The Failure of Bidenomics

P resident Biden’s exit from the 2024 presidential race was long overdue. The Biden family, the White House, and supportive media apparently hid his declining mental state for years from the public — including from Democratic primary voters, who have had no say in their new nominee. Vice President Kamala Harris locked up the party’s nomination within 48 hours of Biden’s stepping aside.

Many Democrats are now commending Biden for bowing out of the race, and seeking to assess the significance of the Biden presidency. To some admirers, Biden has been “one of America’s most consequential presidents.” Consequential perhaps, but in a good way or bad? On top of foreign-policy blunders such as the botched U.S. withdrawal from Afghanistan and the failure to deter Russia from invading Ukraine in 2022, Biden’s economic record is far from impressive. 

Particularly for a Democratic (or Democratic-leaning) voter, one way of measuring that record might be to ask: Are those below the median income truly better off than when Biden took office? 

It may be quite some time before we will know for what, economically speaking, his presidency will be most remembered. But for now, runaway inflation looms very large. His presidency saw an inflationary surge that reached levels not seen since the 1980s (inflation also often hits those below the median income hardest). The flip side of that surge was a decline in real average hourly earnings, as nominal wage growth failed to keep up with rising prices. Headline inflation peaked at about 9 percent in June 2022. That number was shockingly high — although seemingly well below past peak inflation rates of 14.6 percent in April 1980 — after decades in which inflation had seemed to be tamed. Larry Summers and his co-authors, however, have argued that changes to the calculation of CPI in 1983 understates inflation rates today vs. before the methodological change (an apples-to-oranges comparison). Their calculations suggest that the early 2020s inflation is very much on the same scale as the peak waves in the 1970s and 1980s. 

We can debate the causes of the early 2020s inflation. Some argue it was more supply-driven, others more fiscal-demand driven. The reality is that with macroeconomic effects there’s often no one answer. It’s fair to say that a supply-constrained economy combined with heaps of fiscal stimulus pumped into it contributed to the early-2020s inflationary spiral. 

The sequence of fiscal stimulus began with pandemic-related $3.4 trillion fiscal stimulus packages passed during the Trump administration, $1.9 trillion from the CARES Act, $915 billion from the Response & Relief Act, and $580 billion from two other bills. All this was more than enough to cover the output shortfall caused by the Covid-19 pandemic and related lockdowns. Then, in March 2021, President Biden signed into law the American Rescue Plan (ARP) which within months introduced $1.9 trillion of spending into the economy even though recovery was well under way. 

Where did the Biden administration go wrong? No reasonable policy-maker would inject additional fiscal stimulus far greater than the output lost during a recession (the Covid-19 pandemic recession in this case). Such an excessive fiscal-policy response went against John Maynard Keynes’s principle that governments should stimulate the economy in bad times by running a deficit but run surpluses in good economic times. Many, like Larry Summers, Jason Furman, and myself, saw this as an error at the time and called it out. 

Because of all this spending, the U.S. continues to run significant deficits, even with the Covid-19 recession well behind us. The fiscal deficit amounted to 6.3 percent of gross domestic product in 2023 because of the higher interest costs associated with higher interest rates, higher mandatory spending, and lower tax revenues. Debt-to-GDP (as measured by debt held by the public) is now about 100 percent, up from 80 percent before the Covid-19 pandemic. There’s plenty of blame to be spread around both sides of the aisle when it comes to the growth of a debt mountain that will, sooner or later, be unsustainable. When that moment comes, Biden will be remembered as one of the presidents who did a great deal to contribute to it and for the seeming insouciance with which he regarded it, of which there are few better examples that the administration’s repeated efforts to forgive student debt. This was a policy that is regressive, fiscally irresponsible, and sent a terrible message, sins somewhat made worse by the fact that they were introduced via executive order.

Biden has, since the middle of his presidency, described his economic policy as “Bidenomics.” And so far as inflation is concerned, Bidenomics earns a failing grade. While the supposedly “transitory” inflation has receded to just below 3 percent (still some way above the Fed’s 2 percent target), the White House and many others appeared to forget that most voters don’t care about technical inflation, measured by the year-over-year trailing price changes used to guide monetary-policy decision-making. Voters instead pay attention to the change in the overall level of prices in relation to their wages. While inflation is almost back to near zero, the overall price level is 20 percent higher than it was when Biden took office in January 2021. Real median wages simply haven’t caught up. As a result, Bidenomics will have failed a key test, despite what Biden supporters say about low unemployment near 4 percent (albeit slightly rising in recent months) and real GDP growth moving along an upward trend. 

The most lasting legacy of Bidenomics, however, will be a shift to a much higher level of state intervention in the economy through higher regulation. 

Consider the so-called Green New Deal, brought to life in large part through the poorly named 2022 “Inflation Reduction Act.” So far, its implementation remains distinctly spotty, most notably those parts intended, at substantial cost, to speed motorists’ transition toward electric vehicles and to create a domestic EV industry. Car buyers have proved less receptive to EVs than had been hoped, in part because of delays in developing the infrastructure (in particular charging stations). Transportation Secretary Pete Buttigieg was ridiculed during a May 2024 appearance on CBS News’ Face the Nation as the Federal Highway Administration reports that only seven or eight charging stations have been produced with a $7.5 billion investment from the 2021 Bipartisan Infrastructure Law. 

Other aspects of the Green New Deal include a broader effort to decarbonize the energy supply, often with taxpayer support. That translates to growing restrictions on America’s ability to exploit its abundant hydrocarbon resources. At least so far as oil and gas are concerned, these have led to lower levels of production than would otherwise be the case. 

Valuing the difference that these policies may make to the climate is not straightforward, nor is assessing the Green New Deal’s cost, which continues to mount and at times appears dismayingly open-ended. There is also the often-forgotten question of opportunity cost. Investment by the state on this scale raises the issue of whether the money could have been better spent elsewhere, and it may well induce the private sector to deploy its resources in a sub-optimal manner. 

Similar questions apply to aspects of Biden’s industrial policy aimed at reducing the country’s strategic vulnerability to China. The primary vehicle for this policy has been the CHIPS and Science Act, which was passed in 2022 and authorizes $280 billion in new funding for research and subsidies for semiconductor-manufacturing in the United States. Once again, progress has been slow without much to show in terms of results. 

We will see whether the future will vindicate Biden’s shift to a more interventionist approach. But the omens are not looking good so far. If they turn out to be accurate, the legacy of Bidenomics will be nothing to brag about.