This week in Bidenomics: The win nobody noticed
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It turns out nobody wants to hear about infrastructure week any more—even when it’s real.
President Biden will sign a $1.2 trillion infrastructure bill on Nov. 15, and it’s a genuine accomplishment. President Trump couldn’t get an infrastructure bill through Congress, even when his fellow Republicans controlled both the House and the Senate. President Obama couldn’t either. Americans generally support spending on highways, bridges and the like, and Biden has already started a road show (!) touting the good this will do in places needing the help.
Americans have bigger concerns, however. Inflation, now running at 6.2% per year, has quickly become the dominant economic trend and a wrecking ball for Biden. Like Federal Reserve Chair Jerome Powell, Biden said over the summer that a spurt of inflation was likely to be temporary because the cause was a variety of one-time factors stemming from the Covid pandemic. Four months later, inflation is getting worse, not better. Biden clearly didn’t expect that, and he now has some ‘splaining to do.
While acknowledging that inflation is causing real pain for families paying more for gas, food and rent, there’s not a lot Biden can do about it. His administration is pushing ports and trucking firms to move goods 24/7, while entreating retail CEOs to promise stocked shelves for the holiday shopping season. But none of that addresses the root causes: a semiconductor shortage stemming from mismatched orders during the pandemic, massive new spending on goods as consumers stay home, a dearth of truckers to move goods out of ports toward their destinations.
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The public mood is dreary, and inflation is the depressant. The University of Michigan’s consumer confidence index came in recently at the lowest level in 10 years. Lingering Covid could be part of the gloom, yet infection rates have been declining after a late-summer surge. Other indicators are solidly positive. There are still a near-record 10.4 million open jobs, and workers are quitting a record rates—a sign they have better opportunities elsewhere. The job market remains white-hot, leaving inflation as the only real skunk at the party.
Yet inflation can be ruinous, to political careers as well as family budgets. Biden’s job approval has sunk to the low 40%-range as inflation has built. Inflation could now claim Biden’s “build back better” legislation as its next victim. Democratic Sen. Joe Manchin of West Virginia—the toughest vote to wrangle in support of the Biden plan—argued this week that “DC can no longer ignore the economic pain Americans feel every day.” Manchin didn’t directly link that observation to inflation, but he has argued before that more fiscal stimulus could cause price spirals. His latest remark sounds like one additional rationalization for scaling back the Biden plan, or maybe even scrapping it completely.
Strategist Greg Valliere of AGF Investments recently downgraded the odds of Congress passing a build-back-better plan from even odds to 40%, citing inflation as the main reason Congress may reconsider. Fiscal spending probably isn’t the main cause of inflation, but if it’s flooding the economy with money and pushing up demand for scarce goods, it could at least be contributing. Left-leaning Democrats despise Manchin, one of the most centrist Democrats, for refusing to rubber-stamp Biden priorities. But Manchin may be more correct than most other Democrats.
Biden should be basking in political victory. His Democratic allies in Congress passed a partisan stimulus bill in March, the American Rescue Plan, that included temporary funding for many Biden priorities. And now Congress has passed an infrastructure bill that got enough Republican votes for Biden to legitimately call it “bipartisan.” Many political pros dismissed Candidate Biden’s claims about knowing how to work with Republicans as the self-delusion of an old fart trying to relive his glory days. But Biden pulled it off, something he has a genuine right to brag about.
Any cheering, however, will likely get drowned out by voters booing inflation. And inflation, in turn, could torpedo the BBB legislation. Had Biden promised a rescue plan and an infrastructure package, and quit there, he’d be batting 2-for-2 and Congress would be quieting down. The biggest fights still lie ahead, however, since the BBB package is the most controversial of all. If it dies or gets sharply watered down, Biden’s first year in office will end with dashed expectations instead of the momentum created by winning on infrastructure.
As for inflation, there’s still a good chance price hikes will settle down next year as a variety of economic disruptions sort themselves out. Biden might turn out to be generally correct about inflation being temporary, even if his timing is off. Until that happens, however, nobody will care much about what else he accomplishes.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.
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