The Daunting Physics of Bidenomics

Unemployment is low—lower than at any time since the Vietnam War. Real wages are increasing. Inflation, voters’ top concern for the last several years, is slowing. Democrats are confident enough about how things are going that “Bidenomics” is at the center of their case for another four years in the White House.

Yet this is a rosy picture few voters can see. Americans consistently give President Biden low marks for his handling of the economy.

“I’ve never seen this big of a disconnect between how the economy is actually doing and key polling results about what people think is going on,” Heidi Shierholz, president of the Economic Policy Institute, a liberal think tank, tells the New York Times.

What gives?

Jason Furman, who served as chairman of the Council of Economic Advisers under Obama, points to a years-long trend that only ended recently: wages haven’t kept up with inflation, leaving the average worker $2,000 worse off than under Trump’s final year. “The way to think about that is people were in an incredibly deep hole because of inflation and we’re still not all the way out of that hole,” Furman says.

The problem for Biden is, what people would need to have happen in order to feel that inflation was truly behind them would be horrible for the economy, not to mention his prospects for reelection: deflation.

During our lifetimes, ideal economic conditions in a healthy economy feature an annual official inflation rate in the single digits, a policy economists call inflation targeting. Prices rise, but if wages go up even faster employees are happy. Low inflation incentivizes consumers to buy sooner rather than later, when prices will be higher. But, as Furman points out, that hasn’t been the case lately. Airfares went up 28.5% in 2022. Butter rose 31.4%. Eggs a whopping 59.9%. So we’re displeased.

What will it take to convince voters that inflation is no longer a problem? In the short term — i.e., between now and the presidential election—prices would need to fall back to pre-Biden levels. The average US gas price in January 2021 when Biden took office was $2.42 per gallon. Now it’s $3.95.

The Federal Reserve Bank’s efforts to reduce inflation appear to be working. Prices are rising at a slower rate. And that’s the problem for Democrats.

Mechanical physics provides a helpful parallel. Many economists and political analysts seem to think of inflation rate as analogous to velocity. In their view, reducing the inflation rate from 8% to 3% is a victory for inflation-targeting fiscal policy. Indeed, if a 3% inflation rate (coupled with wages that rise faster than 3%) remains in effect indefinitely, people will eventually feel good (or less bad) about the economy. As the economist John Maynard Keynes observed a century ago, however, “In the long run, we will all be dead.” And the Democrats’ calendar is much shorter than that, a mere 14 months.

Before inflation-affected consumers can be persuaded to tap their feet to “Happy Days Are Here Again,” they’ll have to pass through several stages of recovery. First, they’ll feel less bad. Then comes meh. Penultimately, they’ll see themselves paying off credit card and other debts they ran up during the inflationary period. Only after those lingering financial hangovers are past will they be able to achieve what feels like the final stage, prosperity: earning enough to pay one’s bills while setting a surplus aside in the form of savings.

With Americans’ credit card debt hitting the staggering benchmark of $1 trillion and rising, we are currently in the “less bad”/”meh” stage. But it’s hard to see what Biden or the Fed or anyone else can do in order to promote a sunnier view of the economy.

A lower inflation rate—even an ideal one in the low single digits—still means higher prices. We will probably not see $2.42 per gallon gas, the price in early 2021, any time soon, if ever. Gas prices will likely continue to increase, to $4.00 and $4.05 and $4.10 and on and on and on, adding minor injury to gaping wound.

Inflation is really like acceleration—the rate at which speed increases. If you fall off the roof of a tall building, your speed at the beginning of your plunge will be exponentially lower than when you hit the ground. The ground approaches, not at a steady rate, but faster and faster. As your body rushes toward doom, you’d likely welcome a physical intervention to reduce the rate of acceleration. You’d live a smidge longer but it wouldn’t save you. Reducing the acceleration rate to zero might help, assuming your initial rate of descent was low. But what you need in this dire situation is negative acceleration—a force that neutralizes gravity and then some, returning you back up to the roof of the building.

Negative inflation would, in many people’s minds, set things straight. If Biden could return prices to pre-2021 levels, that would look and feel like a return to a period of normalcy.

But negative inflation is deflation, the disaster last experienced in this country to a significant extent during the Great Depression, when prices dropped 7% each year between 1930 and 1933. Knowing that goods and services were becoming cheaper, Americans were incentivized to horde cash. Consumer spending declined, triggering a doom loop in which manufacturers laid off workers and cut salaries, further reducing spending and prices. Given a choice, economists choose inflation over deflation.

From an economics standpoint, Biden’s only option is to hope for a quicker trip through the psychological stages of economic recovery than Americans have seen in their lifetimes.

(Ted Rall (Twitter: @tedrall), the political cartoonist, columnist and graphic novelist, co-hosts the left-vs-right DMZ America podcast with fellow cartoonist Scott Stantis. You can support Ted’s hard-hitting political cartoons and columns and see his work first by sponsoring his work on Patreon.)

 

It’s Not That Biden Is Too Slow. It’s That He’s Going Too Small.

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           In the intraparty Democratic war between progressive leftists and corporate centrists, each side speaks a different language. The two factions’ takes on Joe Biden’s first weeks as president starkly demonstrate that inability to communicate.

            Biden’s base is his centrist supporters, those who backed him against Bernie Sanders during the primaries on the grounds that his moderate demeanor and years of wheeling and dealing would allow him to find common ground with Republicans who would probably continue to control the Senate. Centrists’ response to criticism of Biden is that Donald Trump’s mishandling of the coronavirus crisis, the shattered economy and the deep wound to our national psyche caused and embodied by the January 6th Capitol insurrection will require a long time to fix. Impatience, they say, is unrealistic and unfair.

The same principle applies to Biden’s response to longer-standing policy issues that predate Trump, like climate change and the healthcare system. They say, he just moved into the White House. Chill.

But progressives aren’t complaining that Biden is too slow—although they obviously feel a sense of urgency. They are complaining that his policy prescriptions are too small.

Biden came out of the gate fast with dozens of executive orders. But policy-obsessed progressive populists weren’t impressed by their close-to-nonexistent impact.

            On January 22nd the president issued a mandate that federal workers become subject to a $15-an-hour minimum wage. Given that the “Fight for $15” movement began in 2012, satisfying that progressive demand would require $17 after adjusting for inflation. More vexing is that Biden’s order doesn’t do anything. According to the U.S. Office of Personnel Management fewer than 20,000 of the nation’s 2.1 million federal government employees—fewer than one percent—currently earn less than $15 an hour. The administration made a splash but 99% of federal workers won’t see an extra penny.

Biden claims that he wants to reform American prisons, an idea for which progressives have been fighting and where common ground with Republicans may be achievable. But his executive order, which tells the Department of Justice not to renew contracts with privately-operated, for-profit prisons, affects only 14,000 out of nearly 152,000 federal inmates currently incarcerated, or fewer than 10% of federal prisoners. There were 1.8 million people in American prisons as of the middle of last year. Biden’s executive order will lead to the transfers of fewer than 1% of the total prison population.

“When it comes to private prisons, the impact of this order is going to be slight to none,” Fordham law professor John Pfaff tells NBC News. Because it fools us into believing in a nonexistent improvement it might even make things worse. “The symbolism carries the very real risk of making us blind to the nearly identical incentives of the public prison sector, and the public side is so much vaster in scope,” Pfaff warns.

One Biden order promises to replace the federal government fleet of 645,000 vehicles with electric ones. The catch is, he doesn’t say when. Unless it happens before 2035 and no future administration issues another executive order reversing this one, companies like General Motors will render the issue moot. The automaker has announced that it will stop making gas-powered passenger cars and SUVs that year.

I was pleasantly surprised by Biden’s decision to push his $1.9 trillion COVID-19 stimulus package through Congress using the budget reconciliation process, which only requires 50 votes rather than a 60-vote supermajority in the Senate. Democrats finally seem to be waking up to the reality that Republicans really, really hate them and aren’t going to cooperate with their initiatives. But here’s the thing: neither the one-time $1400 per person payout nor the $15/hour minimum wage can lift us out of the deep coronavirus depression. The American workforce has lost at least 10 million jobs over the last year. Millions of people face eviction or foreclosure. There is widespread consensus among economists that Biden’s plan, assuming it passes intact, is insufficient and will fail to provide long-lasting relief.

If Biden has big plans in mind, now—while Democrats control the Senate and he enjoys high approval ratings—is the time to tee them up.

First, the president should communicate to the public that sizable coronavirus relief packages will be an ongoing part of fiscal policy until the pandemic is over, recovery is at hand and the rising tide has already begun to lift most boats. The current ad hoc approach inherited from Trump is woefully inadequate and creates unnecessary anxiety among individuals and in the securities markets. Stimulus in fits and starts doesn’t work. We need a Universal Basic Income.

Second is the environment. Long neglected by both major parties, the climate change crisis represents both an enormous opportunity as well as an existential threat to humanity. Auto manufacturers that are rapidly moving toward electric vehicles and big energy companies that already understand the future lies outside fossil fuels prove that the marketplace is ahead of government when it comes to the Green New Deal. Biden deserves credit for talking about the problem but he wants to do way too little way too late.

He should work to push through a comprehensive plan to radically reduce the emission of greenhouse gases within the next few months.

There are, of course, a myriad of other policy challenges ahead—militarism, immigration, an increasingly authoritarian Silicon Valley—but if I were Biden I would tackle racism and particularly racist policing quickly. American police are vicious, stupid and predatory. They make communities more dangerous, not safer. Cops should get out of the revenue enhancement business. Protecting the public must take priority over protecting themselves. Harassing people based on ethnicity and other demographic profiles must end. Biden can use the threat of withholding federal funding to force states and cities to reinvent policing from the ground up.

We want Biden to be fast. More than that, though, we want him to be bold.

(Ted Rall (Twitter: @tedrall), the political cartoonist, columnist and graphic novelist, is the author of “Political Suicide: The Fight for the Soul of the Democratic Party.” You can support Ted’s hard-hitting political cartoons and columns and see his work first by sponsoring his work on Patreon.)

 

 

 

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