Biden insists that the economy is strong, and to some extent it is true: unemployment is low and the domestic record is still healthy. But inflation is high, GDP figures are weak, a recession is looming, post-inflation wages are falling and so is the stock market. Biden didn’t start inflation – it happened because of the pandemic, the fiscal deficit and Trump’s stimulus bills. But then, just as the economy started to recover, the 2021 American Rescue Plan came along and made inflation worse.
Economists estimate that it was too large and may have added from 2 to 4 percent to inflation. Coming on top of billions of dollars in spending aided by the previous administration, the American Rescue Plan was excessive, in part, because it provided benefits to families who didn’t need them—the middle and upper-middle-class families who created them. six figures received checks. This may have been politically popular at the time, but the inflation it caused is difficult for low-income people who are more price sensitive and will face more problems during the recession due to efforts to fight inflation.
Also, Mr. Biden is not responsible for the high electricity prices, which started to rise when we came out of the pandemic and then went up because of the war in Ukraine. But his anti-oil policies – freezing public land leases, pledging to end fossil fuel use and calling on oil companies to pay more – have dampened their incentive to generate new investment. He also shot down the Keystone XL pipeline from Canada, which was scheduled to be completed in early 2023. All of this adds to the current limited energy sources and intolerance to international price shocks.
Biden’s next, and expected to be the best, implementation of the law was 2021 $ 550 billion of infrastructure. And there are aspects that are good for the economy: Improving ports and roads, building resilience to climate change, and expanding access to high-speed Internet are all successes. But how these goals will be achieved is very worrying. For example, the bill ensures that as many jobs as possible go to union workers. In fact, there is nothing wrong with recruiting employees. But when government projects give corporations control, it raises costs and takes time and years away. A competitive labor compensation system can make projects run more efficiently and without costing taxpayers extra money.
Overall, there has been little, if any, attention paid to cost control. The bill also includes more money for projects favored by politicians, such as transportation and passenger rail and electric vehicles.
Investing in real estate can pay off, but like any investment it must be focused and not expensive, otherwise it will only add interest without generating significant growth. And more debt makes the economy less resistant to interest because higher interest rates mean that in the future there will be less room for us to use when we really need it.
This year, the $280 billion CHIPS Act has many of the same challenges as the infrastructure bill. The goal is to increase the production of American memory chips that are very important to the economy. Funding for scientific research is good, and in theory, the bill aims to strengthen the economy by renewing the production of an important commodity. But the US doesn’t have the skilled workers to make the chips it needs. Of particular concern is the tendency to create industrial policies that make domestic businesses less competitive, take away quality goods from abroad and make goods more expensive.
It also causes a lot of economic disruption by spending money on favored industries. And again, the bill favors high-cost workers, who don’t have a good track record of embracing new technology. Innovation and the ability to adapt to new technology are essential to a healthy economy. The company’s policies are tempting because you can direct money to areas that seem promising for growth. But even if the process isn’t corrupted (which it often is), picking winners is very difficult without market discipline.
Beyond that, Biden’s “Buy American” initiative and new trade sanctions aim to reduce trade. Yet trade has been one of the biggest deflationary factors of the past 30 years. Resilience does not come from domestic resources, it comes from diversity – as in, many sources of computer chips from a competitive global market.
The 2022 Inflation Reduction Act claims to tackle inflation. The hope is that it will reduce inflation in the future by reducing the deficit over the next decade. But just a few weeks later, any cuts to the reductions were canceled out by the student loan forgiveness bill.
It’s getting worse. Biden’s Department of Labor is looking to make it harder to recruit workers. These jobs are an important source of additional income and flexibility for many families. Biden also promised to keep entitlements such as Social Security on an unsustainable path, maintain Trump-era rates and did not make reducing immigration reimbursements (a major part of the unemployment rate) a priority.
The best thing we can say about Biden’s finances is that Republicans have no better ideas. No matter what happens in the midterm elections, we need policies that will restore energy and economic growth instead of just spending money on pet projects and politically favored areas.
Experience in the UK shows that the high-end economy has limits on what it can spend, especially in high-income areas with few buyers of our loans. Resilience and growth are what the economy needs to reduce inflation and bring prosperity, and this depends on an efficient market that can distribute risk and trade as freely as possible. Biden’s policies don’t accomplish this, they just stand in the way.
More From Other Bloomberg Opinion Writers:
Why Ending the QE Addiction Is So Hard: Daniel Moss
The Krugman-Summers Inflation Debate Explained: Karl W. Smith
Biden’s SPR Policy Is Failing: Articles by David Fickling
This column does not reflect the views of the editorial team or Bloomberg LP and its owners.
Allison Schrager is a Bloomberg Opinion columnist who covers financial news. A senior fellow at the Manhattan Institute, he is the author of “An Economist Walks into a Brothel: Some Unexpected Places to Understand Risk.”
More stories like this can be found at bloomberg.com/opinion
