When wide attention refocuses on the economy, the political importance of GDP, inflation, income stress and grievous inequality will return to the fore. It won’t be any clearer which way all the data are cutting.
There’s no question that “Bidenomics” made many people better off, at least until price increases worked through the system. The lower quintiles of income-earners did particularly well by virtue of wage increases and pandemic subsidies. The monetary stimulus—lots of lending and low interest rates—also helped them, but led to a boom in financial assets that primarily enriched the better off.
Now the economy has returned to a more normal footing, with elevated if diminished levels of price inflation. Early indications are that the economically marginal, particularly those with high debt levels or low work-force participation, will be suffering most in this stretch. However, if a true recession results, the investor class could see a squeeze in its holdings that actually reduces inequality, as has happened in previous downturns. (Higher interest payments favor these savers but reduce the value of their bonds and often their real estate.)
The surprising thing politically is that, with virtually all the good short-term effects already having been felt by President Biden’s “ordinary Joes,” support for Bidenomics appears low. Consumer confidence measures are down and other polling suggests that the stumbling Republicans actually get higher marks on the economy. This will make the attempt to have a “soft landing” (and not a recession from tighter money) over the next year all the more necessary for the White House.
As the federal budget deficit begins to worry policymakers again (thanks to its burgeoning size and the higher interest payments on it), satisfying the various constituencies for subsidies or handouts becomes more difficult. Also the gathering expense of tighter limits on fossil-fuel use—on top of the alt-energy spending under the “Inflation Reduction Act”—means that the real cost of living will remain high. The U.S. is yet to experience a general productivity payoff from a gamut of technological innovations. Thus, even a soft economic landing will feel hard to many. Biden continues to unilaterally waive student debt payments but so far has only found ways to spare of minority of borrowers.
Meantime, international considerations weigh– not just the costs of munitions and other war-fighting assistance to U.S. proxies, but also the brittleness that accompanies the tighter monetary reins. Washington can expect to be importuned by many disadvantaged governments abroad to loosen the checks on inflation even as they seem to be partially working in America. The past week’s Wall Street Journal article takes notice of this.
Some of these macroeconomic issues were acute in the 2022 midterm elections, yet Biden’s fellow Democrats did well. Will the same luck—or more accurately, the same ability to tag Republican opponents as unacceptable–hold for 2024? Even with low unemployment, conditions will be tougher for many, and other rubs such as border security have grown worse in the public mind. If indeed it “is the economy, stupid” again in the election campaign now under way, the party in executive power may once more answer for that. –October 15, 2023
Tim W. Ferguson 