Biden’s imprint on economy emerges, although inflation threatens wins
WASHNGTON – It’s been a big month for Bidenomics.
After a year marked by Democrats’ internal dysfunction, Congress has over the last few weeks delivered a raft of legislation that will help form the core of President Joe Biden’s economic record before lawmakers face voters in the 2022 midterm elections.
Beyond the economic rescue package and bipartisan infrastructure law passed last year, Congress this month also approved a $280 billion measure to expand veterans health care, a $280 billion law to counter China’s economic rise, and the Inflation Reduction Act centered on addressing the climate crisis, lowering health-care costs and raising taxes on large corporations.
The recent wins, in particular, have sharpened the Biden administration’s imprint on the U.S. economy. His presidency combines some traditional features of Democratic policymaking – such as pursuing higher taxes and expanded access to health care – with a new focus on reviving domestic industry through targeted investment, supporting American labor, and cracking down on monopolistic firms through a heavier emphasis on antitrust enforcement.
The outset of Biden’s term has been defined by pitched battles over short-term economic circumstances: The president has defended his 2021 rescue plan as leading to the biggest single-year jobs boom in American history, while critics have assailed that same policy for exacerbating the fastest price increases in four decades. The latest string of legislative victories, however, turn the battle over “Bidenomics” into one over the long-term trajectory of the nation’s tax code, energy sector and other structural parts of the nation’s economy, although the menace of inflation continues to dominate even these debates.
“There’s a much greater comfort with industrial policy, ‘Buy America’ over engaging internationally, pro-union policy and pro-competition policy,” said Jason Furman, who served as a senior economist in the Obama administration. “A number of those things were in Obama, but there’s more of it and it’s more central to Biden.”
White House officials say the new legislation aimed at expanding America’s production capacity – with hundreds of billions of dollars invested in sectors like infrastructure, semiconductors and renewable energy – will ensure that the economy continues to grow for years to come.
Those gains will then be translated to workers, they say, through their efforts to run a tight labor market spurred by the rescue plan, which means workers have the bargaining power to ensure that the benefits are broadly felt.
“When it comes to establishing a lasting legacy in terms of existentially necessary economic transformation, history may well put President Biden in the same sentence as FDR and LBJ,” said Jared Bernstein, a member of the White House Council of Economic Advisers, in an interview, referring to Democratic presidents Franklin D. Roosevelt and Lyndon B. Johnson, who ushered in major changes to the American economy such as Social Security and Medicare. “And President Biden gets an asterisk, because he’s building this legacy within an environment of intense partisanship and a razor-sharp majority.”
Still, so far at least, Biden’s economic reputation has been overwhelmingly defined by one weakness: inflation. Biden’s first major bill, the $1.9 trillion American Rescue Plan, supercharged economic demand, which many economists have said led to the fastest price increases in America in decades.
Higher prices for food, housing and energy, while easing, have weighed on Americans’ budgets, knocking out the benefits of broad-based wage gains. Polling has consistently shown the public is broadly furious over high prices, and it remains unclear whether the sum of his legislative accomplishments can overcome that frustration.
The dangers to the present economy threaten to upend the Biden administration’s claims of progress and long-term transformation. If the Federal Reserve moves too quickly to combat inflation, unemployment could spike and the economy could reenter a recession. But failure to arrest inflation would also spell political and economic disaster for the administration.
“Inflation hits everyone everywhere with everything – and that’s just damning for the administration. Unless or until they fix that, not much else will matter,” said Frank Luntz, a pollster and analyst. Luntz said inflation outranked all issues for voters, even when guns and abortion dominated the news. “Nothing else comes close, because nothing affects more people in more places in more communities across the entire country.”
The White House is also left to grapple with the failure of key parts of Biden’s campaign promises. Democrats in 2020 ran on large-scale changes to the country’s safety net, as Biden campaigned on creating a new “care economy” with new programs in child care, paid family leave and eldercare.
Those aspirations have largely died in Congress, despite the administration’s efforts. Some analysts say Biden’s presidency is on pace to do less to expand the welfare state than former Democratic presidents Bill Clinton and Barack Obama, who both pushed through more significant changes to the U.S. health-care system. The White House approved a one-year expansion of the child tax credit in its 2021 rescue plan as the centerpiece of its plan to reduce child poverty, hoping that would build popular support for the program to ensure its continued extension. But that measure expired at the end of last year with little chance of being renewed soon.
“The administration misperceived what the covid crisis could do for big policy change, and misperceived what the feedback effects would be of the policies they implemented for a year,” said Josh McCabe, historian of welfare policy and a senior analyst at the Niskanen Center, a center-right think tank. “They started out with a very ambitious agenda, thinking there was a policy window – but they turned out to be completely wrong.”
Instead, the Biden economic legacy will largely be the product of negotiations of Congress, which were determined more by Sen. Joe Manchin, D-W.Va. – Democrats’ 50th vote in Congress – than the White House. Many of the policies that centrist Democrats agreed to support had been backed by President Donald Trump, as well. Trump emphasized the need for action on prescription drugs, reviving American manufacturing, and countering China’s rise – all of which are now key pieces of the Biden agenda. Biden has also largely maintained the controversial tariffs Trump imposed on China, even though some economists have said removing them would help alleviate inflation.
“Conceptually, there’s a lot of overlap with President Trump’s agenda and the agenda of parts of the Republican Party,” said Stephen Miran, who served as a Treasury Department official during the Trump administration and is the co-founder of Amberwave Partners, an investment fund.
In an interview with The Post, White House National Economic Council Director Brian Deese said Biden “achieved some of the most important bipartisan accomplishments in decades – including what the former president has called for but has not been able to get done.”
But the White House has also taken actions criticized by corporate America in major reversals from the direction of the Trump presidency. Biden has, for instance, taken a broad approach to cracking down on outsize corporate power, reflecting an emerging Democratic consensus that a handful of megafirms have stifled competition in the U.S. economy. Biden appointed an antitrust hawk to lead the Federal Trade Commission, and his Department of Justice is in the process of revising guidelines for large corporate mergers. The White House has taken steps to impose greater oversight over the shipping industry, which was deregulated under Clinton, through new legislation cracking down on higher international ocean shipping costs. Additionally, the Inflation Reduction Act includes a tax on the few dozen shipping firms with more than $1 billion in annual profits.
“It’s a huge change from the Reagan consensus that carried through the Obama administration,” said Sarah Miller, executive director of the American Economic Liberties Project, a think tank that supports aggressive antitrust policy.
Biden has also overseen an economic recovery markedly different from that of Obama, who struggled with the sluggish pace of job and wage gains in the aftermath of the Great Recession. While the stimulus rescue plan exacerbated inflation, it also averted the deep labor market scarring that occurred after the last recession. These robust gains form the centerpiece of Biden’s efforts to boost worker power, in part because Congress defeated efforts to deliver on Biden’s campaign promises to raise the minimum wage and make it far easier for workers to unionize.
By increasing demand for workers, resulting in strong job creation and record numbers of job openings, workers have ended up with more leverage in the workplace to negotiate higher pay and benefits. (Biden has also taken symbolic actions to boost union efforts, such as inviting Amazon labor leaders to the White House.)
“We are not facing the long-term damage to workers that we did previously,” said Claudia Sahm, an economist who worked at the Federal Reserve. “I do not see labor institutions as having changed, but we have seen worker bargaining power come back.”
Biden’s ultimate economic legacy may come down to the sweeping Inflation Reduction Act, which finally passed after months of difficult negotiations without any GOP votes. The legislation is the largest climate bill ever passed, and Democrats are hoping it also brings back U.S. manufacturing by reviving the nation’s industrial base, aiming to repair supply chains exposed as brittle by the war in Ukraine and the coronavirus pandemic.
Beyond the bill’s energy savings, its most direct benefit for consumers may be the prescription drug reforms that would require Medicare to negotiate the prices of some of the country’s most expensive drugs. That measure would take until 2026 to take effect – after this year’s midterms and the 2024 presidential election – leaving unclear how much voters will feel it.
“Compared to most presidents, he’s had a hard time getting something out of his campaign platform,” said Doug Holtz-Eakin, a GOP policy analyst who led the Congressional Budget Office and is skeptical of the plan’s climate measures. “Now he has this piece, and the question is if it’s legacy-defining.”