January 19, 2023
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As we approach the midpoint of President Joe Biden’s first term, there is little doubt that he deserves a solid “A.” He has turned the economy around, gotten the pandemic under control, gotten inflation under control and laid the basis for a rapid transition to clean energy. No president since Lyndon Johnson has as much to show for their first two years in office. Unlike Johnson, Biden managed to push through key legislation with a tiny majority in the House and the thinnest possible margin in the Senate.
Biden’s first significant accomplishment was the passage of the American Rescue Plan (ARP), which was designed to protect people from the effects of the pandemic and quickly get the economy back to full employment. At $1.7 trillion, it was a very bold measure. Many economists thought it was too large, including some prominent Democratic economists.
The ARP succeeded in producing rapid growth and getting unemployment down to half-century lows. It also put a lot of money in people’s bank accounts, with most households seeing their savings increase during the pandemic.
It also provided the funding needed for a quick rollout of COVID vaccines and provided state and local governments with the money needed for measures like improving school ventilation. It also had a huge effect on reducing child poverty by including an expanded child tax credit. Unfortunately, Congress allowed this credit to lapse after one year.
Next, Biden managed to get through a bipartisan infrastructure modernization bill. This made good on a Donald Trump campaign promise, providing more than $1 trillion over the next decade to finance improvements in the country’s infrastructure. In addition to the usual roads and bridges, the bill also included funds to ensure everyone has clean drinking water and access to high-speed internet. It also had money to build a national network of electric car charging stations so that people buying electric cars don’t have to worry about being stranded far from home.
Biden scored another bipartisan victory last summer when he got Congress to pass the CHIPS Act. This provided funding for the research and development of cutting-edge semiconductors and incentives for manufacturing them in the United States.
His final, and perhaps most important, legislative victory was the Inflation Reduction Act. This was a far-reaching bill that lowered prescription drug prices, increased funding for the Internal Revenue Service, and gave substantial subsidies for buying electric cars and converting to clean energy.
It also included a modest increase in corporate taxes by taxing share buybacks for the first time. This is a big deal not only for the revenue it raises but it could presage a larger shift toward basing the corporate income tax on returns to shareholders, which we see, as opposed to profits, which are calculated by corporate accountants.
These bills not only have a direct effect but also set the stage for further actions. In the case of prescription drugs, we are moving away from the world where we give drug companies patent monopolies and let them charge whatever they want. Like the rest of the world, we are restricting their monopolies.
We also are seeing a great response from industry to these measures. Many leading chip manufacturers have announced plans to build plants in the United States. And, most important, all the big auto manufacturers have committed themselves to a rollout of electric vehicles over the next few years. There will be no turning back.
Of course, things can always be better. It would have been good to see provisions that government funding for developing advanced chips or promoting clean energy had requirements about the technology remaining open-source, without patent monopolies or other protections. That way, it would be cheaper and spread more quickly, and we would not be worsening inequality by making the beneficiaries very rich, as happened with the COVID vaccines. But we can fight this battle later.
There remains the question of why people think the economy is doing so poorly if all the economic data (jobs, wages, income) look so positive. The endless negativism in the media is likely the biggest part of the story.
An old saying is that economists look at what people do, not what they say. If we look at what they do, we see people buying houses, cars, appliances and other big-ticket items at very rapid rates. They also go to restaurants far more than before the pandemic.
Regardless of what they tell pollsters, people are telling us with their actions that they feel pretty good about the economy. And Joe Biden deserves much of the credit.