Biden’s effect on US economy could cost him the presidency

How to judge the success of a presidency? In his most recent book, What Lies Ahead When There Is No Future?, philosopher Slavoj Žižek recounts an almost certainly apocryphal tale about Zhou Enlai when he served as China’s foreign minister.

“When, in 1953, he was in Geneva for the peace negotiations to end the Korean War, a French journalist asked him what he thought were the effects of the French Revolution. Zhou replied: ‘It is too early to tell.’”

In a way, he was right. It is impossible to tell how history will judge a leader many years hence. But though there are still some months to run in Joe Biden’s presidency, and indeed he may serve a second term, one can at least evaluate how effective he has been at two things: passing policy, and the effects thereof on the economy.

There can be little doubting his remarkable ability to enact legislation. In terms of laws passed, he may well be the most consequential Democratic president since Lyndon Johnson. The American Rescue Plan, the Inflation Reduction Act, last week’s Ukraine aid package and a vast infrastructure binge are all on Biden’s list of important laws.

But it is far too early to tell what the lasting impact of such grand industrial strategy will be. Perhaps it will transform the US into a green, egalitarian Utopia, as Democrats seem to believe. Or it could all be torn up by his successor. This will be a debate for the economic historians of the future.

It is possible, however, to gauge the specific effects of Biden’s policies on the economic data during his tenure. According to the White House, the main effect was creating jobs. It is inarguable that America’s labour market has consistently beaten expectations since the pandemic. The unemployment rate is lower than in any year since 1969, and the share of employed 15- to 64-year-olds has surpassed its pre-pandemic peak.

Biden likes to argue that his presidency, which began in the midst of a rapid recovery from Covid lockdowns, has coincided with more monthly job creation, on average, than any other in history.

He unsurprisingly likes to attribute such ebullient job creation to the $1.9-trillion “rescue plan” he unleashed shortly after taking office in early 2021. It consisted of nearly a third of America’s total pandemic-related fiscal stimulus, which in total was worth an astonishing 26% of GDP – more than twice the average in the developed world and exponentially more than what developing countries like South Africa could muster.

Yet placing his record in a global context reveals how false this claim is. In the US, working-age employment rates surpassed pre-pandemic highs only in 2023, eking out roughly 0.55% total employment growth annually over the past five years, according to Bloomberg.

But in Canada, France, Germany and Italy, working-age employment rates surpassed pre-pandemic highs by the end of 2021; Japan followed in 2022.

That employment bounced back in other economies faster proves that America’s jobs recovery had more to do with the unusual nature of the pandemic recession, brought about by lockdowns, than with Biden’s colossal stimulus.

Instead, the main effect of Biden’s fiscal haemorrhage was inflation. The stimulus he launched in 2021, when the economy was already recovering from lockdowns, was like throwing petrol on the kindling of inflation.

By March 2022, “core” consumer price inflation, which excludes energy and food, was more than 5.5% compared with barely 1% when he took office. This was significantly higher than in other G7 countries, and its acceleration coincided with the introduction of the stimulus.

More worryingly, inflation in the US is proving to be stickier than the Federal Reserve had hoped. Prices rose 3.5% in the March consumer price index and followed a 3.2% gain a month earlier. It is also proving more stubborn than inflation in other similar economies such as the eurozone. For the first time in post-war America, real per capita incomes are lower today, at $53,000, than they were in 2020, at $60,000, according to data from the Federal Reserve.

It is no surprise that, according to the Ft-michigan Ross poll done in March, 42% of Americans feel they are worse off under Biden. Only 20% feel they are better off. The poll found that inflation remained the biggest source of stress for 80% of voters, down only marginally from 82% in November.

Such naive and reckless economic policy may then lead to what will be Biden’s legacy: a second Trump presidency. More voters trust Trump on the economy, with 40% saying they trusted his handling compared with 34% for Biden, according to the same poll.

Therefore, in my take, history could judge Biden as a well-meaning democrat who, despite his best intention, ended up having a disastrous impact on his country. As Yeats wrote, he may well be an instance of “how the best lack all conviction, while the worst are full of passionate intensity”.