Bidenomics: An Economic Policy That Works for the Middle Class
...but why don't more realize it?
Our country is beginning to recover from difficult economic times, brought on by uncontrollable external factors like the pandemic and the shortages and disruptions that it wrought.
The pandemic effect, though, was layered on top of economic problems rooted in industrial decline that has been “hollowing out” manufacturing regions (especially in the Midwest) for decades. Throw in decades of underinvestment in infrastructure caused by low taxation of corporations and the rich, and the “financialization” of the economy…and that’s how we got here.
Joe Biden came to office offering a different vision of how to manage the economy. He has presided over an uneven recovery from the economic woes that befell the US and the world as a result of the pandemic. His administration worked with Congress to pass legislation to invest in the nation’s infrastructure (roads, airports, broadband, investing in clean energy), return chip manufacturing to this country[1], and begin to invest in human capital.
Biden’s vision – summarized in his recent speech and outlined in a White House press release last week – is to “...rebuild our economy from the middle out and the bottom up, not the top down… centered around three key pillars:
• Making smart public investments in America;
• Empowering and educating workers to grow the middle class;
• Promoting competition to lower costs and help entrepreneurs and small businesses thrive.”
What does this mean? Drawing from and paraphrasing the White House document…
Building More in America by Making Smart Public Investments means making targeted public investment that will attract more private sector investment particularly in sectors that are central to the long-term economic and national security interests of the United States—from improving our infrastructure, to semiconductors, to investing in clean energy and climate security. The Bipartisan Infrastructure Law – passed with scant few Republican votes – is rebuilding our infrastructure (roads and bridges, high-speed internet capacity, ports, and airports) to provide a firm foundation” to support durable and shared economic growth.” And a requirement for Made-in-America products when using federal funds on infrastructure projects is boosting our domestic manufacturing base.
Empowering and Educating Workers to Grow the Middle Class means attacking the high unemployment rate brought about during the pandemic. It also means educating and training workers by investing more in registered apprenticeships and career technical education programs and pushing for free universal pre-K programs and free community college. And supporting workers’ right to form a union, a priority for this administration.
Promoting Competition to Lower Costs and Help Entrepreneurs and Small Businesses Thrive means acting on the understanding that for markets to function to the benefit of workers and consumers our economy requires healthy competition. As control of U.S. industries has become more concentrated in the last two decades –- and as the resulting oligopolies act under to cover of pandemic-driven inflationary pressures to gouge the consumer –- prices increase and workers have less leverage. To combat this the President issued an Executive Order committing the government to “full and aggressive enforcement” of anti-trust laws. That order identified specific initiatives to promote competition (e.g., changing the rules so that hearing aids can be sold over-the-counter, instead of just via prescription). The President also signed legislation that will lower prescription drug costs by giving Medicare the authority to negotiate lower prescription drug prices (an initiative Republicans are trying to reverse on behalf of big Pharma).
“Bidenomics” rejects the tried-and-failed “trickle down” and “supply side” economic policies championed by Republicans from Herbert Hoover to Ronald Reagan to the present day. “Trickle down” posits that cutting taxes to the rich encourages them to spend and invest, actions that lead to benefits “trickling down” to the plebians. The main tenet of “supply side” economics was that massive tax cuts would generate enough additional economic activity to generate more tax dollars to cover the cuts. Didn’t come close. What those policies DID achieve was rising inequality and the hollowing out of the middle class and much of Middle America. The graph below shows shows the deficits that accumulated under Reagan…before changing to surpluses during Clinton’s second term (helped along by VP Al Gore’s tie-breaking vote to increase taxes).
Those facts -- economic health being correlated to Democratic governance— are part of a longer term phenomenon. Princeton Economics professors Alan Blinder and Mark Watson found: “The U.S. economy has grown faster—and scored higher on many other macroeconomic metrics—when the President of the United States is a Democrat rather than a Republican. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant…During the 64 years that make up the core 16 terms, real GDP growth averaged 3.33 percent at an annual rate. But the average growth rates under Democratic and Republican presidents were starkly different: 4.33 percent and 2.54 percent, respectively. This 1.79 percentage point gap (henceforth, the D-R gap) is astoundingly large relative to the sample mean.4 It implies that over a typical four-year presidency the US economy grew by 18.5 percent when the president was a Democrat, but only by 10.6 percent when he was a Republican. And since the standard deviations of quarterly growth rates are roughly equal (3.8 percent for Democrats, 3.9 percent for Republicans, annualized), Democratic presidents have presided over growth that was faster but not more volatile.”[2]
So we shouldn’t be surprised that our economy is being rebuilt under a Democratic President. But the poor guy is getting no credit. In recent opinion surveys only about a third of those polled approve of Biden’s handling of the economy, despite historically low unemployment rates, slowing inflation, increased investment in infrastructure and sustainable energy, as well as in business investment.
Maybe he’s old and wizened. He was always subject to verbal gaffes. But he’s doing the right things for the most part, playing the hand he was dealt. But Joe’s team is doing a good job with the economy.
Tell your neighbors.
We welcome comments and, of course, encourage you to subscribe and recommend Out-Takes and Sidebars to your friends. - Kevin McDonald
[1] “…Everything from light switches, cell phones, cars, and even military equipment needs semiconductors. And with more than 80% of semiconductors produced overseas, disruptions to the supply chain in recent years made it difficult for domestic manufacturers to produce a wide range of consumer goods. In response to the issue, Congress recently passed the CHIPS Act, a $280 billion spending package aimed at encouraging the growth of the US-based semiconductor industry. President Joe Biden signed the bill into law on Aug. 9.” - What’s in the recently passed CHIPS Act? https://usafacts.org/articles/whats-in-the-recently-passed-chips-act/?utm_source=google&utm_medium=cpc&utm_campaign=ND-Economy&gclid=CjwKCAjw44mlBhAQEiwAqP3eViqD4oys96Li8m-QHQuwItYR7aVxpFtuuLXUYAHoebFLDmj_tklKAhoCIJYQAvD_BwE
[2] PRESIDENTS AND THE U.S. ECONOMY: AN ECONOMETRIC EXPLORATION- Alan S. Blinder and Mark W. Watson https://www.nber.org/system/files/working_papers/w20324/w20324.pdf