The Biden Economy

By the conventional indicators, especially measures of the labor market, the economy is strong, though perhaps a little past its peak. Reported evaluations are far less sunny than the official stats, however. Most people tell pollsters the economy stinks.

After extraordinary rates of growth in 2021 and 2022 as the economy recovered from the COVID shock, job growth is now slightly below its long-term average. The unemployment rate in October was 3.9 percent, very low by historical standards, though up 0.4 from April’s trough (which was the lowest rate since 1969). That’s the official rate, aka U-3, which has a fairly restrictive definition of unemployment. By the broader measure, U-6, which captures more people at the margins of the labor force, it was 7.2 percent. That’s up from December’s 2022 low of 6.5 percent, which was the lowest in that measure’s history.

Workers look strong in the labor market — the official count of unfilled job openings, a measure of employer frustration, though off its highs of spring 2022, is still high by historical standards, and similar could be said of the quit rate, a measure of worker confidence. Here too it looks like the worker’s labor market power has peaked but isn’t collapsing.

Add to this big union victories, from riveters to writers, and the US working class looks to be in its best shape in decades — which isn’t saying much given the standards of our history, but still, it’s better than nothing. Strike activity, which was more discursive than actual over the last couple of years, is finally showing up in the stats — though it’s got lots of ground to recover.

Tight labor markets have pushed up wages for the low paid, resulting in some decline in inequality, though just how much depends on the source. At the upbeat end, David Autor, Arindrajit Dube, and Annie McGrew find, to use the economic jargon, “compression” in the ratio of wages at the ninetieth percentile (those paid better than 90 percent of the population) to the tenth percentile (those with only 10 percent of the workforce paid less) since 2020. The worker shortage — “nobody wants to work anymore” — forced employers to boost wages among the lower paid faster than inflation, while the highest paid, many of them working remotely from their rural perches, had to cope with real wage declines. For the full period, January 2020–May 2023, Autor & Co. found the bottom 60 percent saw real wage increases — though if you start the clock in May 2021, only the bottom 40 percent did.

It may be that focusing on the very top and bottom — ninety and ten — gives a misleading impression of what’s going on with the masses. Other data sources paint a much less satisfying picture than Autor and his coauthors.

According to the Federal Reserve Bank of Atlanta, workers in the bottom half of the pay distribution saw nineteen consecutive months of yearly real wage declines in 2021 and 2022, and workers in the top half, twenty-three. According to another set of Atlanta Fed numbers, which adjust for changes in workforce composition — low-wage workers exited in large numbers in 2020, artificially boosting the average wage, and their return artificially depressed it in 2021 — average real hourly wages have fallen an average of 0.4 percent a year under Biden; under Trump, they rose 1.4 percent a year (which was three times Obama’s rate, by the way).

Another measure, the Federal Reserve Bank of New York’s estimates by demographic, show real weekly wages down 5.1 percent in the Biden years. Traditionally worse-off demographics are doing generally better than the more historically fortunate: younger doing better than older, those without college degrees doing better than those with, black and Latino doing better than white. But in most cases, those doing better are generally less negative than those doing worse. Real wages have turned positive in recent months as inflation has declined, but there’s lots to make up for.

Rising Prices, Declining Approval

Despite the easing of inflation — it was running at almost 8 percent a year in October 2022, and it was just over 3 percent this October — there’s been little change in the reported strain on household finances. The share of the population telling the Census Bureau’s Household Pulse Survey they were finding it very or somewhat difficult to pay their bills was 26 percent in April 2021, as the COVID relief money was flowing. That began rising, breaking 30 percent at the year’s end, and 40 percent in July 2022, where it’s stayed. It was 41 percent — 94 million adults — in October 2023.

The share reporting stress from price increases has fallen modestly, from 65 percent in October 2022 to 61 percent in June 2023. It’s stayed there since. Price stress most affects those on low incomes, of course — around 80 percent of those under $50,000 felt it. But almost half of those earning between $100,000 and $150,000 report price stress. The share of the population saying that they could get all the food they wanted was 72 percent before the pandemic; it’s now 54 percent.

Broader evaluations of the economy are no better. The University of Michigan’s monthly consumer sentiment survey, which goes back to 1952, has people rating the current economy below the average recorded in recessions, lower than 95 percent of the months since its inception.

According to a Financial Times–Michigan Ross Business School poll, people view the economy as miserable and Biden of little help. Just 43 percent of respondents report themselves as “thriving,” with the rest, 57 percent, “surviving” (the pollsters’ summary words). Three-quarters said the economy was not so good or poor. Over half, 55 percent, report themselves to be “worse off” since Biden became president, 14 percent more than those saying they were “better off.”

People haven’t heard much about Biden’s economic policies, but only a quarter think they’ve helped. They’ve probably forgotten all the pandemic relief — stimmy checks, expanded unemployment, child allowances. Instead, now they complain overwhelmingly about price increases — 82 percent of them. Erik Gordon, a professor at Ross, told the Financial Times: “Every group — Democrats, Republicans and independents — list rising prices as by far the biggest economic threat . . . and the biggest source of financial stress.” Aside from inflation, other prominent complaints include “your income level,” rent, credit cards, and medical expenses.

The alleged decline in inequality is also not reflected in data compiled by the Real Time Inequality project out of the University of California at Berkeley. As the graph shows, the higher you are in the income distribution, the better you’ve done under Joe from Scranton. The top 0.1 percent has gained well over three times as much as the bottom half.

Critics and Defenders

Biden’s defenders say all these evaluations are wrong. As I asked in my piece on inflation for Jacobin last September, do these people ever go shopping for groceries?

These are the realities of living in the Biden economy. What’s his administration trying to do about them? The COVID-relief measures — the income supports, the student and mortgage debt moratoria — were immensely helpful to millions of people, but temporary. If made permanent, they could have been the cornerstone of a civilized welfare state. Yes, this would have been a difficult fight, but Biden could have made an issue of it. He didn’t.

What he has made an issue of, though not in a very arresting way, are those “smart investments in America.” The argument for spending for investment has not been advocated so strongly by a US president for decades, according to tax historian Joseph Thorndike. “Biden and his people were channeling Franklin Roosevelt in his purest form and unapologetically so,” he recently wrote in the Financial Times. “No one has made this argument with such freedom and such conviction since Roosevelt.”

That says as much about the last seven decades of Democratic presidents as it does about Biden. It’s hard to imagine anyone since FDR, except maybe Lyndon Johnson, who’s made such arguments.

Same with pro-union sentiments. Biden said in his Labor Day speech, “I’m proud to be the most pro-union president.” Contrast that with Robert Reich, freshly installed as Bill Clinton’s secretary of labor, who said in 1993 “The jury is still out on whether the traditional union is necessary for the new workplace.” Reich has since changed his tune, but that was his party’s view in those days. Tech and globalization were changing everything. Unions, by weakly trying to resist, were brakes on progress.

Obama wasn’t as fervent as Clinton’s crew, but never seemed very partial to organized labor. An economic crisis, rising popular disgust with the state of things, and the emergence of something like a left inside and outside the Democratic Party smashed that consensus.

And so, we got the three major investment bills: the Bipartisan Infrastructure Law (BIL, whose name conjures the elusive centrist dream of across-the-aisle partnership), the CHIPS Act, and the Inflation Reduction Act (IRA). The BIL is slated to invest $400 billion in infrastructure projects, about three-quarters of it in roads and bridges — many of which, as anyone who drives around this great land knows, are wrecks. But roads and bridges aren’t the conduits of the future, even if the law subsidizes electric car chargers. Ports, public transit, water projects, and the power grid also get some cash. According to a White House spreadsheet, $132 billion in funding has been announced so far — and just 4% of it is for public transit.

The CHIPS Act is meant to stimulate domestic electronics production. It’s doing some of that, but as I noted in an earlier piece on the law, its corporate subsidies are effectively a reimbursement for massive stock buyback programs by the big semiconductor firms over the last decade. Subsidies and tax breaks have spurred capital spending in the sector — though, as the graph below shows, the rest of manufacturing looks moribund. (Despite all the attention the sector gets, computers and electronics account for just 1.2 percent of GDP.)

That construction boomlet is at the mercy of corporate priorities. Chip demand is weakening, and over the summer, firms like Intel and Micron announced capital spending cuts despite their promises to boost investment. And though the government is picking up the tab for the investment spending, any profits will accrue to the companies and their shareholders. Something a pro-union president should be paying attention to — labor conditions at the Taiwan Semiconductor Manufacturing Company construction site in Arizona, a $40 billion project, the biggest announced so far — is hardly a worker’s dream. As the American Prospect’s Lee Harris found, the jobs are dangerous and largely nonunion, and embedded in an opaque web of subcontractors.

The IRA was a watered-down version of the Build Back Better bill, which was introduced in July 2021. Original schemes included ambitious spending on social programs (universal pre-K, child credits), clean energy, housing, education, health care, labor law reform, and high-speed rail, funded by higher taxes on corporations and rich people. Its original price tag was cut from $3.5 trillion to $2.2 trillion. But even the pared-down bill was too much for the Senate, particularly Joe Manchin, so the IRA was the compromise that got through.

The law aims to invest $891 billion, most of it on energy and climate, with some allocation to Obamacare subsidies. To raise revenue, the IRA features modest business tax hikes and $80 billion for “modernizing” the IRS, which is supposed to boost collections by much more than that $80 billion by cracking down on evaders, rather than formally increasing tax rates.

An early analysis of the IRA by the Rhodium Group, a consulting outfit, estimates that US greenhouse gas emissions will be 40 percent lower in 2030 than now, 10 percentage points less than in a non-IRA world. (An updated analysis from Rhodium and multiple other authors tweaked those figures, but left them substantially intact.) Ten percentage points is something, but “transformative” isn’t the first word that comes to mind.

The main mechanism of the reduction is making electricity generation cleaner and using more of it (especially by electric vehicles charged with the cleaner juice). Much of that decarbonization will come from tax credits (including for EVs), not direct public spending. A ledger kept by Rhodium and MIT’s Center for Energy and Environmental Policy Research shows that clean energy investment by the private sector, which was already rising briskly before the IRA, has been rising much more briskly since.

“A Business-First Approach”

This points to a problem with much of the Biden policy trio: private investment, not public investment, will be the principal lever. As a the White House put it in an IRA explainer, it’s an effort to “mobilize financing and leverage private capital.” That was describing one program, but it’s applicable to the entire assemblage. Incentives are supposed to trigger private investments that are many multiples of public spending — $3 trillion, on Goldman Sachs’s projections. As tech pundit David Kirkpatrick told Worth magazine, “This is a business-first approach to government climate action.”

Giddy celebrations of the package as a new New Deal overlook how firmly embedded Biden is in the ongoing preeminence of private capital. Ronald Reagan and his “magic of the marketplace” is still casting a long shadow. FDR was no socialist — quite the contrary — but his administration did show an interest in public investment that’s utterly lacking in Biden’s. (For evidence, check out some of the Living New Deal’s maps. We’re still using that infrastructure, constructed almost a century ago.) And, as the Right constantly laments, “In making the case [for higher taxes on the rich, FDR] unleashed moralistic rhetoric on fairness and fiscal citizenship that reshaped American taxation for decades to come.” Those decades, however, are long past.

Nor is Biden doing much to kill fossil capital, an urgent task. US domestic oil production since Biden took office is higher than it was during the Trump years (and more than twice as high as during the George W. Bush years, as you can see in the graph below). Rhodium projects that the IRA will have no impact on US oil production and promote only a modest decline in natural gas.

The approach seems to be to continue pumping to facilitate the energy transition, which is reminiscent of Ronald Reagan’s early 1980s “build down” approach to arms control — building more nuclear weapons now to pare them down at some unspecified later date.

Finally, although the Biden programs are pitched as measures to improve the lot of American workers, a central animating motivation is fighting a new Cold War with China, as the country becomes a tech power in its own right and not just a low-cost assembler of components designed elsewhere. Ruling elements, as we used to say on the old left, are not happy about having a country they see as an enemy, potential or actual, providing so many components for both consumer gadgets and weapons.

Always the “But”

Joe Biden hasn’t been Obama 2.0. His administration’s policies have prompted rumblings of a break with neoliberalism and attracted defenders with bona fide progressive credentials. Gone is the decades-long allergy to full employment or talk of industrial policy.

But, with Biden — to steal a line from Gore Vidal, who said it about America — there is always the “but.” Pro-union, but he busted a rail strike. Pro–public investment, but mostly stimulating private investment. Pro-climate but doing little to subdue oil and gas (though, yes, there is a Congress that loves oil and gas). Supposedly the biggest agenda in decades, but promoted with so little political skill or energy.

As Bloomberg News put it in August, “‘If you even gave a small summary of what is in the Biden legislative packages, all of those things are incredibly popular,’ Biden pollster John Anzalone said. ‘It’s the awareness level that’s really low.’” Or, as a Washington Post–University of Maryland poll found, most Americans (57 percent) oppose Biden’s climate policies but only a quarter or a third know anything about them. You can blame the media for that, in part — capital spending doesn’t bring in the clicks, and all these technical and financial details bore mainstream political journalists.

But it’s also Biden, who is dull and doesn’t always seem oriented in time and space. Trump had little positive to sell, but he never stopped selling it. As crass as that is, the strategy does pay political dividends. Biden has barely started selling. Lacking any visible economic message — a “vision” seems beyond his capabilities — bad feelings about inflation will continue to dominate whatever the long-term payoff of the Inflation Reduction Act.

If Biden wants to get reelected, he’s got to hope that people’s experience of inflation catches up with the official statistics — prices may be rising more slowly than they were, but they’re still rising rather than receding. And he’s got to convince people not merely that he has a long-term economic agenda, but that it might have some positive effect on their lives. Doing that would require evoking some common notion of a better future. But that would be very difficult for someone who mostly gives the impression of being tired and distracted.