ExplainSpeaking | What is Bidenomics and how it defied Trump and inflation


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Dear Readers,

The results of the midterm election in the US have provided a fascinating running commentary on the fate of the World’s oldest democracy.

Before the elections, most observers expected the President Joe Biden-led Democratic Party to lose control of both the House of Representatives (the “lower” house) as well as the Senate (the “upper” house) in the US Congress.

There were many reasons to expect the Donald Trump-led Republican Party (also called the Grand Old Party or GOP) to wrest control of the US Congress and thus dominate the legislative agenda in the run-up to the next presidential elections in 2024. For one, US consumers have been facing historically high inflation — with food and fuel inflation often running into double-digits. Moreover, most polls suggested that Biden’s popularity or approval ratings were languishing below 40%. Opinion polls had also found that around 75% of Americans were also unhappy about the direction the country was taking. Further, former President Trump was still rampant, claiming that the 2020 presidential election was “stolen”. Last but not the least, history was against the Democrats because the political party of most sitting presidents tends to lose control of either one or both the houses of US Congress.

Surprising results

However, as things stood on the eve of November 14, Democrats had already secured the control of the Senate while the contest for the House of Representatives was heading towards a very close finish. Even if the Republicans were to wrest control of the House, it would be a wafer-thin majority. Since both houses of the US Congress control the legislative agenda, a divided result implies neither party can have unrestrained power.

The fact that Democrats will continue to control the Senate, which is the house that confirms presidential appointments (such as judges and ambassadors etc.), means that Biden will be able to govern as he wants to. However, if the House of Representatives (which is the only house that can initiate legislation related to taxation and spending) goes to the Republicans, then the President is likely to face a belligerent opposition party that might be more interested in tripping the Biden administration than genuinely following its plans.

Republicans in a bind

Democrats have heaved a big sigh of relief because notwithstanding his abysmal approval ratings President Biden has done better in the midterms than any president in recent memory. However, many Republicans, who were expecting a red (Republican colour) Tsunami are in shock. And since Trump was the most influential entity in picking, endorsing and campaigning for Republican candidates, the knives are out within the party.

But the problem with the GOP is this: While Trump’s insistence that the 2020 presidential election was stolen is hurting the party in general elections, Trump remains the biggest leader within the party. In other words, at the national level, backing Trump may further marginalise the Republican Party.

How did Biden do it?

The election results are still filtering through and it is quite likely that it will take months, if not years to accurately ascertain why Democrats and Biden buck the trend of losing in midterms.

However, it has been argued that perhaps the upturning of the Roe v Wade decision — taking away the Constitutional protection for abortions — made even some of the loyal Republican voters (especially women) side with the Democrats.

Others have argued that voters, even the Republican ones, were genuinely concerned about the future of democracy in the US. The loss of several Trump-backed nominees, and the victory of some of his detractors and rivals (such as Governor Ron DeSantis of Florida) within the Republican Party, is being seen as a message that voters no longer back Trump’s extremist and insurrectionist views.

But there is one more reason why Biden may have dodged the midterm bullet — Biden’s economic policies.

What is Bidenomics?

In September, Treasury Secretary Janet Yellen cogently articulated the so-called “Biden-Harris Economic Blueprint”. It encapsulated the sum and substance of all the legislative and executive decisions during the first two years of the Biden presidency.

The Biden administration claims that when it took charge, the US faced multiple unprecedented crises: a once-in-a-century virus taking as many lives in one year as US lives lost in all of World War II, millions of jobs lost, hundreds of thousands of businesses closed, and the existential threat of climate change. “The Biden-Harris Administration inherited not only these crises, but also an economy that for many decades had been failing to deliver for working families—with workers and middle-class families left behind, stagnating wages and accelerating costs, crumbling infrastructure, U.S. manufacturing in decline, and persistent racial disparities,” it states.

“At the heart of President Biden and Vice President Harris’ economic agenda is that economic growth should reach and uplift all Americans. No community, no individual, no racial or ethnic group should be left behind. Driving the economy from the bottom up and middle out ensures that growth benefits everyone,” states the blueprint.

“While reestablishing overall economic growth and a strong labor market is necessary to achieve the broader economic goals of the Administration, it is not sufficient. To achieve the Administration’s longer-term goals, the Administration has pursued policies that will empower workers, boost domestic production, tackle climate change, reverse decades of disinvestment in public goods, and reward work, not wealth,” it states further.

Accordingly, Bidenomics has five core pillars:

1: Empowering Workers:

For four decades before the pandemic, workers’ productivity grew nearly 62 per cent, but the average worker’s pay increased by less than a third of that—around 18 per cent (see Chart 1A). The gains of growth were going to those at the very top. While real income for the bottom half of the income distribution grew by 21 per cent since 1976, it grew over ten times more for the top 1 per cent (by 225 per cent) and over 16 times more for the top 0.01 per cent (by 348 per cent). And in 2020, CEOs at major U.S. firms made over 351 times as much as their firm’s typical worker, compared to 21 times as much in 1965.

For four decades before the pandemic, workers’ productivity grew nearly 62 per cent

“The Biden-Harris Administration has taken direct action to promote unionization and collective bargaining, increase worker pay, and address labor market inequities,” states the blueprint. Further, through an executive order, Biden has mandated that federal employees and federal contractors’ employees be paid a minimum $15 per hour— that’s twice the earlier minimum wage.

So while there has been much talk about inflation being at a four-decade high, far less attention has been paid to the fact unemployment levels in the US are at a five-decade low.

As CHARTS 1F and 1G shows how the Biden administration has been able to make the job market recovery more equitable. For instance, to help women and mothers return to the workforce, it provided billions of dollars in the American Rescue Plan dedicated to keeping childcare options available during the pandemic.

Unemployment rates by race and ethnicity in the US (2003-2022)
Male and female labour force participation rates n the US (2019-present)

2: Making and Building it in America

The Biden administration has been doing this by investing in infrastructure, pushing the US to become a world leader in clean energy jobs and innovation, while bolstering the manufacturing base (see CHART 2A), and promoting buying American products.

The Biden administration has been bolstering the manufacturing base and promoting buying American products.

3: Giving Families Breathing Room

It has done this “by lowering costs and expanding access to affordable and high-quality health care, education, child care and long-term care, housing, high-speed internet and other essential needs”.

Thanks to affordable health care, the uninsured rate has fallen to an all-time low. Similarly, Biden has provided “targeted student debt relief as part of a comprehensive effort to address the burden of growing college costs and make the student loan system more manageable for working families”. To be sure, the student loan proposal has run into some legal trouble at the moment.

4: Making American industry more competitive, less concentrated, and more resilient

This has been done by “taking on corporate concentration, promoting small businesses and entrepreneurs including minority and women-owned businesses, and supporting resilient supply chains,” according to the blueprint. For instance, in July 2021, President Biden signed an executive order on “Promoting Competition in the American Economy” to address the growing concentration in more than three-quarters of US industries over the past decades. Similarly, by the Ocean Shipping Reform Act, ocean shipping costs have been lowered by 50 per cent.

5: Rewarding Work, Not Wealth

Making all these interventions requires money and the Biden administration has decided to tweak the tax focus to ensure that “the wealthy and large corporations pay their fair share, while never raising taxes on households with incomes below $400,000”.

CHART 5A shows how the tax shares of corporates and labour were diverging; essentially unfair to the working man.

Corporate and labour tax shares in the US (1950-present)

Biden has trashed the whole idea of trickle-down economics, which postulates that tax cuts to the rich and big corporates help in job creation and “trickling down” prosperity. The average monthly job growth in the two years following the 2017 tax cuts (under Trump’s presidency) was 178,000—as compared to 185,000 monthly job growth in the two years prior — without any significant improvement in the real GDP. Moreover, an IMF analysis of S&P 500 companies found that companies pocketed 80% of the increased cash flow due to lower taxes; using just about 20% for investment and R&D.

So the Biden administration has focused on directly giving tax relief to poorer and more marginalised families.

Upshot:

Through various legislations such as the Inflation Reduction Act or the American Rescue Plan etc. the Biden administration has been trying to address the growing inequalities within the US. Of course, inflation has been high but three things stand out. One, voters may not be blaming Biden for higher fuel prices. Two, the Biden administration appears to be the only one to alleviate the economic distress; the so-called MAGA (Make America Great Again) Republicans, on the other hand, are still busy denying the 2020 election result. Three, unemployment levels are at historic lows and the Biden administration is trying to strengthen and bridge the growing gap between the working class and the elites.

Until next time,

Udit





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