Analysts say policy mistakes the Biden administration committed on the economy contributed to Donald Trump regaining the White House. However, not everyone agrees on which Biden actions were mistakes. Some argue, such as Sen. Bernie Sanders (I-VT), that if Joe Biden governed in a more populist fashion, his policies would have won over voters. Examining the record, it is unclear whether that assessment is accurate.
Voter Sentiment On The Economy
According to exit polls, voters decided the 2024 presidential election based on perceptions of the U.S. economy. “Widespread voter anger about the economy appeared to boost former president Donald Trump in Tuesday’s election, emerging as one of Democrats’ chief liabilities even with low unemployment and robust growth,” according to the Washington Post. “Two-thirds of voters rated the economy as ‘not so good’ or ‘poor,’ compared to just one-third who rated it as ‘excellent’ or ‘good,’ according to network exit polls. Of the voters who rated the economy negatively, 69% voted for Trump—a significant margin.”
Mistake #1: Ignoring Warnings About Inflation
Economists warned about the risk of inflation as the United States prepared to come out of the Covid-19 pandemic. Despite those warnings, in March 2021, Joe Biden signed a large stimulus package that contributed to inflation. Nineteen months after the bill was signed, David Lynch of the Washington Post reported, “Though some experts—even in his own party—warned that the new spending could cause the economy to overheat, administration officials saw little reason for concern.”
Lynch wrote, “Within days of the March 2021 White House event, as the plan’s $1,400 stimulus checks landed in Americans’ bank accounts, prices for items such as used cars and airline and sports tickets began to rise. Today, annual inflation stands at 8.3%, near its highest mark in 40 years.”
In February 2023, economists Julian di Giovanni, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammed A. Yıldırım issued a Federal Reserve Bank of New York staff report. It quantified the inflationary impact of the fiscal stimulus: “U.S. headline inflation has hit levels not seen for several decades, reaching 9% per annum at its peak in June 2022, before declining to approximately 7% per annum by the end of 2022. In contrast, inflation was below 2% before the 2020 Covid-19 pandemic.”
The report found the fiscal stimulus package signed by Biden contributed significantly to the “aggregate demand shocks” that were responsible for causing half or more of the inflation identified between December 2019 and June 2022. “Our baseline results show that over the Dec19-Jun22 period, aggregate demand shocks explained roughly two-thirds of total model-based inflation, and that the fiscal stimulus contributed half or more of the total aggregate demand effect.”
While Congress passed a fiscal stimulus package under Trump that also contributed to inflation, Donald Trump was not in the White House in 2022 to take the blame. Moreover, “the 2021 Biden fiscal package totaled 15% of GDP [Gross Domestic Product],” according to the Federal Reserve Bank of New York staff report, even though economists had questioned the need for a significant federal stimulus.
Mistake #2: Maintaining Tariffs In The Face Of Higher Prices
When American consumers complain about inflation, they usually refer to price increases that affect them, not official government statistics. The Biden administration missed an opportunity to lower prices when it decided to maintain most of the tariffs Donald Trump imposed as president.
During the presidential debate, Kamala Harris criticized the Republican nominee’s trade policies. Trump replied, “In fact, they never took the tariff off because it was so much money, they can’t. It would totally destroy everything that they’ve set out to do. They’ve taken in billions of dollars from China and other places. They’ve left the tariffs on. When I had it, I had tariffs and yet I had no inflation.”
Erica York of the Tax Foundation examined the Trump and Biden tariffs in a June 2024 analysis. “The Biden administration has kept most of the Trump administration tariffs in place, and in May 2024, announced tariff hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles, for an additional tax increase of $3.6 billion,” according to York. She concluded, “Before accounting for behavioral effects, the $79 billion in higher tariffs amounts to an average annual tax increase on U.S. households of $625.”
Elon Musk speaks at the Milken Institute’s Global Conference on May 6, 2024 in Beverly Hills, … [+]
Mistake #3: Antitrust Policy And Undermining Venture Capital Investments
Although Biden positioned himself as the moderate alternative when competing for the Democratic nomination, critics say that once in the White House, he turned over much of the economic policy to allies of the more liberal Sen. Elizabeth Warren (D-MA). The most controversial appointee was Lina Khan, chair of the Federal Trade Commission, whose policies so alienated the tech community that the New York Times reported before the election that “Democratic donors including the billionaires Reid Hoffman, Barry Diller and Mark Cuban called for her ouster from the agency.”
Elon Musk and other Trump supporters also criticized Khan, indicating her policies, along with regulation of cryptocurrency and a proposed tax on unrealized capital gains, helped motivate many wealthy individuals to donate millions of dollars to elect Donald Trump over Kamala Harris. Press reports indicate the donations played a significant role in the election.
High-profile antitrust actions against Meta and Google, supported by the Justice Department, received the most media attention, but blocking corporate mergers affected other businesses. U.S. Chamber of Commerce Executive Vice President Neil Bradley told the New York Times that Khan produced unpredictable theories to block mergers that made it difficult for companies.
Less media attention focused on how Khan’s policies interfered with the foundations of Silicon Valley’s venture capital and innovation ecosystem that other countries have sought to emulate. Venture capital firms hope to profit from their investments. Investing in companies that later go public (i.e., are listed on the stock market) is one way venture capitalists earn money. Since relatively few companies are so successful that they become publicly traded, venture capital firms also hope another company acquires (or merges with) a business they invested in or buys its underlying technology.
In a much-watched case, Khan attempted to block Meta from acquiring the virtual reality startup Within Unlimited. “Historically, the FTC and Justice Department have challenged mergers by two major players in established industries,” reported the Wall Street Journal. “So the FTC’s challenge to Meta buying a startup in a relatively new market was seen as an unusual approach and an important test case.” After a loss in federal court, the FTC dropped its opposition to the acquisition.
Khan theorized such acquisitions by large companies stifled innovation. Venture capital executives wondered: If the smaller tech companies they invested in could no longer be acquired by larger businesses, who could acquire them, and what would happen if the government closed that avenue to profit from their investments? With Donald Trump’s election, Khan is unlikely to remain in her job long enough to test that proposition, but it helps explain the opposition her policies engendered.
Michael R. Strain, an economist at the American Enterprise Institute, said, “The lesson for Democratic policymakers: Don’t enact policies that are as reckless and irresponsible as the American Rescue Plan of 2021.” Strain believes voters understood that the Biden administration’s policies worsened inflation. Given global supply shocks to the economy caused by Covid-19, inflation was inevitable, and incumbents in many countries lost elections. Still, Strain believes Harris might have won the election “if inflation had peaked at 6% rather than 9%.”
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