Bidenomics, Part I: A net win or loss for the economy? (Gettysburg Times op-ed)

For two decades before Covid, U.S. policymakers struggled to keep the economy out of recession in the face of a chronic shortfall in consumer and business spending. The economy limped out of the 2001 recession thanks to the Fed’s policy of keeping interest rates extraordinarily low, only to collapse again in 2008. The Fed responded to the financial crisis by pushing interest rates to zero and keeping them there for seven years, but still the recovery was painfully slow. By 2019, after ten years of mediocre growth, the economy was finally back at something like full employment. But the cost of two decades of what economists call “secular stagnation” had been severe – wages grew slowly, income inequality had widened, and vast portions of the country had not benefited from growth. And even then, the economy was still fragile enough that the Fed had to cut interest rates in late 2019 to ward off another recession. Today we face the opposite problem: an economy where consumers, businesses, and government are so eager to spend that demand is pushing against the limits of the country’s productive capacity. Our struggle is against inflation rather than stagnation. How did we get here, and how much of the credit or blame should we place on the Biden administration? The answer the American people give to these questions may well determine the outcome of the 2024 election.

When President Biden took office in January 2021, the economy was still struggling to recover from recession. Much of the economy’s downturn due to Covid in spring 2020 was reversed in the summer. Still, by January the unemployment rate remained above 6 percent, not far below where it had been in October. Job growth had been falling for months, and the economy had lost over two hundred thousand jobs in December. Professional forecasters surveyed in December predicted another slow recovery, projecting growth in GDP of 3.4 percent in 2021 with the unemployment rate remaining at 5.8 percent by the end of the year.

Fortunately, the economy rebounded much more quickly than expected – in fact, we experienced the strongest recovery from a recession since Ronald Reagan declared that it was “morning in America” in the early 1980s. GDP grew by 5.4 percent in 2021, the unemployment rate fell to 3.9 percent by the end of the year, and the economy produced 2 million more jobs than the forecasters had predicted at the end of 2020. Full recovery from the 2007-9 recession had taken a decade. This time the economy was nearly back to normal within a year. The main reasons for the rapid recovery were the Biden Administration’s effective rollout of the Covid vaccine – between January and July over 170 million Americans were vaccinated – and an extraordinary fiscal policy response to the recession under both the Trump and Biden administrations.

Congress’ first major response to the economic crisis caused by Covid was to pass the CARES Act in March, 2020. Under this legislation over $2 trillion was spent on expanded unemployment compensation, individual payments, and other programs to keep households afloat through the crisis. In December, the expiration of CARES Act benefits was threatening to derail the recovery. In response,

Congress passed the Consolidated Appropriations Act, extending benefits and issuing another round of individual payments at the cost of $900 billion. Then in March 2021, President Biden and the new Democratic Congress passed the American Rescue Plan Act which added $1.9 trillion of spending by extending benefits again and providing support to state and local governments. All told, the government spent $5.2 trillion in the space of one year, the most aggressive fiscal policy response to a recession in U.S. history.

While the fiscal stimulus produced record growth in 2021, it came with a downside: inflation. We will discuss this in Part II, and then make our final tally as to whether Bidenomics is a net win or loss for the American economy.

Charles Weise is a professor of economics at Gettysburg College.