President Biden recently decided to embark on a nationwide tour touting his success of the economy during the last two years. With the 2024 election campaign gearing up, the president is presenting a public relations blitz showcasing his achievements. He calls it Bidenomics.
Given all tremendous challenges due to the pandemic, the fact that the economy has showed strength and resilience. At the same time as Biden is trying to sell his success story to the public, his approval rate for handling the economy is only 36%, likely dominated by soaring federal debt, increased government spending, surging inflation and stagnant real incomes.
The runaway spending and bailouts during the pandemic will cost $5 trillion over a decade. Annual budget deficit was less than $1 trillion before the pandemic, are now projected to approach $3 trillion annually within a decade. The massive government spending has led to increased inflation, topping at 9.1% a few months ago, and now around 5%, still far away from the federal reserve bank target rate of 2%. Even if the inflation rate normalizes, it will not undo the recent price increases that have rendered many goods and services unaffordable for many.
Additionally, the last two years, home buyers have been hit with both rising mortgage rates (from 2.8% to 6.7%) and rising home prices (by 22%). Despite the turmoil during the pandemic, the job market has rebounded strongly with a current unemployment rate of 3.7%. This is also putting pressure on the inflation as higher wages are required to meet job demands. The fed will most likely have to continue increasing the interest rate, although the hikes likely will be modest, say at 25 bps, and only two or three more times in 2023. This will slow down the economy even more, increase unemployment and reduce the inflation.
It is unclear if the economy, or Bidenomics, has been successful or not. There is no recession, unemployment is low, and the economy even has a modest GDP growth. At the same time, the budget deficit and overall debt has grown. Many regulations in construction, labor and energy have been set up, hampering further growth. Tariffs are still in place, pushing up prices further. All in all, Bidenomics relies on vast subsidies and regulations to shield favored industries from competition, at the expense of consumers and taxpayers, favoring well-connected industries.
Overall though, the economy has been doing fine during the Biden administration. The problem with the U.S. economy is more structural. The tax system favors asset owners with deductions with the result that the wealthier you are, the less you pay in taxes. Only 50% of U.S. corporations and individuals pay any tax at all. So half of all U.S. corporations and half the U.S. population pay nothing in taxes. The tax system needs to be reworked so people and corporations actually pay their fair share of taxes. Free and fair trade should be promoted in order to expand U.S. export businesses. Then you have the areas run by special interests and massive profits such as the healthcare and insurance business and the education system.
Overall, the inequality in the economic system is staggering. Things that people in many other countries take for granted such as low or no costs for healthcare, childcare, education and medications are for some reason astronomically expensive in the U.S. At the same time, there is only a limited interest in changing this.
So overall, the GDP is gaining traction, consumption is up, and inflation is heading in the right way. Metrics and data are showing growth, but looking at the overall U.S. economy, it is a mess. High government debt level, no balanced budget, low tax collection, huge inequalities, high credit card debts, immense student loan debts and the list can go on. At this point, nobody is working on any meaningful structural changes for the U.S. economy.