contain soaring prices. He also tried to argue that his economic policies were working ahead of his blowout loss to Ronald Reagan in the 1980 election.

"Biden is taking a page from Jimmy Carter because he doesn't believe Jimmy Carter failed," historian Craig Shirley said. "If Biden believes Jimmy Carter failed at anything, it's that he didn't go far enough with spending."

Under Mr. Carter, U.S. inflation rose by an average of more than 11% in 1979 and 14% in 1980. When Mr. Biden took office, inflation was at 1.4% and peaked at 9.1% in June 2021, a figure not seen in more than 40 years. It receded to 5% in December 2021 and is currently at 5.6%.

The Consumer Price Index rose from 4.8% at the time of Mr. Carter's victory in 1976 to 12% ahead of the 1980 election, largely fueled by high gas prices.

Yet Mr. Carter still tried to convince voters his policies were working.

"Our proposals are very sound and very carefully considered to stimulate jobs, improve the industrial complex of this country, to create tools for American workers and at the same time be anti-inflationary in nature," Mr. Carter said at the second 1980 presidential debate, pledging that his policies would create 9 million jobs.

An Associated Press NORC Center for Public Affairs poll released Wednesday revealed that 64% of adults disapproved of Mr. Biden's economic leadership. That's worse than his overall 58% disapproval rating.

With only 34% of voters approving of Mr. Biden's handling of the economy, that gives the president a net approval rating of negative 30

That is the lowest net economic approval rating since 1978, when Mr. Carter had a net approval rating of negative 28%.