Guest column: 'Bidenomics' could pave way for reelection
The predominant perception of public opinion is that President Biden and his economic team are directly responsible for the inflation strangling household income and for the Federal Reserve’s draconian response to combat inflation by hiking up interest rates. The high interest rates are now threatening to send the economy into a recession. It seems President Biden’s economic dilemma is to decide between inflation or high interest rates and recession.
Republicans created the portmanteau word "Bidenomics" to refer to inflation, large deficits, economic regulations and tax increases. Most recently, President Biden has audaciously embraced the Republican-invented Bidenomics. The president has rebranded Bidenomics as “Middle-Out and Bottom Up” economic policy, by which he means policy that is directly aimed at improving the lives of middle- and low-income Americans, and then flourishes into healthy economic growth.
In a long speech last month, President Biden explained Bidenomics is about building an infrastructure as the foundation for the United States free enterprise. Secondly, Bidenomics is about “empowering American workers.” Thirdly, Bidenomics aims to empower small business and promote competition. According to the president, more competition means lower prices for consumers and lower inflation.
President Biden insists, “Bidenomics is about the future. Bidenomics is just another way of saying: Restore the American Dream because it worked before.”
President Biden’s attempt to change the narrative of Bidenomics seems a curious economic gambit. Not only must the Biden administration convince the American public that the administration is not directly responsible for inflation and high interest rates, but that the administration’s economic policy must rebuild the nation’s crumbling infrastructure, continue the strong job growth and have wage increases outpace inflation, while at the same time create an economic environment that allows small business to thrive.
This seems like a very tall order.
Only 34% of Americans approve of Biden’s handling of the economy, according to a poll by The Associated Press and the University of Chicago. Models at the New York Federal Reserve estimate the likelihood of a recession by May 2024 to be 71%.
High prices and high costs are hurting workers and small businesses. For 26 straight months, wage increases have failed to kept up with inflation. Rising interest rates have made the American Dream of buying a house or expanding a small business mere fantasy for too many Americans.
At the same time the economic environment seems to be slowly improving. Inflation has fallen from a high of 9.1% in June 2022 to a very modest 2.97% in June 2023. Average income growth for all Americans is a dismal 1.2%, but an important paper from economists at University of California Berkeley finds the income of Americans in the bottom half of the income distribution grew by 4.5% in the past year. These Berkeley economists provide an interactive graph and data set at Realtime Inequality that shows incomes for the bottom half of Americans grew 10% faster than for Americans as a whole.
Since January 2020, the data from Berkeley shows the growth of disposable income for the bottom 50% of American earners grew more than twice as fast as households in the richest 10%.
Most of the disposable income growth was directly or indirectly from President Biden’s American Rescue Plan Act. The direct effect was the third relief checks sent to American households. The indirect effect was that the ARPA allowed low-income workers the luxury to leave their jobs and get retrained for higher-paying jobs. The so-called Great Resignation increased the income of those able to get retrained and left a shortage of low-income workers, allowing them to demand higher pay and better working conditions. In addition, millions of Americans used their extra disposable income to start their own business.
The current employment data is solid. The unemployment rate in June 2023 was a very low 3.6%. Job openings are elevated and layoffs are historically low. The private sector added 497,000 jobs last month, marking 30 connective months of job growth. Due to the shortage of low-income workers, businesses are reluctant to let go of workers, which should keep consumer spending strong and help stave off a recession.
In concert with the Berkeley economists, economists at MIT and the University of Massachusetts at Amherst have found that while the bottom 50% of income earners have had real wage gains, the top half have on average experienced losses. In other words, the wage gains of lower-wage workers were offset by wage declines of middle- and high wage earners. Which means profits for businesses on average, and for big businesses in particular, have gone up.
Although a significant majority of Americans do not approve of Biden’s handling of the economy and the possibility of recession still looms, if Bidenomics tames inflation, brings down interest rates, continues the low-income workers wage growth, and pushes up wages of white-collar workers, Biden’s embracing and rebranding of Bidenomics may just win him reelection in 2024.
Hans G. Despain, Ph.D., is chair of the economics department and the honors program at Nichols College.
This article originally appeared on Telegram & Gazette: Hans Despain column on Bidenomics as solution to US inflation
