The victory of Bidennomics: Biden ends his term with excellent economic indicators

The race in the USA looks close, but one thing is certain: on January 20, 2025, US President Joe Biden will leave the White House. As part of his tenure, Biden led a bold economic plan, which was nicknamed ‘Bidennomics’, and undermined many of the neoliberal foundations that had been practiced in the Democratic Party in recent decades.

Did he succeed? If you ask the public, not really: according to a Pew Institute survey from May, less than a quarter of Americans think that the state of the economy in the country is positive. The polls also showed that the majority of the American public does not trust the outgoing president in managing the economy. The reason for this is apparently a long cycle of inflation: public opinion is very sensitive to price increases. But if you look at the economic indicators themselves, it seems that Biden’s tenure will be recorded differently in the history books.

In fact, the American economy stands out positively in almost every measure. It enjoyed the fastest growth among the G7 countries, the world’s largest advanced economies; The unemployment rate has remained below 4% for the longest period since the 1970s; Low wage earners enjoyed particularly rapid wage growth, and despite inflation, real wages rose.

These positive figures are the result of a policy that goes beyond the boundaries of the economic mainstream. Biden explicitly went against the advice of economists, for example Jason Furman of Harvard, who was a senior economic adviser in the Obama administration and an outside critic of the Biden administration. These economists argued that in order to curb inflation, the economy should be put into recession. It is worth noting that an economic camp formed against them that saw inflation as a temporary event.

Instead of restraint, Biden adopted a policy of budgetary expansion, which resulted in rapid growth. Contrary to the prophecies of anger, inflation in the US did not rise abnormally despite the low unemployment. Even in the area of ​​public debt, the situation improved during his term. He insisted on an economy built from the bottom up and although in the public opinion, perhaps because of his advanced age, he was considered unfit to manage the economy, the indices The economic ones show that he succeeded.

Back to Keynes – government investments as a cure for economic slowdown

Biden’s economic policy is characterized by a series of extensive fiscal projects (government spending and investment policy) that began immediately upon taking office in early 2021, when the Corona epidemic was still having a severe impact on the American economy.

• March 2021 – an aid program that continued and expanded the steps taken by the Trump administration at a total cost of $1.9 trillion. The program concerned unemployment allowances, tax breaks for families and low-income earners, small businesses, support for the local government, and investments in the areas of housing, transportation and health.

• November 2021 – The Jobs and Infrastructure Investments Act with a total cost of 1.2 trillion dollars. Most of the investments concerned transportation infrastructure.

• August 2022 – The Chips and Science Law with a total cost of 280 billion dollars, which will be directed to investments and research in the field of semiconductors, which were in short supply after the Corona and their price increased because of this.

• August 2022 – the law to reduce inflation, with a total cost of 891 billion dollars. The main part of the law is a subsidy for investments in green industries and it included measures to increase government revenues: a tax on companies that purchase their own shares, reducing the restrictions on negotiations with pharmaceutical companies with the aim of lowering the prices of drugs for public insurance and expanding budgeting for the tax authorities to increase collection enforcement against companies and individuals. mostly rich.

To a large extent, Biden’s policies return Keynesian ideas of stimulating the economy with the help of the public sector to center stage. In the 1920s and 1930s, the British economy suffered from persistent recession and unemployment. Against this background, the British economist John Maynard Keynes developed his revolutionary economic theory, which gave the government a decisive role in rescuing the economy. Keynes argued that the lack of demand is the source of recession. In a pessimistic economic climate and under uncertainty, households and businesses prefer to keep the money. According to Keynes, the hope that the economy will balance itself is a false hope, but the government can reawaken the private sector by expanding spending.

Since then, Keynes’s approach has been marginalized. Today, the dominant theory sees fiscal policy as a means of limited effectiveness. It states that in the long term the government cannot accelerate growth by boosting demand, and that excessive spending could lead to inflation and reduce activity in the private sector. An example of this can be seen in the many statements made by Prof. Amir Yaron, Governor of the Bank of Israel, in recent years. The governor repeatedly explained that in order to fight inflation the government needs to introduce a restrained budget.

As mentioned, Biden has also been criticized for his expansionist policy. With the resurgence of inflation after the corona virus and following Russia’s invasion of Ukraine, a position was formed among economists, such as Larry Summers, the Secretary of the Treasury in the Clinton administration, that in order to prevent the worsening and continuation of inflation, the economy must slow down and unemployment must rise.

The thought was that alongside problems on the supply side – bottlenecks in the global supply chains – there is an excess demand in the economy that manifests itself in a lack of workers. Unemployment must rise for inflation to be curbed, Summers and Forman stated. The Federal Reserve, the American central bank, raised interest rates at a rapid pace because of the “tight” labor market – that is, because the unemployment rate is too low.

Biden insisted that unemployment was not needed to curb inflation. His investment policy placed the US at the forefront of the recovery of the major advanced economies from the corona recession. As of the end of 2019, the American economy grew by almost 10%, almost twice the rate of the next G7 company, Japan. The German economy, for example, completely froze and only recovered to its previous level The Europeans, unlike Biden, adopted a policy of fiscal restraint in an attempt to reduce the public debt.

The unemployment rate has fallen below 4% for 27 consecutive months; The last time the unemployment rate was this low was in the 1970s, more than 50 years ago. The US did not pay an inflationary price for this as predicted by Summers and Forman. The inflation turned out, as some economists claimed, to be temporary. The upward trend and containment of inflation in the US was no different from the rest of the G7 economies despite the expansionary policy.

Low unemployment did not cause abnormal inflation, but contributed to an increase in the wages of low earners – when there is a shortage of workers, their power increases. Despite the increase in prices, the real wage (the wage taking into account the price increases) of the lowest wage decile, increased from 2019 to 2023 by more than 13%. This increase is particularly noticeable given the slower increases of the higher deciles. In this way, the last few years constitute a reversal of a trend of many decades in which the wage gaps in American society have been widening. Even the bigger earners managed to maintain a rise in real wages despite the high inflation. These figures connect to Biden’s rhetoric about an economy that is built from below, from the lower and middle classes, as an expression of which he was the first president in history to participate in a demonstration of striking workers.

So why do Americans think the economy is in bad shape? Well, public opinion is a little more complex than that. according to survey Conducted since 1987, Americans’ job satisfaction reached its highest level in 2022 since the survey’s inception. Americans seem to be satisfied with their personal financial situation but think that the broader economic situation is not good.

A decrease in the public debt and an increase in taxation on the rich

The large-scale expenditures had a positive effect on the economy, but what was their effect on the public debt? As in other economies, the public debt in terms of GDP soared during the corona. GDP shrunk, revenues decreased and expenses expanded. In the US, this is a jump from about 105% of GDP to a peak of about 133% during 2020. Naturally, with the recovery of the economy, the debt shrunk, as it did during the Biden administration. At the beginning of his term, the debt stood at about 124.5% of GDP and today it stands at 122.5%

This is a decrease, but a modest decrease. In Germany, for example, the debt has fallen from a record of 69% of GDP to 63.7% in 2023. The effects on the level of debt are varied, rapid growth has a positive effect because the debt is measured in terms of GDP and because it increases the government’s income from taxes. The expenditure, obviously, expanded the debt in dollar terms but had a positive effect on the product and therefore also on the debt.

But Biden didn’t just deal with the spending side. The various laws mentioned also included taxation and revenue measures that focused mainly on large corporations and wealthy individuals. These steps did not add up to a large scale but testify to his intentions which were also expressed in the election campaign. The March 2021 aid plan included expanding taxation on large businesses to expand revenue worth $60 billion. The Inflation Reduction Law created a tax on companies that purchase their shares – a tool to increase the value of the shares with the help of profits. In fact, this is a tax that is targeted at the upper strata, because it taxes the shares whose holding is concentrated in a thin layer of the top tenths.

The law also included the expansion of the possibility of negotiations with the pharmaceutical companies, which reduced the government’s expenses on medicines by lowering their price. Budgeting for the tax authorities turned out to be a particularly profitable step. The strengthening of collection significantly improved tax enforcement, especially among the wealthy and large corporations. No collection is concentrated on the richest.

according to the white housethe gap between the tax that was supposed to be paid and the one that was collected stood at 688 billion dollars in 2021. Strengthening the collection authority reduced the gap by more than 60 billion dollars. The latest assessment by the Ministry of Finance The American states that if the increased budgeting continues until 2031, as Biden plans, it will yield a total of about 850 billion dollars, about 85 billion dollars a year.

These measures were a sign of what has become a central part of Biden’s and now Harris’ campaign: taxing the rich. Biden announced his intention for a minimum tax of 25% on the super rich, who according to him currently pay an income tax of about 8%. He also announced a desire to increase the corporate tax, a step to which Harris also committed after replacing him. This is in contrast to the campaign and tenure of former President Donald Trump, whose tax breaks he enacted benefited especially the wealthiest corporations and individuals.

By the metrics, Biden’s tenure was an economic success. Beyond that, it marked a sharp change in economic policy in the US in the direction of expanding government involvement and taxation while favoring the weak and middle classes. At least in the area of ​​taxation, it seems that Harris, if elected, will continue Biden’s line, but it is not clear whether she will pursue investment projects Fiscal. Trump’s future policy, if he returns to the White House, is also unclear, although there is no doubt that it will not include tax increases.