Stock market falls, which came just days after Joe Biden claimed he had “cured” America’s economic woes, are a timely reminder that all economic judgements are provisional, and that forecasts – including those relating to presidential legacies – can be wrong. In part, the turbulence was prompted by renewed fears of a US downturn.
Nevertheless, there is no doubt the US economy is in surprisingly good shape compared with the Covid-wracked one inherited by Biden in January 2021. Adam Tooze, the economic historian, stresses that alone among the big global economies, the US is back to its pre-Covid trend rate of growth, and also back to its growth rate in the 2000s pre-global financial crisis.
The US economy grew at an annualised rate of 2.8% in the three months to 30 June, far faster than other developed economies, and US GDP is at an all-time high. Markets were spooked by jobs data showing that in July, US employers added 114,000 roles – fewer than expected – while the unemployment rate ticked up from 4.1% to 4.3%. However, unemployment remains far lower than the 6.4% when Biden took office, and remains close to its lowest level for decades.
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Under Biden, 15 million jobs have been added to the US economy (including 800,000 in domestic manufacturing), in part thanks to specific policies aimed at prioritising the rapid restoration of full employment, and accepting the risk of a tight labour market in terms of inflationary effects. That’s the most jobs ever added during one presidential term. Young workers and lower-paid workers in particular have benefited, seeing much stronger wage growth than higher earners.
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What about corporations?
Corporate profits and stock markets have risen strongly, notwithstanding this week’s turbulence. The dollar has performed well against all other major currencies. Inflation, now 3%, is well below its post-pandemic peak, and average hourly wages have risen faster than inflation since Biden came to office.
It all adds up to an “admirable economic legacy that has underpinned a strong investing environment”, says Abby Joseph Cohen in the Financial Times – and has created the foundations for continued decent growth. But Biden’s critics would say his policies boosted the US deficit; went too far on student-loan forgiveness and anti-trust enforcement; and helped stoke inflation owing to the huge post-Covid fiscal stimulus.
What were Biden’s legislative achievements?
The most significant single piece of legislation, argues Adam Tooze, was the American Rescue Plan Act, passed at the start of Biden’s term in March 2021. This multi-pronged act added up to $1.9 trillion in fiscal stimulus, including direct cash payments of $1,400 for most Americans, higher unemployment benefits, and temporary boosts to child benefits. It was crucial to boosting consumer spending in the wake of the Covid slowdown, and thus protecting jobs and growth.
Secondly, the Infrastructure Investment and Jobs Act (also widely known as the Bipartisan Infrastructure Law) authorised $1.2trn of long-term federal spending on roads, bridges, water systems and so on.
Thirdly, the Chips and Science Act provides funding for the US technology sector to reduce dependency on foreign suppliers. And the Inflation Reduction Act (among other things) boosted investment in green energy by authorising $370bn in subsidies, grants and tax credits to US firms in renewables and related sectors.
So what’s the verdict?
The strength of Biden’s economic legacy will obviously depend, to some extent, on whether he’s succeeded by Donald Trump, who has pledged to roll back aspects of “Bidenomics” such as subsidies for green energy and electric vehicles. But there is no doubt that Biden’s presidency has dramatically changed the economic narrative in the US, says Fareed Zakaria in The Washington Post.
Rather than give tax cuts to the wealthy (like Reagan, George W. Bush and Trump), the Biden administration will be remembered for using the full might and resources of the federal government to make big investments – in infrastructure, childcare, manufacturing and green energy.
“These investments won’t pay off any time soon; many of them have just begun.” Yet America has embarked on the largest upgrade to its transport infrastructure since the 1950s, with more than 56,000 projects already started, and the bipartisan consensus on investing in domestic manufacturing will remain intact whoever succeeds Biden. That’s a significant legacy.
What else?
The return of industrial strategy, and the use of fiscal stimulus to promote a tight labour market (strengthening the hand of workers and weakening that of business), are at the heart of Bidenomics. His defining legacy, says Shawn Donnan on Bloomberg, will be his “embrace of combative interventions in the international marketplace, driven by a geo-economic rivalry with China”.
Biden kept Trump’s unprecedented tariffs on Chinese goods, and added to them earlier this year. This is central to another crucial Biden legacy, said Josh Lipsky in an Atlantic Council essay. Under his presidency the “lines between economic policymaking and national security continued to intertwine – and will be impossible to disconnect in the years to come”.
Biden’s big punt on green energy is not just about being kind to US innovators, it’s about the US national interest and geopolitical competition. In that sense, the Biden years were about “rediscovery of an old idea” – an idea that drove the founding of the World Bank and International Monetary Fund at the end of World War II – that economic security and national security are deeply interconnected. “Whatever policies come next, that lesson won’t be forgotten again any time soon.”
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