Biden’s Economic Legacy
Catherine Rampell gave a rather gloomy assessment of Biden’s economic legacy in a Washington Post column this week. Unfortunately, I am inclined to agree with much of it, but I think she missed the biggest story: the commitment to full employment.
Let’s start with the topics where she is largely right. First, Biden was able to accomplish little in terms of expanding the social welfare state. He did have the expanded child tax credit, which cut child poverty in half, but ended after 2021. Biden had hoped to be able to make the credit permanent, or at least extend it for several more years, but it was blocked in the Senate by Joe Manchin who said he was concerned about parents using it to buy drugs. Once Republicans won control of the House in 2023, it was effectively dead.
Biden did make the subsidies more generous in the exchanges established by Affordable Care Act. This helped reduce the number of uninsured to a record low, but it is likely that they will be rolled back by the Republican Congress next year. This will leave little lasting legacy other than the evidence of its success, as is the case with the expanded child tax credit.
Biden did try to get more funding for childcare and also pushed for legislation mandating paid family leave, but these measures did not get through Congress. He did propose substantial student loan relief, but the Supreme Court nixed it. One measure that Biden pushed through by executive order was making the income-driven student loan repayment plan far more generous. Under this plan, a single person earning less than $33,000 a year would pay nothing. A person earning $50,000 would pay just $140 a month.
This plan is currently being contested in court, so it’s not clear whether it will survive. Trump can also reverse the executive order, but there is at least some possibility this the plan will be left intact. In that case, it would be a real legacy that will make a big difference to millions or even tens of millions of borrowers.
When it comes to infrastructure, Rampell misrepresents the data. Her source actually shows a substantial increase in spending since the infrastructure bill passed Congress in 2021. It’s true that we have seen limited progress in establishing the charging network for electric vehicles or building out rural broadband, but this is due to contracts that have to be worked through. These take time (a big issue), but we likely see benefits in these areas in years ahead.
The CHIPS Act and Inflation Reduction Act have led to a huge boom in factory construction. These factories will be coming on line this year and next year. This will reduce U.S. dependence on advanced computer chips from foreign countries, most notably Taiwan. It also has jumpstarted our EV and solar panel industry. Whether these sectors survive and can compete successfully will depend in large part on the actions of the Trump administration.
However, it is far from a done deal that Trump will kill these sectors. They are now substantial sources of jobs for workers in red states. There will be many Republican members of Congress who will be resistant to plans to kill them.
It is worth noting that Biden’s idea that he would move us from a free market policy to economics driven by “industrial policy” is not likely to survive in large part because it never made any sense. The idea that the government would favor certain industries and not leave things to the free market is not new. We always favor certain industries.
This is clearest with the pharmaceutical industry, where we spend over $50 billion a year on biomedical research through the NIH and other government agencies. We also grant the industry patent monopolies that are worth over $500 billion a year ($4,000 per family) in higher prices for drugs and other pharmaceutical products. To say this is not industrial policy is total lunacy.
We also do things like build airports, that foster the airline industry. We also have subsidies through university education that both provide useful research in areas like agriculture, and train people for areas like the tech industry.
In short, there is no debate about using industrial policy to favor certain industries, the only question is which industries and how much assistance to apply. Given Trump’s insistence that he wants to ignore global warming, we can expect him to try to cut back support for clean energy, but that is not a principled position on the market and industrial policy, it’s just his dislike of a specific industry.
It is bizarre and unfortunate that “industrial policy” somehow became a rallying cry for many progressives. It distorts both current reality and the nature of the changes we want to bring.
Biden’s FTC and Justice Department were far more aggressive in enforcing antitrust laws than predecessors in both Democratic and Republican administrations. It is likely that we will see a partial reversal of this policy, although Vice-President Elect JD Vance has indicated support for antitrust enforcement.
Biden also had the most pro-labor National Labor Relations Board (NLRB) ever. This could have made a difference over a longer term, but because the organizing process takes time, we probably will not see many lasting benefits. This situation is made worse by the fact that Senate bungling/corruption prevented Democratic NLRB members from being appointed at the end of last year, which means the Republicans will soon take control of the agency.
However, Biden’s most important policy, and likely an enduring legacy, is the aggressive pursuit of full employment. His recovery package, which was pushed through Congress just a month after he took office, quickly pushed the economy back to full employment. The unemployment rate was 6.4 percent in January of 2021, it was down to 3.9 by the following January. It remained at 4.0 percent or lower for the next 29 months before edging up modestly last year. This was the longest run of low unemployment in 70 years.
Full employment had the predicted benefits. The most disadvantaged groups in the labor market had the biggest gains. Black unemployment and Black teen unemployment both hit record lows. Hispanic unemployment tied its previous record low.
The shortage of labor created by the rapid recovery also forced employers to look to hire people with criminal records, disabled people, and others who they would ordinarily not consider hiring. We also had an unprecedented wave of job switching as workers were able to leave jobs they didn’t like. This led to record levels of job satisfaction.
Low unemployment also allowed workers at the middle and bottom of the wage distribution to achieve substantial real wage gains. And this was despite the pandemic disruption that prevented wage growth elsewhere. Rampell belittles this accomplishment by pointing to evidence that inflation is somewhat higher for lower income workers. While there is some truth to this, the more rapid wage gains for lower paid workers dwarfs the differential effects of inflation. (Also, her evidence suggests that the differential rate of inflation is largely independent of the overall rate, so lower paid workers always lose, not just in periods of high inflation.)
This legacy of full employment will be something that survives the Biden administration. Contrary to what the mainstream of the economics profession has long told us, we have seen that the economy can operate well with unemployment rates of 4.0 percent and lower on an ongoing basis. This will be a benchmark that Trump and future presidents will be measured against.
Also, just to be clear, workers do care about being able to have jobs. During the Biden administration the media absurdly insisted that unemployment does not matter. I will not waste any time trying to explain their motives, but in an economy where the vast majority of people depend on working for the vast majority of their income, as well as often being a key part of people’s identities, this claim is beyond absurd.
A commitment to full employment is a huge deal and no amount of bad economic reporting should convince anyone otherwise. And on this score, President Biden deserves a huge amount of credit.
This first appeared on Dean Baker’s Beat the Press blog.
The post Biden’s Economic Legacy appeared first on CounterPunch.org.