Bidenomics’s Problem

September 29, 2023

The problem with Bidenomics is summed up pretty well by economist James K. Galbraith in a piece at Project Syndicate:

Unlike unemployment, inflation does affect everyone. But what matters to working people is not the monthly or yearly price change taken alone. What matters is the effect on purchasing power and living standards over time. Whether these are rising or falling depends on the relationship of prices to wages. When wage growth exceeds price increases, times are generally good. When it doesn’t, they aren’t.

It is here that Biden has a problem. During his presidency, living standards have not risen. From early 2021 to mid-2023, prices have increased more than wages, implying that real (inflation-adjusted) hourly wages and real weekly earnings have fallen, on average. Not by much, but they have fallen. Worse, the average figure probably masks a larger fall, in real terms, for families that started out below the average. And given how income distributions work, there are always many more families earning less than the average than there are who earn more.

The only strategy working people have to pay their bills is to take on extra work and a lot of them are. The number might be as many as 10% of American workers. Telling them they should be happy about that is probably not a winning political strategy.

8 comments… add one
  • Drew Link

    This is the point that Steve (intentionally) misses. I think the shortfall is far greater than “not by much” given the understatement of energy and food in the inflation index. The truth is it’s very significant.

    BTW – Look at credit card debt and rising default rates. People have subsidized their spending with the absolute worst form of credit imaginable. The money that was sloshing around due to Covid spending largesse is now used up. This is not a pretty picture.

  • Drew Link

    Right on cue:

    https://dailycaller.com/2023/09/29/democrats-joe-biden-white-house-bidenomics-economy-polls/

  • TastyBits Link

    This is what happens when you shut down an economy for two years, create debt equal to the economic loss, and keep creating debt to fix the problems created. Add to that just-in-time (JIT) manufacturing and retailing, and the problem increases.

    You lose your job. You borrow to make up the loss. You start working and borrow more, but as a JIT consumer, you have no space to store anything and you are not saving. It is not going to end well.

    I think it will be a decade or more before the economy begins to resemble a pre-hysteria state. It started with President Trump, but President Biden is making it worse. Furthermore, the elimination of cheap energy is not helping.

    Jeffrey Snider has a good article, but the title is deceptive: The Dollar Is Back To Rampaging Against Every Major Currency

    paragraph 15:
    Modern history of energy-intensive economies is perfectly clear on this point, one we were just reminded of a year and a half ago. It put the global economy on the road to recession to begin with, so it only stands to reason this latest one merely finishes it off.

    An example comes from the world of major food processing. Nestle’s outgoing CFO, Francois-Xavier Roger, told a conference audience just yesterday (reported by Bloomberg) that the world’s inhabitants are eating and drinking less. The total amount of food and beverages being sold has tumbled though revenues haven’t, not yet.

    That’s not inflation, either, rather more seeds of recessionary demand destruction. Some companies have been passing rising costs on to their consumers who can’t afford them, so they have little alternative but to buy less. In terms of food and drinks, Roger says, “People are consuming less, or they’re eating less or they’re wasting less or they’re eating more out of home…”

    It sounds like stagflationary impoverishment at first, especially once you consider how the most recent oil move is going to make this all so much worse in the short run. The inflation part of stagflation, though, means that companies can, do, and continue to pass along rising costs because there’s a surplus of money (through credit) running through the economic system. It goes from source to initial users then circulates and recirculates through additional credit, higher wages, business activities, etc.

    The current period shows the opposite of those. To begin with, the cash grab from 2020 and early 2021 is long gone, and rather than having been recirculated through more organic methods it all went to the most unproductive places, like Riyadh, a gigantic cash migration from governments only temporarily through people and businesses (and the small banks who served them) then to be stuck in fruitless economic cul de sacs like some mega-retailers, goods shippers, and, most of all, the energy sector.

    It was a windfall for them yet a dead-end for the economy thus the very notion of inflation. The only way to bring about some pricing power is to do what Abdulaziz has done and cut back even more on supply.

    And that has meant people and especially smaller businesses have been left holding the macro bag. While they were in temporary possession of the cash, they could afford the supply shock price effect. With it being long gone, take Mr. Nestle here at his word.

    I apologize for the length, but it is kinda hard to briefly quote Mr. Snider. I would recommend the entire article, and the reason for the dollar rampage is the same reason for de-dollarization being nonsense.

    Holders of dollars fear lending them and the supply is decreasing. The decreased supply means the available dollars cost more. Possibly, a more expensive and smaller supply of dollars could spur de-dollarization, but it would require a much larger de-dollarized bond market.

  • Dave Schuler Link

    it is kinda hard to briefly quote Mr. Snider

    He’s prolix and opaque but I frequently find his posts worthwhile.

  • steve Link

    Inflation does affect everyone. Unemployment does not. So does that mean it would be better to have unemployment at 20% rather than have 4% inflation? I really dont understand the idea of looking at inflation as the only economic indicator but we have people who are single issue voters on other issues.

    This ignores the causes and possible policy responses. It’s been pretty clear that a large part of what we have experienced is supply related. The latest oil surge likely due to Saudi Arabia’s announcement. I am not sure how we were supposed to keep China and other countries open and shipping us stuff.

    Steve

  • Drew Link

    Nice try, Steve. You keep beating that 4% drum. The fact is that over the past couple years the purchasing power, including food and energy, (for anyone who eats food or uses energy, although I realize those are rare birds) has declined by double digits. 17% by some estimates. 8% mortgages. Rising Rents. Let’s see. Oh. That’s food, utilities, transportation and shelter. Clothing anyone? That would round out the staples.

    At an ongoing 4% inflation rate that’s not being recouped one bit. And it could take a decade to recoup for many, if at all.

    So minimize it all you want. But “Bidenomics” sucks.

    At least the Big Guy is getting 10% and lives in multiple expensive homes…..

  • steve Link

    Since 2019 prices have overall increased about 18%. Wages on average up about 19%. People look at different numbers but they all come out showing that wages and prices have been about equal, some showing wages higher and some showing prices. I have not seen anything anywhere claiming a 17% loss.

    Arent the guy who pushed for higher real interest rates? Something something yield something.

    Steve

  • CuriousOnlooker Link

    If you are looking for a history of real wages (nominal wages deflated by inflation), statista has it here.

    It is correct that real wages have essentially been flat since 2019. But the graph provides the context why its the cause of discontent.

    The graph shows the flat wages from 2020-2023 broke a clear uptrend in real wages from late 2014 to end of 2019. It also overlooks a clear decrease in real wages since mid 2021 (there was a spike in wages in 2020, but that was due to mass layoffs of hourly (low) wage workers during lockdown).

    The breaking of the uptrend and a clear downtrend in 2022/2023 is the source of sour mood towards the economy… whether justified at pointing at Biden or not.

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