Whether inflation would be a political disadvantage in the midterm elections, journalist Peter Doocey shouted to Joe Biden early this year as he walked out after a press conference. The US President reacted scornfully at the request of the husband of Fox News. Unfortunately for Biden, his microphone was still on. “No, it’s a big asset, more inflation,” he said sarcastically. “What a stupid bastard.”
With the elections of November 8, sarcasm appears to be justified. In September inflation in the United States was 8.2 percent; it has not been this high in nearly four decades. According to a Monmouth University poll in early October, four out of five Americans call inflation a “very important” or “extremely important” issue. The high currency depreciation threatens to become the most important achievement of Biden’s first two years as a public opinion commander in chief.
Inflation is a global problem; But Biden won’t go free
There is an important nuance to this. High inflation is a global phenomenon, the result of supply problems due to the corona pandemic, the strong economic recovery and the war in Ukraine that pushed energy prices up. However, Biden is not completely free. He didn’t create the inflation problem, but he made it bigger. The $1,900 billion stimulus package he rolled out in the early months of his presidency to combat the corona crisis was too successful in boosting economic growth. According to economists at the US central bank, this government spending increased inflation by half a percentage point.
According to the government, the problem was not so much that too much money had been injected into the economy, as Republicans claim, but that consumers were unexpectedly spending a lot on a limited range of goods, causing prices to rise. “The strong economic recovery has allowed American families to buy more products,” Biden said in November last year. ‘But you know what? They don’t eat out in local restaurants because of covid. What do they do? They order products online.’
The central bank is more to blame for inflation than Biden
High inflation is frightening the population that sees its purchasing power diminished. The Federal Reserve probably bears a greater responsibility for this than Biden. The central bank kept interest rates too low for too long, assuming that high inflation would turn out to be a temporary phenomenon. A misjudgment, which has led to the central bank raising interest rates at a rapid pace this year.
It is not an explicit goal of the Fed to trigger a recession, but it certainly does not shy away from it. As long as there is air in the tight labor market. The reasoning is that if the economy deteriorates, workers will demand less high wages. Then companies do not have to pass this on in their prices.
On the other hand, the strong labor market is an asset for defenders of Biden’s economic policy. Since he took office, more than ten million jobs have been created, with unemployment at a historically low 3.5 percent. ‘The fastest job growth in history,’ boasted Biden recently on Twitter.
But just as inflation isn’t really his fault, so is this recovery. After the outbreak of the corona pandemic, unemployment soared as large parts of the economy were temporarily locked. Even before Biden took office in early 2021, the labor market was recovering.
Climate law was disguised as ‘inflation reduction law’
What is his provisional legacy in economic terms? Biden himself likes to refer to important legislation. Most notable is the ‘Inflation Reduction Act’, which the president signed in August. Congress is allocating $430 billion for climate investments. The fact that this climate law refers in name to currency depreciation is a sign of the times. According to the Congressional Budget Office, which produces economic estimates for the US Congress, the “inflation reduction bill” will have a negligible effect on inflation.
Then why that name? It was more politically attractive to spend money on fighting inflation than on climate change, a more controversial topic. While it wasn’t enough to win Republican souls in the politically divided United States, it was enough to land the crucial vote of Joe Manchin.
The Democratic Senator from West Virginia didn’t want a bill too reminiscent of climate policy (no senator received more donations from the oil and coal sector than Manchin). When Manchin talks about the Inflation Reduction Act, it is to emphasize that ‘reducing our national debt will lead to lower energy costs and less health care expenditure’.
That wasn’t the only significant piece of legislation Biden was able to implement. An infrastructure bill worth more than $1200 billion is to repair and upgrade aging US infrastructure over the next five years. Nearly half of all roads are in poor condition, estimates the American Professional Association of Engineers. And then there’s the so-called CHIPS law, which guarantees about $50 billion in investment in manufacturing and research, especially for the semiconductor industry. In this way, the US hopes to become less dependent on foreign countries.
Biden may be proud of his track record, but voters seem to think otherwise. According to the RealClearPolitics poll average, 56 percent of Americans are dissatisfied with Biden’s approach to the economy.