Bidenomics Is Working
S E E D E D C O N T E N T
Consumer prices are high and rising, and so is disapproval of Joe Biden. In recent days, the president’s net-favorability rating has hit new lows in FiveThirtyEight’s aggregation of polls. Meanwhile, America’s headlines are full of testaments to economic discontent. By all appearances, Biden is suffering blowback from grave failures of economic management.
But those appearances are deceiving. The U.S. economy has real problems, and inflation is certainly one of them. At the same time, America is enjoying an exceptionally swift economic recovery, rising household wealth, falling income inequality, a resurgence in labor’s economic power, and soaring capital investment. In these respects, Bidenomics has proved to be a smashing success.
The achievements of Biden’s program are significant for both their substantive consequences and their theoretical implications. As such, they should not be obscured by an inflation problem that derives largely from forces beyond the president’s control.
Bidenomics 101.
Political debates over macroeconomic policy generally revolve around two basic questions: Who deserves more income and economic power? and How can policy increase our collective prosperity?
Answers to these questions tend to be intertwined. Those who believe that business owners and high-earners are entitled to every cent of their market incomes – and thus, that taxation is akin to theft – also tend to believe that tax cuts on the wealthy will increase productive investment, and thus, societal prosperity. That latter claim has been especially integral to Republican orthodoxy. GOP politicians rarely bother trying to sell the electorate on Charles Koch’s intuitions about the immorality of his tax burden. Instead, they’ve perennially defended regressive fiscal policies on the grounds of economic necessity: Low taxes and low social spending are simply prerequisites for high levels of business investment and thus, plentiful jobs and economic growth. The rich might be the immediate beneficiaries of Republican policy. But inequality is a small price to pay for abundance. And, in due time, the benefits will trickle down.
Biden’s macroeconomic vision inverts the logic of Reaganomics. In the president’s conception, America’s working class deserves a higher share of income and economic power. As he put it in May, “We’re creating a new paradigm — one that rewards work, the working people in this nation, not just those at the top.” Biden insists that a more equitable economy will also be a larger one since “trickle-down economics has never worked” and the economy actually grows “from the bottom and the middle out.”
The theoretical premises behind Biden’s rhetoric are fairly simple: Contra conservatives, the primary driver of business investment is not low taxes but high aggregate demand. When firms see high and rising consumer appetite for their wares, they invest in greater productive capacity. When they perceive persistently weak demand, they hoard cash (no matter how low you set their tax rates).
Furthermore, it’s not that innovation generates jobs so much as full employment generates innovation. As long as firms have access to cheap, exploitable workers, they have little incentive to invest in labor-saving technology. By contrast, in a tight labor market — where employers must bid against each other for access to scarce workers — investing in productivity-enhancing machines starts to make economic sense.
From these two premises, a third follows naturally: Public spending does not “crowd out” private investment, as bipartisan orthodoxy long held, but can actually catalyze it. This is because progressive fiscal policy increases consumer demand. Working people have a greater propensity to spend their income than the rich do. As a result, policies that increase working-class purchasing power — whether through deficit-financed cash payments or social benefits financed by taxes on the wealthy — also increase overall demand for goods and services in the economy, which then increases business investment.
Of course, the bulk of Biden’s economic program has yet to be enacted. But the American Rescue Plan, signed into law in March, already operationalized the president’s macroeconomic paradigm.
On a superficial level, the ARP was almost indistinguishable from the COVID-19 relief packages that preceded it: It consisted largely of extensions and restorations of policies found within the CARES Act. But CARES had been drafted at the dawn of a historic crisis. Financial markets had just plummeted. Prohibitions on in-person commerce were commencing. One did not need to dissent much from Reaganomics to support the legislation: “When a pandemic forces the state to engineer mass unemployment for a brief period of time, the government should try to keep hard-hit households and firms solvent through cash transfers” is a principle that’s perfectly reconcilable with a conservative view of how to best support economic growth under ordinary conditions.
The ARP, by contrast, could be justified only through a negation of post-Reagan fiscal orthodoxy. It was drafted at a time when the total net worth of U.S. households was $12 trillion higher than it had been before the pandemic. Most American families were, in strictly financial terms, doing unusually well. U.S. households had less debt and more disposable income in March 2021 than they’d had at the peak of the Trump-era expansion. America’s unemployment rate was falling, shots were going into arms, and stocks were hovering near record highs.
Enacting a $2 trillion relief package in that context was a very different proposition than doing so a year earlier. Before the bill’s passage, Democratic economist Larry Summers lamented that the ARP was set to inject three times as much demand into the economy as the Congressional Budget Office deemed necessary to close the “output gap” — the gap between how much stuff our economy could produce if it fully employed our nation’s labor and resources and how much we were poised to produce absent a policy change. The ARP was therefore a large bet that our economy’s productive capacity was much higher than the CBO had recognized because large-scale fiscal spending would lead to higher private investment, thereby raising the ceiling on America’s growth potential.
This bet has paid off substantively. But at least thus far, it has backfired politically.
This year’s recovery has validated “trickle-up” economics.
The Biden economy is no workers’ paradise. The headline unemployment rate remains near 5 percent. Those who remain jobless recently saw their federal unemployment-insurance benefits expire at the president’s behest. Rising prices are eroding nominal wage gains, and as the financial-market recovery outpaces the labor one, wealth inequality is rapidly increasing.
So Bidenomics has yet to deliver the economy it promised. And with the president’s Build Back Better agenda still tied up in Congress, one might argue that real Bidenomics has never been tried.
Nevertheless, if Biden’s economic vision hasn’t been fully realized, its core theoretical premises have been roundly confirmed. As expected, the ARP’s $1,400 checks and enhanced UI benefits bolstered household balance sheets and turbocharged consumption. This increased labor’s leverage over capital in two respects. First, it rendered employers more desperate for hired help to keep pace with rising demand. Second, it enabled workers to accrue a cushion of personal savings — and therefore the power to hold out for more-favorable employment opportunities without risking hunger or eviction. In July 2021, America’s unemployment rate was roughly two points higher than it had been on the eve of the pandemic, yet the median worker’s checking-account balance was higher than it had been before COVID.
The result is an exceptionally tight labor market. In August, the U.S. had more job openings than at any time in history. Employers that had refused to interview “unskilled” workers started “offering gift cards to applicants who show up for interviews, along with sign-on and retention bonuses, and sometimes immediate employment before drug screenings and background checks,” according to The Wall Street Journal.
Workers secured more income and economic power. Wages are rising faster for laborers in the bottom quartile of the income distribution than for those in the top quartile. Americans are quitting jobs at an unprecedented rate, confident in their capacity to find new and more-remunerative employment opportunities. October has witnessed America’s biggest strike wave in a generation with some unions using their newfound leverage to avenge past defeats and seek the restoration of pre-Reagan compensation standards.
These developments demonstrate that progressive fiscal policy can generate tight labor markets and, through them, rising wages and worker power. But that fact won’t necessarily discomfit a conservative economist. Many Reaganites would concede that public spending can reduce inequality. Their contention is that such spending will inevitably deliver workers a slightly larger slice of a much smaller pie. Equality, they contend, comes at the cost of abundance.
The Biden economy has proved otherwise.
For years, Republicans lamented America’s lackluster rate of business investment and attributed it to excessively high tax rates and/or to investors’ fears that high deficit spending would necessitate future tax hikes. The Trump tax cuts were sold as a means of cajoling the private sector into channeling savings toward productive investment. Yet by May 2019, even Republicans like Marco Rubio were forced to acknowledge that the $1.5 trillion tax cut had failed at its core objective.
Now, in a context of high deficit spending and the widespread expectation of impending tax increases, U.S. investment in nondefense capital goods has hit its highest point on record.
Wall Street analysts have attributed this boom to the high-demand conditions fostered by progressive fiscal policy. As Ian Shepherdson of Pantheon Macroeconomics wrote in July, “A combination of rebounding earnings and support from the federal government, coupled recently with clear evidence of acute labor shortages, is pushing companies into raising capex” — that is, capital expenditures — “in order to expand capacity and remain competitive.”
To be sure, the boom in business investment cannot be credited to Biden’s policies alone, not least because it began in summer 2020. Yet the development’s Trump-era start date doesn’t actually make it less validating for Bidenomics, broadly defined. After all, the CARES Act was itself a fiscal policy that increased working-class purchasing power through deficit spending. If Trump inaugurated today’s boom in capex, he did so not by slashing taxes on corporations but by massively increasing welfare spending on working people.
In any case, the critical point from a theoretical perspective is that America has attained the GOP’s long-sought goal of high business investment amid the very macroeconomic conditions that allegedly forbade it: high deficits, the expectation of imminent corporate-tax increases, labor militancy, and elevated inflation.
If these factors had a detrimental impact on growth, that harm was overwhelmed by the benefit of heightened demand. The GOP’s alibi for upward redistribution has therefore been falsified. By restraining workers’ bargaining power and reducing their social benefits, Reaganomics directed income up the economic ladder. And since wealthy households have a lower propensity to spend than working-class ones, this regressive macroeconomic policy depressed consumer demand and businesses investment. Low demand begat low supply. Republican economic orthodoxy does not offer high growth at the cost of inequality but inequality at the cost of low growth. In truth, it is the right — not the left — that wishes to subordinate the pursuit of abundance to its peculiar conception of class justice.
Inflation threatens Biden politically. But it doesn’t discredit Bidenomics substantively.
If Bidenomics is theoretically sound, it’s looking politically dicey. Even as U.S. consumers evince economic confidence through their rampant spending, they express economic anxiety in their survey responses. A majority of Americans expect the economy to get worse over the next 12 months. Voters have started listing inflation as their No. 1 concern, and more than 60 percent of the public blames Biden for rising prices.
For these reasons, conservative readers will surely take exception to the idea that Bidenomics has been vindicated and Republican critiques of it discredited. After all, haven’t conservatives always warned that fiscal liberalism leads to ruinous inflation? And is that not what the American people are complaining of to any pollster who’ll ask?
These are reasonable objections. Without question, the U.S. economy is experiencing elevated prices, and the American Rescue Plan bears some responsibility for that fact. Biden’s high-demand macro policy is growing the supply-side of the economy. But expanding productive capacity takes time.
One implication of a demand-driven theory of economic growth is that policymakers must be willing to tolerate heightened inflation during periods of adjustment: If businesses are commonly reluctant to make large capital investments until they’re confronted with a level of consumer demand that strains their existing capacity, then inducing high business investment requires permitting demand to temporarily outstrip supply.
The alternative is acquiescence to tepid growth. As the economist J. W. Mason has emphasized, even with this year’s spike in consumer spending, demand remains well below where it would have been had pre-2008 consumption trends continued. The financial crisis — and the inadequate stimulus that followed it — led to persistently weak demand. As a result, U.S. economic growth never returned to its pre-crisis trajectory. There is little reason to think the 2008 crash irrevocably reduced America’s productive capacity. But getting the economy up to its full potential will require challenging its existing capabilities.
This said, today’s elevated prices cannot be blamed on Bidenomics alone. The ARP may have increased Americans’ purchasing power, but it did not encourage consumers to devote an unprecedented share of their spending to goods instead of services. The COVID pandemic did that. And consumers’ overwhelming preference for goods is a large part of the inflation problem. If Americans had maintained their pre-pandemic spending patterns — devoting a larger share of their incomes to yoga lessons, live events, gym memberships, etc. — then our nation’s ports wouldn’t be quite so clogged with shipping containers and overall price pressures would be somewhat reduced.
COVID has exacerbated inflation in myriad other ways. The pandemic simultaneously increased demand for semiconductors and limited their production. It discombobulated the global shipping industry. And it inspired millions of 60-something Americans to opt for early retirement while it restricted immigration flows (thereby shrinking the supply of laborers in the U.S.).
The biggest driver of inflation fears among U.S. voters, however, is the rising cost of energy. The surging prices of natural gas, coal, and oil have little to do with Biden’s economic policies. Rather, they derive from years of depressed investment in the fossil-fuel sector combined with collusion between Russia and OPEC to limit global oil output. Investors pulled back from oil and natural-gas extraction after the commodity-price collapse that transpired between 2014 and 2015, and the COVID crisis further reduced such extraction. This development would have been wholly benign had global governments made sufficient investments in green energy to compensate. But they didn’t. As a result, when the global economy began shaking off COVID this year, surging demand for energy met an insufficiently elastic supply of natural gas. And this mismatch was further exacerbated by droughts in multiple regions reliant on hydropower as well as below-average wind speeds in Northern Europe, which together reduced renewable-energy generation.
As gas prices spiked, power plants began turning to oil and coal, sending the price of the latter to heights unseen since 2001. The energy crunch is all but certain to get worse in the coming months as winter descends on the Northern Hemisphere and home-heating demand spikes. Since energy is a critical input in all production, a prolonged energy shortage would put upward pressure on a wide range of prices. Agriculture is reliant on fertilizers derived from natural gas, so food prices are rising. High coal prices have forced China to ration electricity, slowing production of its exports and driving up their prices.
What’s worse, there’s reason to fear energy prices could remain above pre-pandemic levels for quite some time. With a green transition looming, fear of stranded assets is limiting investor appetite for fossil-fuel developments. It is grimly ironic that Senator Joe Manchin has cited inflation as an argument against fully funding Biden’s proposed investments in clean energy since inadequate investment in renewables may well be the biggest threat to price stability in the medium term.
All of which is to say: High prices are a genuine problem in the U.S. today, and may well weigh on the recovery for some time to come. But many factors wholly external to Biden’s economic policies have contributed to this year’s modest inflation, a reality that is reflected in its ubiquity throughout the Global North.
Bidenomics has certainly put upward pressure on prices. Yet absent years of underinvestment in energy, a chip shortage, or a pandemic-induced shift of consumer spending towards durable goods, inflation would be far lower than it is today. And there’s little reason to believe that the median U.S. household would be better off in a world where it had received less in aid from Uncle Sam, the unemployment rate was higher, and business investment was lower – but prices were rising at a somewhat slower pace.
There’s reason to hope that the soundness of Bidenomics – which is to say, of a growth model centered on high demand and full employment – will eventually be recognized. The International Monetary Fund expects energy prices to moderate by next spring. At that point, many businesses that are currently straining in the face of high demand will have secured greater capacity. An unimpeachable boom might ensue.
Alternatively, an inflation panic might lead the Federal Reserve to prematurely raise interest rates and Congress to underinvest in renewables. The energy crisis could persist longer than the IMF anticipates, and a “red wave” midterm election could be heralded as a mandate for austerity.
If the media gives short shrift to the ways the Biden economy has falsified conservative orthodoxy while lending credence to the GOP’s claims of validation on inflation, then that second scenario will become a bit more likely.
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What I like about Biden is that he is sticking to his campaign pledge that he would build the economy from the bottom up instead of trickle down. We have suffered through more than enough of trickle down over the past 40 years.
Notice who is blocking all this going through - Manchin and Synema. DINO's.
Yesterday Joe Manchin said that he couldnt go along with a tax on 700 billionaires because he didnt want to single out one particular class of people like that.
Uh, Joe, they single themselves out. There are 700 of them in the country. (none in West Virginia by the way). They dont pay their fair share of taxes. The vast majority of Americans want to see billionaires taxed but it wont happen because Joe Manchin doesnt want to "single them out".
Ahhhh the ultimate unanswered question.........right up there with "What is a living wage?"
Lol ... i know .... how dare them for being successful right?
How does taxing a billionaire the same part of their income that everyone else has to pay make them any less successful or punish them for their success?
People act like if Elon Musk has 194 billion instead of 200 billion his soul will be crushed and he will drop out of the business world. It is BIZARRE.
So your theory is that the wealth gain made by billionaires FROM YEAR TO YEAR should of course be protected from taxation because it is not "income". Once again, is there something wrong with you? How much should Elon Musk or Jeff Bezos personally pay in taxes every year ? Give us your best conclusion on the subject.
Oh I know exactly what you are saying, its just that its stupid.
How much should Elon Musk or Jeff Bezos personally pay in taxes every year ? Give us your best conclusion on the subject.
You seem to think their fair share is nothing.
From an income standpoint anything over about 600k is taxed at 37% in 2021 if filing married. Take away the loopholes and deductions for the hyper rich that politicians porked in there and presto-chango. You can't bitch about it. Of course you probably still will since i'm sure you've deemed that 37% isn't enough either. As far as net worth, how many more times do you want to tax the same money before you decide it's enough?
The sheer arrogance and despotism in thought like that is quite mind-boggling really.
Show us which billionaires pay 37% in taxes.
Most don't but show me the politicians that took away the loopholes and deductions that allow them to pay less. I'm sure you take all the deductions made available to you. Why shouldn't they?
C'mon John .... you can do better than that.
Now answer the question i asked. How many time are you going to tax the same money. Twice? Three times? Every year?
"Show us which billionaires pay 37% in taxes."
Note you never get an answer? Just deflection.
I agree, i was for it before Forbes was pushing it when he ran for President.
That guy would have had a chance i think if he wasn't so creepy looking.
During the years when Jeff Bezos was becoming the richest person in the world his "true" tax rate on the earnings that made him the richest person in the world was less than one percent.
So I'm glad to see you want to see him pay 37% on all his earnings. That will work.
You know you won't get a straight answer if any at all.
Still no answer i see ..... noted and feel free to keep running from the question ......
I never said that but if you want him to pay 37% talk to your congressman. They set the laws for deductions and loopholes not me.
Personally i think it's much lower. In the mid to high teens probably if getting rid of deductions and loopholes.
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It's a terrible idea that he can be supremely proud of killing.
We don't tax people in this country just because your knickers are in a twist about them, and we finally have a Democrat willing to stand up to the batshit left and tell the spoiled little children "no".
I hope he runs for president.
Your source??
This should be good.
I believe we went through this yesterday
If they dont pay taxes they should be taxed.
How much should the richest man in the world be paying in taxes? Billions, no? Has he paid billions in taxes ?
I guess i missed that.
Maybe you would repost it here for me.
Yesterday it was 3.4%, and we discussed in detail exactly how they were intentionally misrepresenting the math to artificially create a bullshit number....which is standard practice for left wing sources because their supposedly educated readers never took any math classes.
Today, you're attempting to produce a different number from his "earnings". I suspect strongly you don't know how earnings are defined or even how many ways they are reported.
Did you do some homework on Investopedia like I suggested?
And are we ever going to get a number on your idea of "fair share"?
Excellent. Let's talk about that 48% of Americans who don't pay any income tax. If they don't pay taxes, they should be taxed, yes?
Almost surely, yes.
The old right wing chestnut.
The basic reason people dont pay income taxes is because they dont make enough money.
Generally speaking , people who dont make enough money to pay income taxes also receive some form of government benefit, be it social security , disability, or food stamps. Some of the 48% are also students or stay at home parents.
If you make people who receive food stamps pay income tax you are literally making poor people poorer. I dont think America has sunk that low yet.
Is that what you call "facts" now?
According to whom?
Are you sure about that?
Over 30% of households making between $50k and $75k paid no income tax in 2019. 17% of households making between $75k and $100k paid no income tax and 46% of the $40k-$50k group paid none.
I do believe John is referring to personal wealth, not how well Tesla is doing.
In 2020 Musk made 30.5M
.
Use that as a springboard.
Problem is, John is not answering reasonable questions here related to comments he's made.
Interesting little game he's playing here .......
That said, i don't hold it against anyone who is taking legal deductions or using legal loopholes. People are lying if they say they don't do the same thing.
This is easily fixed with a flat tax system with minimal deductions and NO loopholes. But that will never happen because too many politicians, who make the laws, have a vested interest in proffering a complicated tax code that is thousands of pages long and full of loopholes for the rich.
Fair enough.
What has he done to follow through on that pledge?
Not a damned thing.................
Which is exactly why I voted for him, TBF.
We do not need additional government intervention. I want the candidate least likely to accomplish their idiotic goals.
Are you kidding? A year from now we shall all see how the American people feel about high inflation, the empty shelves, the meager 2 percent GDP growth and paying people not to work.
Talk about living in an alternate universe!
Six straight months of high inflation (soon to be seven) disagrees with you.
And just wait until you see your higher energy costs this winter. Inflation could hit double digits again for the first time in 40 years
So buckle up buttercups.
Thank you Rick Scott.
RickScott stated on July 26, 2021 in a press release:
“Thanks to the insane tax-and-spending spree of President Joe Biden and Democrats in Washington, we are seeing six straight months of raging inflation.”
Blame Joe Biden for inflation? Most government spending came earlier
We rate this claim Mostly False.
Just shows you how unthorough and disingenuous Politifacts analyses can be.
Inflation isn't driven by government spending only. It's driven largely by the cost of normal every day consumer goods. The rising cost of which is all on Bidens watch.
We rate post 2.1 as highly uniformed and misleading.
OR just how disingenuous republican talking points are.
I see you didn't feel the need to read the article before ignorantly responding to it.
Lol ... i read it all and i quote:
A factor .... holy shit a factor? No shit sherlocks So is the price tea in Charlevoix Michigan
The fact that you are hanging your hat on this misleading turd of an analysis speaks volumes
But ...... SOSDD i suppose.
Fair point. He hasn't had time to do much.
But that also means he doesn't deserve credit for current economic growth, either.
You are ignoring parts, you are trying to go to the extreme on both sides. That is why the claim was rated "Mostly False".
He does have some responsibility as POTUS for the inflation, and he does have some responsibility as POTUS for the current economic growth.
You can use the exact same sentence for the previous administration as well.
Quite the reverse, actually. The inconvenient truth for political extremists is that economic cycles are almost always much longer than presidential terms, and the economic impact of presidential actions is usually not felt until some years later, often after they're gone.
So what, specifically, has he done that should cause us to declare that "Bidenomics is working"?
Exactly the point. Trump inherited Obama's results and Biden has inherited Trump's, for better and worse.
You are absolutely correct. Many people do not realize that the 1st year of a new POTUS is running under the previous administration's budget. And even if, like in this case, the current POTUS is trying to undue many of the previous administrations EO's, policies, and such. It takes a while for any of those changes to go into effect.
Much like steering a large boat or a space ship, momentum (inertia) is a bitch!
You're asking the wrong person, but I would assume the author of this article made the statement based on forecasts.
Exactly. It's amazing to me how something this obvious isn't actually obvious to most people.
OK...maybe not amazing. Maybe just "agonizingly disappointing".
Just look at how many people (absurdly) grade a PotUS based on the performance of the stock market.
What's the old saying? "It's all about the economy."
As economic growth falls to 2.4%
just perfect timing on this
What has Biden actually done to produce any of that?
What gets me is a president and a party agenda can have some kind of plan or direction, yet they usually don't see the results of any actions for some time down the road.
So what usually happens is the impact of said agenda may come to fruition after they leave office.
Then the next president or congress gets the blame for what the previous one had done.
The author is suggesting that workers won't be replaced by robots, so long as the minimum wage stays low enough to make keeping live bodies in the line more cost effective than replacing them with machinery and technology.
Ah, so if access to high salary workers is low, employers will replace them with machines. Wait, what argument is the author trying to make here?
So, this isn't the end of it, apparently? The government checks created a disincentive to work, but people still spent money. This created a gap in labor and demand, empowering the workers, and creating an exceptionally tight labor market. And, while the workers are holding out for higher paying jobs, according to the author, employers, desperate to make shit, will be automating things, because it makes economic sense to invest in productivity-enhancing machines over unproductive high paid workers. Sounds like a great plan.