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Monday, July 17, 2023

Bidenomics Sleight of Hand

President Biden is claiming the positive economic news is the result of his economic policies but neglects to mention the less-popular aspects of "Bidenomics"

In late June, President Biden sparked a medium-term news cycle by packaging all of his economic policies into a single term--Bidenomics--in an attempt to take credit for the many positive aspects of economic performance the United States has been enjoying.

Before that speech, almost no one was talking about "Bidenomics", and after it, there was a slew of articles celebrating Bidenomics and ridiculing it. In the past week, as new inflation numbers have shown that the inflation spike is largely behind us even though employment numbers remain good, the Biden team is doubling down and taking a victory lap.

To be sure, employment in the US has been excellent, defying the expectations of both pessimists and apolitical analysts. This is Biden's best economic stat. Other primary measures of economic well-being have been more mixed. The economy overall, as measured by real GDP has grown at about a 2.2% annual rate since he took office, including two quarters where it shrank. Before Covid struck, President Trump was presiding over an economy growing at 2.6% per year. In addition, its growth rate has fallen the last two quarters from 3.24% annual rate in 2022 Q3, to 2.57% in 2022 Q4 to 2.2% in 2023 Q1, perhaps due to the Fed's monetary policy.

Then, there's inflation. After peaking in June of 2022, it's been slowly receding. It's still elevated from where the Federal Reserve would prefer it, but there's less chance of a doom spiral. However, even though inflation is ebbing, real wages are still down overall, meaning workers are earning less now than they were when President Biden assumed office.

With employment high and inflation low and signs pointing to the elusive soft landing, President Biden is declaring victory on the economy. And he's ascribing his success to his unique set of policies that got us through--which he calls Bidenomics.

What exactly is Bidenomics?

In His Own Words

In his speech, he gave several explanations, some of which are vague while others are more substantive policy:

• He referred to himself as being "the most pro-union president in American history"
• "Bidenomics is about building an economy from the middle out and the bottom up"
• "making smart investments in America"
• "educating and empowering American workers to grow the middle class"
• "promoting competition to lower costs to help small businesses."
• "targeted investments"
• "We're strengthening America's economic security, our national security, our energy security, and our climate security."
• Bipartisan Infrastructure Law
  • (broadband for rural areas
  • replacing lead pipes
  • fixing "crumbling" bridges
  • upgrading power grid
  • renovating airports and ports
  • union workers, American materials)
• "I believe every American willing to work hard should be able to say where they grew up and stay where they grew up. That's Bidenomics",
• American Rescue Plan
• Increased pell grants
• Increased registered apprenticeships
• No need for a four-year degree
• Universal pre-k
• Free community college
• Affordable child-care
• Easier to join unions,
• fighting to eliminate non-competes,
• pro-small business,
• Medicare drug price negotiation,
• more affordable insurance,
• fewer junk fees
• reducing deficit (both through Covid AND budget negotiation),
• higher taxes for billionaires, no loop holes (crypto, hedge fund investors, oil companies)

Many of the items he includes in Bidenomics are a smattering of policies that any president would probably support (pro-small business, "making smarter investments in America", "educating and empowering American workers to grow the middle class", replacing lead pipes). Many more are standard-issue Democratic policies (Increased pell grants, universal pre-k, affordable childcare, more empowered unions).

White House aides, not surprisingly, said basically the same thing. They "described the term as a broad collection of policies aimed at using government muscle to revive and reshape the economy to help the middle class. They pointed to a range of efforts, including bolstering manufacturing investments, expanding high speed internet access and cracking down on industries that charge so-called junk fees." --Politico

What has Biden actually done?

So what sets Bidenomics apart from previous Democratic presidents? To answer that, let's ignore what Biden himself says and look at the economic policies he's enacted.

The most significant aspects of Biden's economic policy, most would agree, come down to the Inflation Reduction Act, Chips, the infrastructure bill, and the American Rescue Plan. There have been many other things such as some student debt forgiveness and a slew of administrative actions taken, but these probably don't make a large enough difference to the entire economy to consider here.

The American Rescue Plan, most notably, sent checks to most Americans while also expanding subsidies for the ACA healthcare exchanges. The Chips and infrastructure bill doled out hundreds of billions of dollars for microchip production and infrastructure. Lastly, the Inflation Reduction Act spent hundreds of billions of dollars subsidizing green energy and electric cars.

Many Democrats and progressives are characterizing Bidenomics as industrial policy, government picking winners and losers. In this case, the winners are solar power, wind power, the electric car industry, and microchip producers. They say industrial policy works by pointing to the growth of tech production after Democrats decided to pay tech producers to expand production. Americans should keep in mind that getting more of something that you're paying to get more of is not a sign of success.

On the surface, industrial policy always looks like a winner. The reason is because with any government spending, the successes are always more apparent than the failures. Money spent on one industry won't be spent on another. We're not going to see what industries are harmed. We're not going to see them shrink because workers and investors are going to the government spigot. China, the primary example of the kind of industrial policy Biden is touting is stagnating. Industrial policy is a long-term loser with a few, widely touted short-term winners.

Industrial policy is a long-term loser with a few, widely-touted, short-term winners.

The Parts He'd Rather You Not Think About

Add to this, though, the pieces of the economy that Biden isn't taking credit for. Interest rates are higher than they've been since before the 2008 financial crisis. Back then, the fed funds discount rate was set at a high of 6.25% before being reduced for crisis. Today it has gone up to 5.25%, rising 4.75 percentage points in 14 months. As a result, the average interest rate on a mortgage is above 6%, the highest it's been in twenty years.

Additionally, real wages have fallen. Prices have gone up faster than people's earnings have so they are effectively making less than they were when President Biden came into office. Is this one of the components of Bidenomics? If we get high employment at the expense of lower wages, is that a great deal? Before Covid, unemployment was low and wages were high--the best of both worlds.

On top of this, there are elements of Bidenomics, that neoliberals probably aren't as keen about. The protectionism, the made-in-America focus, and the debt reduction that Biden takes credit for, even if it's illusory. Many left-of-center economists have complained about the stipulations in the CHIPs act, where the Biden administration has added unrelated Democratic policies, such as childcare, as requirements to receive the money.

Americans and the media should not let President Biden ignore the unpopular economic policies under his administration.

Like many political slogans, Bidenomics has no real meaning. But Americans and the media should not let President Biden pick and choose which of the policies he's pushed "count". If he wants to say he's responsible for the good economic news, he should be held responsible for the bad news, too. And he should be asked whether he intends to maintain the debt reduction, high interest rates, and high prices that have been part of his winning, as he claims, formula.