Bidenomics, a cornerstone of President Joe Biden’s economic approach, has ignited a heated debate, with Republicans lambasting it for its alleged role in driving inflation. While critics are quick to point out the pitfalls, some liberal economists argue that Bidenomics has made substantial contributions to economic growth. The division is clear, but let’s delve into the arguments on both sides.
The Argument for Bidenomics
Proponents of Bidenomics point to a remarkable post-pandemic recovery in economic growth. Open Markets Institute Chief Economist Brian Callaci suggests that the American Rescue Plan Act of 2021, a $1.9 trillion economic relief package, unleashed a significant fiscal boost into the U.S. economy. This was followed by additional legislation, including the 2022 Inflation Reduction Act, which directed investment towards climate change initiatives. Instead of relying on market-driven mechanisms like carbon taxes, this law emphasized direct federal interventions.
Callaci highlights a shift from previous policies, which primarily used the tax code to support zero-carbon energy projects. The Inflation Reduction Act now allows nonprofit utilities investing in zero-carbon power generation to receive federal grants. The argument here is that these policies have the potential to build a lasting political coalition among various stakeholders, including unions, environmentalists, and rural voters, all supporting the vision of green growth.
General Motors’ Concerns
However, there are reservations in the business world. General Motors, for instance, hasn’t witnessed the projected demand for electric vehicles, which play a crucial role in the Bidenomics agenda. Their decision to moderate the acceleration of EV production in North America raises questions about the feasibility of the economic green idealism.
Reevaluating Economic Philosophies
The debate extends to a broader economic perspective. Critics of Bidenomics argue that it fuels inflation, a concern shared by the late economist Milton Friedman, who believed that inflation was a government creation. Libertarian economist Veronique De Rugy points out that while inflation rates have decreased from their peak, the costs of core commodities such as food, energy, and housing remain elevated.
The big spending associated with Bidenomics has contributed to higher inflation, larger deficits, and an ever-increasing government debt. As of the most recent estimates, the full-year deficit for 2023 is projected to reach $1.5 trillion, up from $946 billion in the previous year. The total federal debt has surged to over $33 trillion, posing concerns about further fiscal deterioration. The prospect of mounting deficits during favourable economic times is causing unease among investors and leading to increased borrowing costs, including mortgage and car loan rates. Yields on benchmark 10-year treasury notes have reached their highest level since 2007, placing a heavy burden on lower-income Americans.
The Bottom Line
The verdict on Bidenomics remains divided, with supporters pointing to robust economic growth and a shift towards green initiatives, while critics emphasize inflation and rising deficits. As long as inflation persists, the academic debates in support of Bidenomics may not resonate with everyday Americans, who are more concerned about their finances. The future of Bidenomics will depend on its ability to strike a balance between economic growth and managing inflation.