Home Finance Bidenomics and Its Discontents

Bidenomics and Its Discontents

by internationalbanker

By Alexander Jones, International Banker

 

“Bidenomics is about growing the economy from the middle out and bottom up, not the top down,” American President Joe Biden posted on X (then Twitter) on June 28, 2023. “It’s an economic vision, where we make smart investments in America, educate and empower American workers, and promote competition to lower costs and help small businesses.” With such an explanation, one would presume that Bidenomics would be an economic model that would be difficult to fault. And yet, as the United States president’s first term draws to a close in a few months, the term “Bidenomics” has garnered much criticism, even derision, such that Biden and his Democratic colleagues have almost entirely abandoned it. Indeed, the only manner in which it is used today is disparagingly by one of his Republican critics.

Initially, Democrats positioned Bidenomics as a starkly different economic reality for Americans than the one offered by the previous administration of Donald Trump. “President Biden recognized that some of those challenges were rooted in a failed trickle-down theory that supported slashing taxes for the wealthy and big corporations, shrinking public investment in critical priorities like infrastructure and education, and failing to safeguard market competition,” a June 28 White House statement in support of the strategy read. “The President took office determined to move beyond these failed trickle-down policies and fundamentally change the economic direction of our country.”

The resulting Bidenomics is rooted in the belief that the best way to grow the economy is from the middle out and the bottom up. Not surprisingly, the administration has been keen to tout its successes. “While our work isn’t finished, Bidenomics is already delivering for the American people. Our economy has added more than 13 million jobs—including nearly 800,000 manufacturing jobs—and we’ve unleashed a manufacturing and clean energy boom,” the White House statement also noted. “There were more than 10 million applications for new small businesses filed in 2021 and 2022—the strongest two years on record. America has seen the strongest growth since the pandemic of any leading economy in the world. Inflation has fallen for 11 straight months and has come down by more than half. And we have done it all while responsibly reducing the deficit.”

Perhaps the most important economic metric remains on Biden’s side, with gross domestic product (GDP) having expanded by a healthy 3.1 percent annually in 2023’s final quarter, the strongest rise in about two years, following a 2.9-percent increase in the third quarter (Q3). The growth rate has also risen every quarter since the 0.7 percent recorded in the fourth quarter (Q4) of 2022. Similarly, GDP growth on a quarterly basis has remained buoyant since Q3 2022, never falling below 2 percent and registering strong growth of 4.9 percent and 3.4 percent in last year’s third and fourth quarters, respectively.

With such impressive numbers, surely Bidenomics ought to be hailed as an unbridled success…far from it! For one, it has been persistently undermined by high inflation, which has remained above the Federal Reserve’s (the Fed’s) official annual target rate of 2 percent since March 2021—virtually the entirety of Biden’s presidency—and surged to a staggering 9.1 percent in June 2022, the highest rate since November 1981. In turn, Biden has had to preside over a prolonged period of sharply rising interest rates that have sought to rein in inflation but have also heavily subdued consumer and business confidence and continue to threaten the possibility of a hard landing that could send the economy into recession and sharply lift unemployment.

Indeed, with rates still held at 23-year highs, such threats to the health of the US economy remain palpable. And with inflation having risen for the second straight month in March to 3.5 percent—the highest since September—the Fed will have to keep rates higher for much longer than it initially envisaged. Biden’s hopes of a soft landing being successfully engineered, therefore, continue to diminish with every passing week.

One might point the finger squarely at the Fed rather than Bidenomics for being responsible for this calamity, especially given that the central bank is solely in charge of the US monetary-policy mandate. But that will mean little to ordinary Americans, who have suffered a monumental rise in living costs. According to an analysis published in November 2023 by Republican members of the United States Congressional Joint Economic Committee, moreover, the typical American household must spend an additional $11,434 annually just to maintain the same standard of living it enjoyed in January 2021 at the start of the Biden presidency and just before inflation began its steep upward journey to 40-year highs.

Higher costs are being acutely felt in the energy realm, with figures from the U.S. Bureau of Labor Statistics showing that energy costs have risen by nearly 40 percent during Biden’s presidency. This surge has been most painfully felt by the poorest, who have to spend a greater proportion of their incomes on keeping the lights on in their houses and ensuring their cars have enough fuel in their tanks. “Middle- and low-income Americans aren’t doing well enough — they are living fragilely on the edge,” Gene Ludwig, chairman of think tank the Ludwig Institute for Shared Economic Prosperity (LISEP), explained to CBS. “Food costs and basic costs are up more than other costs. Putting on a Thanksgiving dinner costs the same if you’re a lower- or upper-income American, but for a lower-income American, it’s a bigger portion of your spending.”

The surge in interest rates was also instrumental in precipitating a major US banking crisis that claimed the lives of major lenders such as Silicon Valley Bank (SVB). The substantial interest-rate risk SVB took on through its acquisition of long-dated debt products during the low-interest environment that prevailed prior to Biden’s presidency proved fatal in the end. As rates began to rise in 2022, the incoming amount from coupon payments on the bank’s fixed-interest debt holdings failed to keep pace with its outgoing interest payments on customer deposits, while its bond portfolio lost a whopping $17 billion by the end of the year. The contagion risk from this failure saw other major banks collapse, including First Republic Bank and Signature Bank within the United States, as well as Swiss lender Credit Suisse.

That said, most US banking customers were not materially affected as the contagion risk was largely contained, thanks to the Federal Deposit Insurance Corporation’s (FDIC’s) decision to cover virtually all bank deposits that were potentially in the firing line. As such, the impact on Main Street from this banking crisis ended up being substantially less than the fallout that the American public suffered during the 2008 banking crisis.

The mountain of public debt that has been amassed recently, which many now believe has become unsustainable, however, represents a major shortcoming of Bidenomics. With the debt already at an alarming $27.8 trillion when Biden took office, it has risen to above $34.5 trillion today, which equates to more than a quarter of a million dollars per US household. It has also involved $5.5 trillion in new government spending, which, while proving crucial in boosting GDP growth in recent quarters, has also drawn widespread criticism pertaining to a lack of fiscal responsibility. Indeed, the “high and growing general government debt burden” was a key factor underpinning Fitch Ratings’ decision to downgrade the US sovereign rating from AA+ to AAA last August.

This debt spiral has put the US on “an unsustainable path”, according to Doug Cohen of Fiduciary Trust International. “I don’t know when it’s gonna happen. If it’s a year from now, I don’t think so, three years, probably closer to five or 10 years. But there is gonna come a tipping point where we just can’t fund the things that we need to do,” Cohen recently warned in an interview with Quartz magazine. “And from a financial market perspective, the market won’t be willing to lend the US money at such low rates. And I think we got a taste in 2022 of what higher rates can do.”

But perhaps the most damning indictment of Bidenomics is that the Biden Administration itself seems to have backed away from using the term, suggesting that it is not a particularly effective vote-earner. Indeed, a recent analysis by Axios found that the US president’s mentions of “Bidenomics” fell from 29 in June 2023 to zero by February 2024. It was mentioned just once in March. “Congressional Democrats initially followed Biden’s plunge into touting ‘Bidenomics.’ They used the word 483 times last July in tweets, Facebook posts, press releases and floor statements, according to data from Quorum,” the Axios report noted. “But it wasn’t long before those Democrats were grumbling to Biden’s team that the White House was tone deaf in its branding as voters were struggling with inflation.”

More recently, moreover, the distinct failures of Bidenomics have led to it increasingly becoming a cudgel used by Republicans to beat Democrats as the November elections approach. And with a recent Economist/YouGov survey showing that a hefty 29 percent of voters are more concerned about the US economy and inflation than any other issue, it is clear that Bidenomics has been far from successful in achieving its aims. As such, it seems that President Biden and the Democrats have a whole heap to do regarding economic policy and messaging if they are to secure sufficient election victories in November.

 

Related Articles

1 comment

vbet giriş April 26, 2024 - 9:25 am

Alexander Jones offers a comprehensive overview of Bidenomics, highlighting both its ambitious goals and the significant challenges it faces. While the policy aimed to uplift the economy by focusing on the middle and lower classes, persistent inflation and rising interest rates have clearly overshadowed its successes. The political fallout, as seen with the Democrats distancing themselves from the term, underscores the difficulties in balancing economic theory with practical outcomes. It’s evident that despite some gains, Bidenomics still has a long road ahead to convince the public of its efficacy.

Reply

Leave a Comment

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.