Impact of Biden’s economic agenda may be felt long after his presidency
2024.07.22 14:41
By Howard Schneider
WASHINGTON (Reuters) – U.S. President Joe Biden may not have gotten much credit politically for the thousands of grants and public investments his administration showered across the country, with airport or road projects in places like South Carolina and Wyoming unlikely to dent former President Donald Trump’s locked-in status in those deeply conservative states.
It may take years, moreover, to reveal whether what Biden attempted – jump-starting a post-carbon energy transition, reshoring tech production, spreading the wealth to less-prosperous cities, and rebuilding degraded infrastructure – will pay off as his supporters argue in higher productivity, more-secure supply chains, and as a down payment on addressing climate change.
Critics would say the Democratic president ran up the deficit, picked winners in place of private markets, overstepped on issues like student loan forgiveness and anti-trust enforcement, and stoked inflation.
Yet as Biden bowed out of his reelection bid on Sunday, neither supporters nor opponents doubted his ambition to be an economically transformative president by pressing a playbook of progressive economic ideas gestating since the 2007-2009 financial crisis.
Biden didn’t wade into the more aggressive and controversial tax ideas some Democrats have pushed to redistribute wealth and income, though that informed ideas like boosting Internal Revenue Service collection efforts.
But he did bring back what used to be called “industrial policy,” rebranded it as supply-side economics with a liberal tilt, and tried to tackle problems he felt were either strategic – the need to boost domestic semiconductor production – or moral – underwriting child care and student loans.
Biden’s program was “big, dramatic,” said Mark Muro, a senior fellow at the Brookings Institution’s Metropolitan Policy Program and an advocate of the president’s focus on seeding technology investment in areas that have fallen behind economically.
“Biden was able to break through a decade or more of gridlock, ‘small ball,’ and skepticism about government to go big with a major experiment with investment – in technology, green energy, and infrastructure,” Muro said. “Running through it all has been a compelling design focus on places and inclusion” to spread the benefits of innovation beyond traditional hubs like San Francisco and Boston.
‘NOT LEGACY-DEFINING’
It was also expensive as well expansive, arguably exacerbating an outbreak of inflation in 2022, was more skeptical of globalization than the vision of Biden’s Democratic predecessors, Barack Obama and Bill Clinton, and embraced a broad view of the federal government’s role.
Over a consequential first two years, Biden pushed four major pieces of economic legislation through Congress.
One pillar of that program, the $1 trillion infrastructure bill in 2021, was “very reasonable, the type of things you could imagine previous presidents doing,” said Michael Strain, a resident scholar and director of economic policy studies at the American Enterprise Institute.
But “that was not legacy-defining. What the president wanted to do was be the next FDR (Franklin Delano Roosevelt), the next Lyndon Johnson,” Strain said, referring to the Democratic presidents who introduced the New Deal and Great Society programs that greatly expanded government’s economic footprint in the 1930s and 1960s.
At its worst, Strain said he regarded Biden’s spending as “reckless,” with government debt now equal to 6% of national economic output, the sort of hole usually seen during a recession. Strain also frowned on “silly gimmicks like student debt forgiveness” that have expanded the border of federal help for increasingly middle-class families.
It is hardly the dark travesty painted by Trump, who is seeking to win back the White House after losing the 2020 election to Biden. The unemployment rate under Biden had its longest run below 4% since the 1960s, lasting more than two years. The wage gains enjoyed by U.S. workers have been strongest for lower-paid occupations, and for many have kept pace with inflation.
‘MAKING A DIFFERENCE’
In fact Biden and Trump arguably share one important economic trait: The use of deficit spending to keep growth above trend.
Trump relied on a standing Republic playbook of tax cuts that were not offset with spending reductions, while Biden’s was something of a new approach for Democrats.
Biden, as Obama’s vice president, had a ringside seat for the Democratic president’s efforts to counter the 2007-2009 financial crisis with programs now considered too tepid.
The recovery from that deep recession was grindingly slow and scarring. The lesson seemed clear: When a crisis hits, the response should be fast and large.
That was the logic behind Biden’s first major economic bill, the $1.9 trillion American Rescue Plan. Enacted less than two months after Biden’s Jan. 20, 2021 inauguration, it extended many of the stimulus, unemployment and other payments rolled out by Trump at the outset of the COVID-19 pandemic.
While the recovery effort from the health crisis extended past the end of Trump’s term and was largely carried out with bipartisan support, the net result was an unemployment rate that returned to the mid-4% range in about 18 months after the pandemic-triggered recession. By contrast, it took more than seven years to reach that level of joblessness after the financial crisis – a turgid recovery that was particularly tough for blue-collar America and which helped fuel Trump’s rise.
Subsequent bills included the bipartisan infrastructure plan, money to boost U.S. semiconductor chip production, and the Inflation Reduction Act, perhaps Biden’s most controversial initiative for including incentives for green energy production and electric vehicles in a bill ostensibly to address rising prices.
Some of those programs might well be reversed if Trump wins the Nov. 5 election.
But much of what Biden set in motion is likely to endure, said Mark Zandi, the chief economist at Moody’s (NYSE:) Analytics.
The country got through the pandemic with less economic damage than feared, and if the cost of that was inflation, the alternative could have been far more painful in terms of chronic unemployment and lost production, Zandi said. Likewise, the investment in infrastructure and chip production – something seen in the jump in factory investment and the number of road crews spread across U.S. cities – is largely out the door.
It isn’t on the scale of what Roosevelt did to address the Great Depression, Zandi said, but it mattered.
“I view it as expansive, large, making a difference, but in the context of traditional macroeconomic policy, not as transformative or changing the playing field,” he said. “We are on the same playing field. He just played with bigger players and more muscle.”
