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Natale Labia writes on the economy and finance. Partner and chief economist of a global investment firm, he writes in his personal capacity. MBA from Università Bocconi. Supports Juventus.
In his most recent book, What Lies Ahead When There Is No Future?, Hegelian philosopher Slavoj Zizek recounts an almost certainly apocryphal tale about Zhou Enlai, the former Chinese 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, that was right. It is self-evidently impossible to tell how history will judge a leader, many years hence. But while there are still some months to run for the presidency of Joe Biden – and indeed he may serve a second term – one can at least evaluate how effective he has been at, first, passing policy, and second what the effects thereof have been on the economy.
A hyperactive Biden
As Tim Cohen has written, in the case of Biden 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 all form part of Biden’s list of important (and expensive) laws.
But to Enlai’s point, it is far too early to tell what the lasting impact of such a 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.
Economic record in power
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 of Biden’s economic record 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, while the share of employed 15- to 64-year-olds has surpassed its pre-pandemic peak.
Biden likes to argue that his presidency, which began amid a rapid recovery from Covid lockdowns, has coincided with more monthly job creation, on average, than any other in history.
Biden unsurprisingly likes to attribute such ebullient job creation to the $1.9tn “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.
This was 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.
Meanwhile, 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 launched by him in 2021, when the economy was already recovering from lockdowns, was akin to throwing petrol on the kindling of inflation.
By March 2022, “core” consumer price inflation, which excludes energy and food, was over 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 which 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 in the US 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 latest FT-Michigan Ross poll done in March, 42% of Americans feel they are worse off under Biden compared with only 20% who 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 naïve and reckless economic policy may then lead to what will be Biden’s eventual legacy – a second Trump presidency. More voters trust Trump over Biden on the economy, with 40% saying they trusted his handling compared to 34% for Biden, according to the same poll.
This is where my take differs from that of Tim Cohen. History could judge Biden as a well-meaning democrat, who, despite his best intentions, 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”. DM
