IT IS EASY to weave an exaggerated narrative—positive or negative—about Joe Biden’s management of the economy. Critics can point to the surge in inflation, now running at 8.5%, nearly a four-decade high. Supporters of the president prefer to dwell on America’s full-throttled rebound from its covid downturn, especially the creation of millions of new jobs since he took office. America’s economic fortunes will play a big role in determining the outcome of the midterm elections in November. How much credit or blame does Mr Biden deserve?
His influence should not be overstated. America is far from alone in experiencing both stubbornly high inflation and a big bounce-back in growth. Rampant inflation has been a global phenomenon, caused by supply-chain snarls and the surge in energy prices following Russia’s invasion of Ukraine. As for America’s red-hot labour market, many advanced economies have also had booms as they have returned to relative normality after the shutdowns of businesses and schools early in the pandemic. The economic picture would have looked broadly similar for any inhabitant of the White House.
A more reasonable criticism of Mr Biden is not that his policies caused inflation but that they made it worse than it otherwise would have been. The American Rescue Plan, a $1.9trn stimulus package passed in the first months of his presidency, was a little too successful in revving up growth. Partly as a result, America’s GDP has been above its pre-pandemic trend during the past year. That, in turn, helps to explain why core inflation has been higher in America than in most other countries.
But this criticism can only be taken so far. Economists at the Federal Reserve have estimated that Mr Biden’s stimulus spending added perhaps half a percentage point to America’s inflation rate: hardly a decisive contribution. The Fed’s extraordinarily loose monetary stance, which it kept in place until early this year, was probably a bigger factor.
Moreover, criticism of Mr Biden’s record on inflation runs headlong into a more reasonable argument in favour of his policies: not that they caused the jobs boom but that they made it stronger than it otherwise would have been. In hindsight it is easy to cast aspersions on the American Rescue Plan. But in early 2021 when it was passed, job growth had started to flag. Waiting for the economy to heal itself after the covid disruptions may have led to a slower, albeit less inflationary, recovery.
Inflation will remain the dominant economic concern, and perhaps the biggest political liability for Mr Biden, over the coming year. Ultimately, though, it is the longer-term consequences of his policies that may matter most of all. For those accustomed to gridlock in Washington, the past year has brought an unusual flurry of action. Three new laws stand out for their potential economic impact: one that paves the way for massive investment in infrastructure; a second that could fuel the development of semiconductors and other high-tech products in America; and a third that is the country’s most ambitious climate act ever. Taken together, this legislation promises to upgrade America’s creaking infrastructure, to strengthen its position in modern industries and to shift it towards a greener growth model. If they live up to that, Mr Biden’s management of the economy would merit a high grade. ■
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