Call the year 2024 as the ‘Super Election Year’. While Bangladesh and Taiwan have already nominated their countries’ leaderships, the focus now shifts to the United States and India, two of the world’s leading democracies.
In this article, we will talk about the state of the economy in the election-bound United States, while giving a fair take on the Joe Biden administration’s performance on this front, while trying to figure out the road ahead for Uncle Sam as the all-important Presidential Election is just a few months away.
Analysing through numbers
The United States economy grew faster than expected in 2023, driven by robust household and government spending. The world’s largest economy expanded at an annual rate of 3.3% over the three months to December 2023. The annual growth rate was 2.5%, up from 1.9% in 2022.
The American economy has shown resilience amid the Federal Reserve raising its borrowing costs sharply to cool down the inflation.
President Joe Biden has been arguing that his policies, including investments in green energy, roads and other infrastructure, have contributed to Uncle Sam’s economic resilience. Also, surveys show an improving consumer sentiment, along with an upbeat stock market and a low unemployment rate.
The inflation rate has also eased after soaring to more than 9% in 2022.
Till the middle of 2023, there were talks about American households cutting back on their spending and business activities cooling down, due to the Federal Reserve’s aggressive interest rate hike and the resultant expensive borrowing costs. However, things have started improving now.
At the height of the COVID pandemic, as household spending dipped, the Biden government spent massive money in the form of unemployment allowances, universal stimulus checks, and expanded child tax credits. All these moves resulted in the Americans accumulating trillions of dollars and this advantage came in handy in the country’s battle against inflation.
Average pay increases peaked at 6.4% and rose as high as 7.5% among the lowest-wage workers. That allowed the people to keep up with inflation. In the post-pandemic scenario, the wage growth for the bottom half of earners also outpaced the wage growth for the top half at a faster rate than at any time since at least the 1990s.
However, there are downsides too, as the country is also going to add nearly $19 trillion to its national debt over the next decade as the mounting costs of an ageing population and higher interest expenses continue to weigh on the nation’s fiscal outlook.
However, recently enacted legislation to curb federal spending and the faster-than-expected growth of the American economy are making the overall fiscal picture “slightly less bleak”. Annual deficits over the next decade will be 7% smaller than the $20.3 trillion predicted by the Congressional Budget Office.
Biden also faces the question of whether his administration should continue its aid towards Ukraine and Israel or focus more on the child tax credit and restoring expired business tax breaks. The budget office projects the annual deficit to grow to $2.6 trillion in 2034 from $1.6 trillion in 2024, adding $18.9 trillion to the national debt during the decade. By then, the debt will surpass $54 trillion. Interest rates have surged to two-decade highs since 2022, making borrowing costs an increasingly significant contributor to the national debt.
Till 2034, the US will spend more than $12 trillion alone on interest costs. Net interest costs will be larger as a share of the US economy than at any time. Spending on safety net programmes such as Social Security and Medicare continues to grow as well even as their trust funds may get depleted in the next 10 years.
Biden’s 2022 Inflation Reduction Act created massive incentives for certain industries to speed up the research and development of their climate-friendly technologies. The budget office initially projected these incentives would add $391 billion to deficits from 2022 to 2031. It now estimates the actual cost will be at least twice as large.
Biden has also introduced the proposal called “Environmental Protection Agency Regulation,” which will ensure that two-thirds of the new American passenger cars will be all-electric by 2032. The office expects that regulation to supercharge demand for electric vehicles and reduce the amount of gasoline will result in the reduction of federal revenues from gasoline taxes. And Republican lawmakers see this reduction as bringing a red signal for the American economy.
Treasury Secretary Janet Yellen believed that interest costs remained manageable as a share of the overall US economy, while noting Biden’s proposing $2.5 trillion in deficit reduction, much of which would come from tax increases and a more rigorous approach to tax collection.
Throughout 2023, the unemployment rate remained at historic lows. The S&P500 stock index rose 24% and the dollar remained strong. These developments also augur well for the Asia Pacific, as Uncle Sam is one of the region’s largest foreign investors, apart from being the largest export market for the region.
The game-changer called ‘Bidenomics’
Biden propagated ‘Bidenomics’ in the lead-up to the 2020 election, while putting the focus on extending healthcare access, increasing wealth taxes, ensuring major investments in green energy and other infrastructure, promoting competition across businesses and sectors and most importantly supporting the American middle class through periodic stimuli.
Bidenomics came into play in 2021 when the ‘American Rescue Plan Act’, a part of Biden’s ‘Build Back Better Plan’, released $1.9 trillion to deal with the economic fallouts of COVID. The ‘American Rescue Plan’ provided individual direct stimulus payments, eviction and foreclosure moratorium support, funds for testing and vaccination, and more.
Then in 2022, came the ‘Inflation Reduction Act’, to lower the inflation, and boost investments in domestic energy production. The White House maintained that Bidenomics is helping the US economy to add over 13 million jobs by June 2023, while putting up a brave fight against inflation and the economic fallouts of volatile geopolitics in 2022.
The White House defines the goal of Bidenomics as that of “building the economy from the middle out and the bottom up,” apart from undoing the shortcomings of the American policymaking which “fostered inequality, shocks including the Great Recession, a slow pace of growth, and an exacerbation of climate change.”
Bidenomics preaches investment in American business and infrastructure, especially, in clean energy, semiconductor and related industries, apart from updating, improving, and building out additional infrastructure across the country.
Apart from IRA, there are other examples of important laws such as the Bipartisan Infrastructure Law and the Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS).
The Bipartisan Infrastructure Law designates $1.2 trillion for investment in repairing and building roads, bridges, and rail lines, providing clean drinking water and access to high-speed internet, reducing the impact of the climate crisis, creating a national network of electric vehicle charging stations, and more. The White House sees the law contributing to the creation of 1.5 million jobs per year for a decade.
The CHIPS and Science Act came into being in August 2022. It provides $280 billion in funding for the nanotechnology, clean energy, quantum computing, and artificial intelligence (AI) industries. Amid the growing technology battle between Washington and China, this bill aims to strengthen American semiconductor research and manufacturing, and wireless technology development, apart from supporting the domestic technology and research hubs.
Then we have the Biden administration’s goal of reducing the cost necessary to decarbonise the American housing sector by half over the next decade. The administration is offering credits to underserved communities to help retrofit buildings, apart from providing states with dedicated clean energy funding, and granting billions in resilience funds to communities to deal with extreme weather events.
Bidenomics also focuses on worker empowerment and education, through investment in registered apprenticeships and career technical education programmes at a higher rate than any prior administration. To support worker unions, the White House now has its Task Force on Worker Organising and Empowerment.
Biden also sees higher rates of competition across sectors leading to lower customer costs and higher wages for workers. He signed the ‘Executive Order on Competition’, under which his administration got the power of aggressively enforcing antitrust laws, to aid the small businesses.
To fund the Bidenomics, the idea propagates an increase in wealth taxes, while working people and families with children will have taxes being reduced by nearly $800 billion by 2034, with additional funds added to the Child Tax Credit and Earned Income Tax Credit (EITC) pools.
What to expect in Biden 2.0?
Biden administration unleashed a surge in spending that briefly slashed the childhood poverty rate in half. He breathed life into a beleaguered worker union movement and produced an industrial policy to reshape the American economy.
Factory construction has seen a boom, along with the rise in investment in manufacturing facilities, which has more than doubled under Biden, as per the Economist.
However, Biden’s economic agenda has so far been limited by the bipartisan US Congress. Bidenomics was written all over the $3.5 trillion “Build Back Better” bill that, despite clearing the House of Representatives huddle, crash landed in the Senate. However, key legislations on infrastructure, semiconductors and green tech have all received the Presidential signature of approval, resulting in a $2 trillion push to reshape the American economy.
Another example is the semiconductor law, which allocated over $250 billion to overhaul the American chip industry. However, a giant portion of the capital didn’t get appropriated, as it was Congress which had to pass budgets to provide the promised amount.
As of 2024, only $19 billion will be given to three federal research agencies, nearly 30% less than the authorised level, according to estimates by Matt Hourihan of the Federation of American Scientists. Having a bipartisan Congress hell-bent on conflicting with Biden will not augur well for ‘Bidenomics’.
However, many of the big tax cuts passed during Donald Trump’s presidency will expire by 2026. Republicans want to renew them. Biden can use this to leverage a deal in which he gets to make Republicans back his policy priorities, in return for renewing the tax cuts.
However, a few dozen Republicans in the House and Senate supported the federal spending on science and technology, as the move would safeguard the US’ competitive edge over China. So it is likely that Biden’s policy calls, which will help America to maintain its edge over China, will continue to receive support across the party lines.
The perfect scenario for Biden would be for Democrats to receive an absolute majority in Congress. Reforms like free preschool, generous child-care subsidies, spending on elderly care, an expanded tax credit for families with children and paid parental leave will get the required lifeline.
As per the US Treasury Secretary Janet Yellen, more investment in education will produce skilled and productive American workers, while investments in care will free up people, especially women, to work, leading to the labour force expansion.
However, these reforms will require a minimum yearly capital support of $100 billion, through additional spending, thereby adding half a percentage point to the annual federal deficit (which hit 7.5% of GDP in 2023).
Biden claims himself as the ‘Most Pro-Union President’ in US history. He joined striking auto workers near Detroit in September 2023 and became the first President to walk a picket line. He also wanted to make many industrial subsidies contingent on companies hiring unionised workers. The labour movement will be hoping to see Biden get a second term and introduce reforms which will boost the unions’ bargaining power further. However, there are chances that industry may paint Biden as an anti-business figure.
However, his administration believes that corporate profits have soared during the 81-year-old’s first term. Still, there is a drawback to this logic and the reason here is Lina Khan-led Federal Trade Commission. She tried to cut down corporate giants with failed lawsuits against Meta and Microsoft. The FTC has now introduced new merger-review guidelines that require regulators to scrutinise deals that will make big companies bigger, thereby “killing the fair competition”.
“Excessive scrutiny of deals would also use up regulators’ scarce resources and poison the atmosphere for big business. An alternative focus, on relaxing land-use restrictions and loosening up occupation licensing, would provide a much healthier boost to competition,” Economist commented further.
Biden 2.0 may see the Democrat doubling down on the manufacturing policies of his first term.
“The $50 billion or so of incentives for the semiconductor industry has been a start, but it is small relative to how much investment is required for large chip plants. Advisers talk of a follow-on funding package. There would also be a desire to craft new legislation to smooth out bumps in the implementation of industrial policy,” said Todd Tucker of the Roosevelt Institute, a left-leaning think-tank, while advocating a national development bank, creating a reservoir of cash that could be channelled to deserving projects.
Biden wants to raise taxes on the rich, in particular on households and businesses earning over $400,000 a year. His advisors pitch him as a firm believer in fiscal discipline. His budget for the current fiscal year would cut the deficit by $3 trillion over a decade, or by 1% of GDP a year, according to the Committee for a Responsible Federal Budget (CRFB).
If anything new that Biden 2.0 can bring to the table is a new trade agenda that trumps Uncle Sam’s geopolitical adversaries. Can Washington and Europe establish a game-changing critical minerals agreement, which will secure inputs for battery production and curb reliance on Chinese suppliers?
While Biden’s supporters believe that his policies made the American socio-economic set-up more equal and just, others dubbed his reforms as ‘Anti-Business’ in nature. The reality is that the American economy has been prospering under the 81-year-old’s watch.
Will we get to see Biden 2.0? What are the new economic reforms the era will introduce to the Americans? What will happen if Democrats perform badly in the 2024 elections? To get conclusive answers, we need to wait till 2024 end.
As February 2024 arrived, former President Donald Trump won Nevada and Virgin Island’s Republican presidential caucuses, an incident which made his GOP nomination for the poll battle brighter. No doubt Biden has a battle on his hands. Will Bidenomics help its creator? Let’s wait and watch.