President Biden’s optimism about our economic trajectory might be more realistic than many skeptics imagined.
Today’s economy is inarguably better on all of these fronts. Unemployment is at 3.7 percent. The economy has created more than 10 million jobs (including more than 750,000 manufacturing jobs) since Biden became president. The annual federal deficit has also fallen, from $3.1 trillion for fiscal 2020 to $1.4 trillion for fiscal 2022.
There is also good news regarding consumer spending, which amounts to about 70 percent of gross domestic product. On Wednesday, survey data from the Conference Board showed an increase in the consumer confidence index. As Jared Bernstein, a longtime Biden adviser and member of the Council of Economic Advisers, explained in a recent interview, consumers and businesses have benefited from the savings accrued during the pandemic. This has resulted in fewer bankruptcies and fewer loan delinquencies. Moreover, the recent decline in gas prices in the past year has given consumers more breathing room.
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The elephant in the room is inflation, which remains more than 7 percent compared with the year prior. It’s certainly true that Biden underestimated inflation (as did many others). But the administration’s effort to bolster economic and job growth coupled with its attention to supply chains and a successful vaccination plan helped return the economy to a more normal situation.
Most critically, the Federal Reserve is taking inflation seriously. Jerome H. Powell, whom Biden kept as Fed chair, has steadily increased interest rates. That has helped to cool rising prices, although the risk of recession has not vanished.
As Lawrence H. Summers, the most prominent inflation hawk and a Post contributor, recently wrote: “The Fed is seeking to balance the risk of stagflation caused by entrenched inflation expectations with the risk of dangerous downturn. It is being supported by the administration, which is doing an exemplary job of respecting the Fed’s independence.”
Moreover, Bernstein argues the “data flow” over the last five months is favorable. In November 2021, the economy gained 640,000 jobs; this November the number was 263,000. That is the sort of steady, sustainable job growth the administration wants to see. Though Bernstein acknowledges “prices are still too high,” other factors are exerting downward pressure, in addition to the Fed’s interest rate hikes.
Reduced gas prices are a significant help. While the global market sets prices, Bernstein argues that good policy can affect prices “at the margins.” The administration’s release of more than 100 million barrels from the Strategic Petroleum Reserve helped pad the U.S. market, and a new international agreement to cap the purchase price of Russian oil will preserve that supply — helping to keep prices in check while limiting the revenue that Russia can accrue from its exports.
The administration’s focus on supply chains will also help. Its efforts extend beyond pandemic-related demand issues; Bernstein says Biden is overseeing a “transformational shift” that includes developing the production of high-tech goods at home while investing in infrastructure. Ideally, the goal is robust trade without overdependence on foreign suppliers — a tricky balance.
If Biden has an economic mantra, it is building the economy “from the bottom up, from the middle out.” Essentially, this is a recognition of the widening inequality gap and the failure of lower-wage workers to fully benefit from productivity gains. Biden’s plan to correct that problem has taken three prongs.
First, the administration and Congress passed a slew of bills that will improve the economy in the long term, including the infrastructure plan, the CHIPS and Science Act, a huge commitment to green energy and cost containment for some drugs under Medicare. The hope is that rising labor participation and wages continue as prices stabilize. (News reports suggest Biden will look to increase labor participation with such measures as affordable child care.)
Second, the administration has take a more friendly posture to unions, which are making a strong comeback. In Biden’s mind, increasing workers’ bargaining power is critical to building up the middle class.
And third, Biden has made no bones about the need for a more progressive tax code. He has insisted that no one making less than $400,000 will see their taxes raised. Instead, the emphasis has been on forcing big corporations to pay something and increasing funding for the IRS to make sure the wealthy are paying what they owe.
Still, there are challenges ahead. Even if the United States can tamp down inflation without a major downturn (and that is a big if), Biden will have to implement his pro-growth achievements without excessive waste, fraud and abuse. And he will have to navigate Republican threats to use a default on the federal debt as a bargaining chip.
Plus, given the coming divided Congress, expectations should remain low for any new legislation. Sick leave, further prescription drug cost reduction and other domestic programs will be hard to pass.
But the administration has avenues for further progress: It can aggressively enforce antitrust laws, especially in the high-tech industry, to combat excess market concentration that reduces consumer choice. It can seek compromises with Republicans to achieve tax simplification and close tax shelters. And it can continue to build a "new playbook on China that serves our interests,” as U.S. Trade Representative Katherine Tai put it.
The administration can also turn its attention to the U.S. immigration system, which remains a mess. While House Republicans will certainly resist any help for “dreamers,” it’s worth pursuing a combination of border security and revamped legal immigration, which could help alleviate inflation by adding to the workforce and increasing innovation.
The United States isn’t out of the woods yet. But after nearly two years in office, Biden can claim credit for a stronger and moderately fairer economy.