What's So Special About 'Bidenomics'?

Publish Date: 2023/7/10

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Hello and welcome to the FiveThirtyEight Politics Podcast. I'm Galen Druk. Love it or hate it, this is President Biden's economy and he's taking credit for it. In recent weeks, Biden has been rolling out his economic pitch to Americans. It started with a high-profile speech in Chicago where he branded his policies as quote Bidenomics and positioned them in opposition to trickle-down Reaganomics.

Since then, Biden and his surrogates have fanned out across the country to make their pitch. This all comes at a time when Americans are quite pessimistic about the economy. In recent polls, less than a third of Americans say the economy is good, and Biden gets some of his lowest marks on his handling of the issue.

But still, economic data paints a relatively strong picture. The unemployment rate, according to Data Out last Friday, stands at 3.6%. That's close to a 50-year low. And inflation, although stubborn, has fallen to 4% from a high of 9% last summer.

So today we're going to spend the whole episode talking about the economy, how much of Biden's approach to economic policy is new, what does it actually look like on the ground, and why are so many Americans pessimistic?

Here with me to discuss is Federal Reserve and economics reporter at the New York Times, Gina Smilick. Welcome to the podcast. Welcome back to the podcast, I should say. Thanks for having me. Also with us is chief economic correspondent at Axios, Neil Irwin. Likewise, welcome back to the podcast. I think you've both been on before, although it's been a minute since we spoke, Neil. So welcome back. Thanks, Caitlin.

And I should also say that I have a game planned for the end of the show. Yes, we're going to try to make cold, hard economic data fun in a game called Whose Economy Was This? I will describe the economic data and you will have to tell me which president presided over that data. How does that sound? Do either of you feel particularly well positioned to win this game? Well, I'm older than Gina, so I feel like I have some small advantage coming in there.

Also, Neil's better at trivia for sure. So I feel like my money's on Neil as well, but I'll try my best. Okay. All right. We'll see how it goes. We'll see how it goes. First time we're playing this game and probably last. This is the kind of game that I think you can only play once. All right. Let's begin by asking our favorite question. Good or bad use of polling?

Last week, writer at The Atlantic, Derek Thompson, tweeted out a few graphs that got some attention. He wrote, "'The U.S. has the fastest growth rate of any G7 country, and the U.S. has the lowest annual inflation of any G7 country, and Americans hate it!'

To add some more data to that, a recent poll from the AP shows that 69% of Americans say the state of the nation's economy is poor. Only 34% in that poll approved of Biden's handling of the economy. However, some polling has shown significant gaps between how Americans rate the economy overall compared with their own personal circumstances.

So here's the question, and we're going to unpack this as we go. But are Americans giving us a real assessment of the economy when they respond to polls like the one I mentioned from the AP? Let's start with you, Gina. Yeah. So I think that...

And I'm mostly going to draw my experience as a reporter talking to a lot of Americans who come from various walks of life here. But I think that one thing we're seeing here is really a difference in salience between how strong the job market is and how high inflation is. So I think when people look at the job market and they recognize that it's very strong, they feel like a lot of those opportunities that they're seeing, the wage gains that they're seeing are something that they've earned.

Whereas when they feel the inflation that we're experiencing, when they look around and notice that prices are quite a bit higher than they were two years ago, three years ago, I think that feels like something that's being externally imposed.

And so I think that inflation feels worse than the job market feels good to a lot of people. And so when I'm chatting with people, I feel like this just comes up over and over and over again. Like you will often talk to people and they'll tell you that the labor market is really strong and they'll tell you that inflation is terrible and they actually end up feeling kind of bad in that mixture.

which has been interesting to me as somebody who sort of came into economics reporting right after the great recession. And it felt like the job market sort of ruled everything. It actually, these days it feels increasingly like inflation kind of rules everything. So I absolutely agree with everything Gina said, um, which I usually do. Uh,

but I'm gonna add a couple of more points to that. One, don't forget the impact of real wage declines. Meaning, if you get a 5% raise, that's great, but it's not so great if the price of everything you buy is going up 10% a year. And what we did see during 2021, 22 is yes, wages were growing in nominal terms. People were seeing the biggest raises they've seen in a long time, but that was still not enough to keep up with how much prices were rising.

Only just recently, in the last couple of months, has that changed. And we're now seeing average hourly wage gains that are higher than the inflation over the last year. So that, I think, might be affecting people's mood and feel a little bit better about where things are. Second point.

everything is political now, more so than it used to be. And you see this in all of the kind of consumer sentiment type data that comes out, different survey work. The gap between Republicans and Democrats on how they view the economy is very large. And it flipped 180 degrees when Trump left office and Biden came into office. So it used to be Republicans felt great, Democrats thought the Trump economy was bad. And now that's totally reversed. I do think, you know, if you look at that,

mentioned the consumer sentiment. The June number came out from the University of Michigan just the other day. It actually showed a real nice surge in June. So people were starting to feel better, but it was almost entirely Democrats feeling better about things. So that is a sign that maybe the politics are shifting where Democrats are getting behind Biden and want to kind of be enthusiastic heading into reelection. However, Republicans still thought the economy was pretty terrible in that survey. Yeah. So there's a bunch of things going on here. And I think that when people have looked at

American's pessimism about the economy. One of the most prominent things I've heard, particularly in the political election sphere, is that everything is political and that sort of explains this. But in looking at some of the polling that's come out, Democrats also have been quite pessimistic about

about the economy, which means, and of course, you've given more than one reason for why folks might be pessimistic. But how do we try to parse like what is political and what is

real when determining how Americans are actually feeling about the economy. You know, you have to ask the question, what do we do these polls for? What are we trying to learn? And, you know, if there's some argument that if you ask people about consumer confidence or sentiment or how they view the economy, that's telling you something about the future. That might be helpful in predicting whether we're going to have a recession, whether we're going to have a surge in growth or not. I think the evidence is actually kind of ambiguous on whether they add a lot of information on that front.

But if that's your belief, then people answering based on politics doesn't really help. If the point is political, if the point is to understand how elections might go, what the contours of public opinion are for policymaking, then I'm not sure it matters so much. If people say they're unhappy with things, that's going to matter for how they vote in November.

Yeah, I do think that actually that's kind of the key point is what do we want to gather from these polls? And I think a lot of times from an economic standpoint, what we really want to gather is some sort of signal about how consumers are going to behave going forward. You know, are they going to ask for bigger raises because they think inflation is going to be high? Are they going to stop spending because they think the economy is going to be bad? And I would say that in this cycle,

these surveys have been basically useless in that regard. You know, we've seen really poor consumer confidence for a while now, and we really haven't seen that manifest in weak consumer spending. You know, we saw some consumer pullback, people weren't spending quite as much, but they've really leveled out recently. And so I think that, you know, to the extent that these are useful as sort of a predictor of consumer behavior, I think that

that's really sort of fallen through the floor recently. So basically Americans are saying, I'm pessimistic about the economy, but they're not at the same time

their level of savings, pulling back their actual consumption. Like they're not behaving as if they're actually pessimistic about the economy. So they are increasing their level of savings a little bit. They pulled back their consumption a little bit, particularly sort of earlier this year. But what we really haven't seen is just some sort of like concerted sort of like

huge step back, huge retrenchment. I don't feel good going on vacation anymore. In fact, you know, this summer, for example, we're seeing really strong services spending. It seems like based on the early sort of provisional data we have that, you know, vacationing is really up, international travels up, restaurant spending appears to be going up. You know, all of these things that are very discretionary are really sort of a signal of how consumers are feeling.

sort of suggests that consumers are feeling okay. But then obviously that contrasts pretty sharply with what we're seeing in the survey data. And so I do think that probably sort of, you know, continues on what Neil was saying, which is a lot of this is political at the end of the day. You know, I think if you, you know, look at a lot of economic data like Gina and I both do, in a vacuum, if we didn't know the context of the pandemic and politics and what everything's going on, if you just looked at the data,

There's no way in a thousand years you would say this is a recessionary kind of environment. This is just a steady, solid boom that, yeah, inflation is a little on the high side, but the data alone do not look at all like what it looks like when things are going south. In terms of the usefulness of this data for trying to figure out if Americans are going to stop spending and start behaving like they think there's a recession, it sounds like no.

Also, we saw last year during the midterms, the number one issue for Americans was inflation, and they rated Biden's job performance on the economy really low. And it also seemed like economic pessimism wasn't necessarily, I mean, of course, it drives some voter behavior, but didn't really seem to drive voter behavior in a way that determined the outcome of the midterms ultimately. Yeah.

So is it time to just stop looking at this data if it's not telling us much about the economy and it's not telling us much about politics? Look, Galen, we're economics writers. We're going to look at the economic data and it's better for our business if the economy explains what happens in politics. That said, look, there are a lot of very high salience issues that are

probably going to trounce the economy, assuming things are going okay a year from now. You know, abortion, a whole list of things that are really the focus of the political parties that are not what's next quarter's GDP going to be. Look, there's long evidence that GDP growth rates and comparable measures do tend to predict somewhat electoral outcomes.

Is that a permanent state of affairs or might that change with time as other issues rise? That's for people who are smarter than me about politics to judge. What I can say is that so far, midway through 2023, things are humming along pretty okay and we'll see how that looks in the middle of 2024. Yeah, I will say one thing that's really interesting to pay attention to is we do know that for consumers and voters,

A really salient price that presidents often get punished for is actually gas prices, which presidents have no control over whatsoever. And so to the extent that you say, like, we should just ignore this data because none of it tells us anything useful, I actually think that's probably an argument in favor of ignoring it. You know, the thing that is most likely to predict sort of voter behavior is also the thing we have the least control over and is hardest to predict.

That said, you know, I think that we can glean some pretty useful insights from some of this data about how consumers are sort of experiencing the world around them in ways that can inform elections. You know, I feel like there's a difference between sort of setting the vibe for an election and being the determining factor of an election.

You know, and I think that's probably pretty relevant here. You know, I think that clearly this wasn't the decisive factor in the midterm election, but it was something that we spent a lot of time talking about heading into the midterm election. You know, I don't think it was something that just got completely ignored by voters. And so I think, you know, clearly the president is trying to double down on talking about the economy heading into 2024. There's a reason for that. This matters to people. So right now, the polling data suggests that Americans are pretty pessimistic about the economy.

But we are seeing increasingly, as you've mentioned, positive economic data come out, declining inflation rates, still low unemployment rates. Is there a sense that maybe public opinion is a lagging indicator of how the economy is doing in this sense? Like if the conditions that you've described are

in terms of the actual on-the-ground conditions, stay the way they are, would we expect public opinion to change? I think so. Look, it takes time for people to feel the impact of changes in the macroeconomy. That's just the way it is. And I think what a lot of the evidence points to is that it's the change in conditions that really matters for people's mood, not the absolute level. So if you look at 1984, when Ronald Reagan was reelected by an overwhelming margin, inflation was actually still pretty high in 1984, but it was coming down rapidly from the early 80s peak.

Same with unemployment. It was still a little high by current standards in 1984. And yet we talk about mourning in America and the entire kind of Reagan boom that ensued in the second term. I think the key is, is it going the right direction? And has it been going in the right direction for long enough that people really feel it as opinions are kind of hardening in the middle of an election year? Yeah, I think...

That makes a lot of sense. I also think that, you know, again, it can be useful to sort of abstract from the day-to-day surveys and sort of these consumer confidence surveys and look at actually what consumers are doing. And there, I do think that you can see that consumers have actually gotten a little bit more confident recently. You know, we were, like we mentioned earlier, we were starting to see this pullback. It looked like consumers were retrenching a little bit. And recently, they've actually been sort of reopening the wallets. You know, the housing market's rebounding a little bit.

or at least bottoming out. We've seen some evidence that people are spending more on leisure activities like travel. So I do think to that extent, you can probably surmise that people are feeling a little bit better about the world. And so assuming that lasts going into 2024, it could be good news for the Democrats.

It seems at the very least like investors are optimistic about the current situation. Like, is that a suggestion that, yes, broader public opinion may be a lagging indicator because the people who pay attention to the stock market or these economic data day in, day out are going to react quickly? Because like the economic data that you've described and then on top of that, also stock market growth over the past month or so.

you would say like, wow, I mean, this economy is booming. I think it is often the case that investors care a lot more about the outlook for Fed policy than the outlook for the economy per se. And those two things are absolutely interrelated. Like the Federal Reserve does what it does because of what the real economy is doing. But a lot of times you see stock market growth

performance really pick up at moments where they think Fed policy is going to stop changing, where they think that rates are either going to drop or that they're going to stabilize at the levels they are at any rate, that they're not going to go a lot higher, a lot faster. And I think that to some degree, that's what you've seen recently. You know, people are increasingly expecting that interest rates are kind of going to plateau around a little bit higher than they currently are.

And so that seems to be sort of influencing where stocks are. I would just add that, you know, Gina and I both spend a lot of time paying attention to the bond market, especially for treasury bonds that are kind of what interest rates look like going out into the future. And the bond market all along this inflation path has expected inflation to come back down

fairly promptly. And right now, the yield curve is inverted, meaning the current kind of short-term interest rates, over 5%. The Fed's going to raise them again this month, it looks like. Meanwhile, longer-term interest rates, 10 years, lower than that, around 4%. So what that's essentially saying is inflation is going to come down. The Fed's going to be able to cut rates in the not-too-distant future. Nothing to worry about here. That said, it's not like the bond market was a perfect place

predictor of the inflation that did arise. It's not as if these traders sitting around knowing exactly what's going to happen. If you did go back in time two years ago and predict this inflation, you could have made a lot of money on it. But it's worth noting that what's pricing the markets right now is not some ongoing inflationary crisis. It's things coming back to normal pretty soon.

We like to, in this segment, come to a conclusion about whether something is a good or bad use of polling. In this environment where everything is political, is it still a good use of polling to look at Americans' own assessment of the economy as they tell pollsters, as they tell

as an indication of anything. I think it is. I think, you know, what's the alternative? To not ask people how they're feeling about economic conditions? You know, we can look at the data all we want. If people are unhappy, then something's not working. And it's important for policymakers to be responsive in a democratic society to what people need and what will actually make them feel good about where things are going. Yeah, totally agreed. Actually, I think this is really important in a policy-relevant way in the sense that if you had no public sentiment data right now,

If you were just kind of rolling with what you thought based on what's happening in the actual economy, I think you as a policymaker might say like, fantastic job market, really strong growth. Yeah, we've got a little bit of inflation, but, you know, to the extent that you have more heat, you know, you get a little more fire. I think that you could take away from that, that high inflation is not such a big deal. And that's a tradeoff we want to be willing to make.

But in a world where we have consumers telling us that they really hate the high inflation, that that's a major problem for them, I think you're going to be much more cautious about saying that's a trade-off you want to make. And so I think this is actually an instance where that sort of keeping the finger on the pulse of how the American consumer is not just doing, but actually feeling about how they're doing is really, really relevant. All right. Well, I'll have to say I agree. But let's move on and talk about Bidenomics specifically.

Biden recently rolled out his economic pitch to Americans in Chicago, flanked by big signs that read Bidenomics. He began by castigating trickle-down economics, saying it, quote, "...failed the middle class, it failed America, it blew up the deficit, it increased inequality, and it weakened our infrastructure. It stripped the dignity, pride, and hope out of communities one after another, particularly through the Midwest, Western Pennsylvania, and heading west."

The tenets of Bidenomics, as he described them in that speech, are threefold. First, making smart investments in America. Second, educating and empowering American workers to grow the middle class. And third, promoting competition to lower costs to help small businesses.

First, all of those words of the tenets of Bidenomics sound really nice. But as people who study economic policy, are you able to sort of discern whether or not these are actual specific policies that Biden has enacted and whether they are a break from presidents in the recent past?

I think they are in some important ways. They passed the Bipartisan Infrastructure Bill, they passed the Inflation Reduction Act, they passed the CHIPS Act. Those three together, hundreds and hundreds of billions of dollars in public investment that's designed to spur private investment. And so that is a large-scale investment that's happening in the data. You see it on the ground, you see these factory openings in a way that wasn't throughout the 2010s. And I think it's an important fundamental thing that's going to be a driver of a lot of heavy manufacturing and heavy investment activity.

And then it kind of dovetails with the Biden's kind of longstanding political identity, which is I fight for the middle class. I fight for unions. I'm focused on good jobs. And so this legislation that happened that, again, amounts to massive amounts of money is combined with a kind of theory of the case that does make coherent sense and makes sense that Biden would be on the trail talking about it. He was pretty ambivalent about that Bidenomics term. He actually kind of downplayed and poo-pooed that term a few times.

But he seems to embrace it and sounds like it's what we're going to be hearing a lot of in the 2024 election. Yeah, I would build on what Neil just said by saying that I think that the sort of first tenet of his three tenets, the smart public investment portion, is the part where we're really seeing a break from past sort of policy, something new and different. It is really those investments in public-private partnerships, those sort of manufacturing investments, infrastructure investments,

We are clearly seeing, you know, the other things that he's listing there, empowering education and educating workers and promoting competition. We have seen them take some steps along those lines. You know, there have been a lot of executive orders. There have been efforts to, you know, for example, make prescription drugs less expensive or

make things available over the counter that weren't previously over the counter, efforts to sort of reduce concentration. A lot of those are sort of more incremental. Some of them are a big deal, but some of them are more incremental. But I think those public investments, those are really sort of where the thrust of this push is centered.

And for the distinction, think about it. Obama would have loved to do a big infrastructure bill. He begged for one for years and years, couldn't get it through Congress. Trump talked a lot about infrastructure, also did not make it happen in Congress. So some of this is stuff that there's been bipartisan enthusiasm for for a long time, but the politics never quite lined up until this last two years. And so, look, will it work in the sense of making the U.S. –

you know, have cleaner energy and create lots of good middle class jobs. That's for the time to tell. But in terms of something being different now than it was over the last few years, there's no question. I mean, one question I had in hearing Biden lay all of this out is on that third tenet, which is increasing competition, because it sounds like at the same time, he's trying to pitch in some ways on shoring, which is like, even if it doesn't make

global economic sense from an efficiency perspective, we ought to be making certain things here in America. And we're going to pass legislation that promotes that. I mean, historically, at least, you know, I'm not an economist, but when I took, you know, Macroeconomics 101, that path would create perhaps less competition, create inefficiencies in the market, and would end up making things cost more as opposed to cost less.

So I, you know, I'm curious to hear from you all who know more about the economy than me about this pairing of we're onshoring things, we're bringing things home with like we're increasing competition and we're lowering prices because those two things feel at odds.

To me, at least, you know, the way that I understand economics. I think that the way that they are sort of packaging the on-shoring bit is really under that first tenet of smart public investment. Like, this is really about sort of shoring up the resilience of supply chains from the way that they are pitching it. You know, they're talking about things like

making semiconductors here because we realized during the pandemic how extremely vulnerable we are to disruptions in the semiconductor supply chain. And we're talking about things like making sure that important technology industries are very concentrated in the U.S. and that we're not depending on China for those technologies that could end up being sensitive down the road.

And so that really does seem to be what that portion of the push is sort of focused on. And I think that aspect of it is maybe more about prices being moderate over the longer term, not so subject to potential supply chain disruptions that could cause big jumps in prices like we saw in the 2020 pandemic, but less about lower prices on a day-to-day basis.

Like, I think that, you know, this is more about resilience over time, sort of shockproofness. And that's very much how they talk about it. Like, we're not refuting Adam Smith and David Ricardo here. We are just, we are building on them, I would say. But I'm curious to hear what Neil thinks.

No, I think you're identifying a central tension in Bidenomics that the White House doesn't really want to acknowledge or wants to tell you, yeah, we have this figured out, which is if some of these priorities are the most important thing in the world, if decarbonizing the U.S. economy is so, so important, shouldn't we be buying batteries from wherever we can get them at the cheapest price and doing it as fast as we can, as opposed to, you know, buy America provisions where certain components have to be built here? You know, infrastructure, if

If they make really good trains in Europe, shouldn't we import those trains rather than building our own that are not quite as good? And that's a tension that is not fully resolved. One final point on that, there's also this focus on creating good jobs. Well, are you trying to create more jobs and pay more money, or are you trying to do these projects as efficiently and get as much bang for the buck as possible? Those are in tension, especially in a very hot job market where everybody's trying to hire right now, so you're really competing for a finite pool of workers. So these are all some real deep issues

seeded inherent tensions in Bidenomics that we know how the president views it. He thinks you can do all of these goals at once. And that's what we're going to be watching as the years progress. Well, in some ways, isn't this the tension between what seemed like a bipartisan consensus around neoliberalism, free trade, et cetera, and whatever is coming next? In some ways, Trump

butted up against similar tensions in that he wanted to decrease levels of immigration, for example, which folks who run businesses who want cheap labor, et cetera, would not be in favor of. So are we sort of at a point where we had some sort of bipartisan consensus around neoliberalism and now we're creating almost like a new bipartisan consensus around something totally different? Because sometimes when Biden talks about Bidenomics, it

It sounds an awful lot like what Trump pitched, even if he didn't actually get it done. I think that that is a really smart observation. I actually think it extends beyond just being a bipartisan consensus. I think we're sort of reaching a new global consensus that neoliberalism sort of isn't the way forward. You know, we've seen this span parties sort of the world over. Take a look at the UK. Obviously, Brexit was a great example of this. But I think that we've seen a lot of sort of on-shoring type conversations happen.

happening there. I think you're seeing a lot of talk in Germany about how they can make themselves resilient to a pullback in China after years of just deepening those relationships. Like it does seem like the whole world is sort of retrenching and moving away from sort of unfettered free access to markets in all cases. And so I think that this is part of that broader trend. And like you said, you know, there are definitely some similarities between things that the Trump administration was doing and things the Biden administration is doing. And I don't know, maybe this makes me a neoliberal shill of some kind, but

My hope is that we don't throw the baby out with the bathwater and we recognize that free markets have really generated a lot of prosperity and wealth over a lot of years. And they've also had some rough edges that have been very bad for a lot of people and left us vulnerable in these tumultuous last five, 10 years. I think we're only at the beginning of figuring out what it looks like when countries that are historical allies don't want to be quite as tightly linked as they have been.

Well, it seemed like last year that this may not work out at all, that the levels of public expenditure had led to such high rates of inflation that the Fed was going to have to move quickly, perhaps, you know, I mean, I think the recession has still yet to materialize. I've seen it described as the most anticipated recession in history. Like I saw publications last year putting out recession forecasts that basically said,

a recession next year is a 100% likelihood. - Because why don't you trust simple models to predict things that where n equals seven and that's the entire historical record?

You are speaking our language here at FiveThirtyEight. Why did things turn out sort of OK for this strategy? Because last year, it seemed like supply side economics were really getting some of their revenge. Like Republicans were saying, OK, well, when you give everyone money to, you know, for everything that they need and, you know, a lot of the goals may be halved.

have merit to them. Like you want to make childcare affordable. You want to make sure that people have food, all different kinds of things. But if you don't take care of the supply side, no matter how much you may want those things, you're going to create a situation where people can't afford them.

What happened? And maybe it's too early to say that things worked out okay. So I do think it's too early to say that things worked out okay. We don't know the end of the story yet. But I will say, I think that, you know, not to reuse Neil's metaphor here, but I think there was some throwing out the baby with the bathwater on the whole transitory inflation conversation. Like,

as you may recall, at the very outset of the inflationary period, people were saying, oh, this is transitory, it's temporary, it's not going to last, it's tied to the pandemic. And then that got a really bad rap because obviously inflation stuck around for a while. But a lot of those fundamentals were still true. Like a lot of the inflation we were seeing was tied to the pandemic. And I think we forgot about that when we accepted that it was going to be around for a little while. And what we've really seen over the last six, seven, eight months

is that some of those transitory types of inflation, some of the things that really were just pandemic inflation, they're starting to work themselves out. So for example, we saw huge pop in airfares last year, which really was just about the fact that air travel was coming back, people were flying again, and we had sent all of the pilots and air traffic controllers home.

Like they'd all taken early retirements and buyouts. And so we just weren't capable of ramping up supply for airlines the way that we needed to in order to keep prices from spiking. That started to work itself out this year. Airfares are falling again. You know, things are getting back to some variation of normal.

And so I think that, you know, that's just one industry example, but we've seen that echo across a bunch of industries from cars to furniture. You know, it's been a common theme. And so I do think that some of this is just getting back to normal. And I think maybe for a while there, we were underestimating the fact that things might get back to normal, that workers would come back from the sidelines, that, you know, it was just going to take a while for us to fully get over the very huge shock that was COVID. And so in my view, I think that's some of what has happened here.

Part of this is also just the system works, right? So since last March, the Federal Reserve has raised interest rates five percentage points. They've been shrinking their balance sheets, sucking about $100 billion a month out of the financial system. And that has had real world impacts that caused the stock market to drop 20% last year, that caused mortgage rates to skyrocket and dampened housing activity last year.

Now, we can have long nerdy debates about how monetary policy works, how it affects the economy, is it less impactful than it used to be? But the reality is they took very bold action. It caused some pain. But so far, that pain has helped bring inflation down without the kind of crisis in the job market that everybody was afraid of. Can I provoke you into a long nerdy debate for just a moment? Please. A short nerdy debate. Please.

I wonder how you think that is working, because it does seem like the housing market, you know, it's slowed down, but it's picking back up. It seems like the job market hasn't slowed down. Like, what do you see the channel through which Fed policy is slowing the economy as right now? You know, so...

you're right. The housing thing happened. Look, wealth effects are real, right? So the house, I mean, yes, the stock market's up this year, but it was down a lot in 2022. People, people felt less rich. I think confidence and expectations channels are real. Meaning if you're a CEO, CFO planning, you're spending for next year, uh, seeing that environment is going to shape what you're willing to pay your workers, what you're willing to, uh, invest in, uh,

for ordinary people. I think, you know, inflation expectations are a real thing and they do shape how big a raise you ask for. I think it's definitely true that the old story that I learned as an undergraduate of how raising and lowering interest rates affects the economy hasn't really worked out according to plan. But, you know,

We're seeing what we want to see. We're seeing, yes, they took aggressive action last year, and inflation is very gradually coming down, and the job market has remained robust, which is a pretty good story. You're actually getting at something where the nerdy economics conversation confronts politics, which is people always question how much presidents actually can influence the economy. But when Biden-

came into the White House with majorities in the House and Senate, they passed massive public spending bills. And we saw, I think the Fed of San Francisco suggested that just in 2021 alone, the public spending had contributed about 3% inflation on top of what we would have otherwise seen. So we were really seeing an economic

agenda from a political party, I think, affect the economy. And since then, we've also seen a decrease in spending, you know, like the increased child tax credit has gone away. So how much can we say this economy today is the result of

Joe Biden and Democrats' economic policies. You know, politics warps people's brains. And especially in the last couple of decades, it's become such a tribal identity thing that we talked about the polling earlier. You see the Republicans thought the economy was fantastic under Trump and immediately flipped to thinking it was terrible under Biden and vice versa for Democrats. So the part of presidents affecting the economy that I don't buy is that the vibes are what drive economic events.

We've seen that this last few years to our earlier conversation, right? People, the vibes have been bad. People, you know, Biden's approval has been low and yet we still see strong job markets, strong demand, all that good stuff. I think the part that's real is active

Active policy decisions have consequences. Joe Biden appointed Jay Powell to be the Fed chair. He reappointed him. He didn't have to do that. He could have gone with somebody who would have been more dovish, maybe not raised rates as much. The Inflation Reduction Act, all this legislation, you can't spend hundreds of billions of dollars in the US economy and not have an economic impact.

So I think judging presidents by the economy that results from their decisions is very reasonable. Where I'm more skeptical is that there's just a, you know, the magic of having Trump or the magic of having Biden in the White House is what determines economic outcomes. Yeah, I totally agree with that. I also think, you know, it is clearly the case that I think the Biden administration can both take credit and blame for some of what happened earlier in the pandemic recovery. Like,

We poured a huge amount of money into pandemic recovery, more than a lot of economists were calling for. And we saw a pretty rapid rebound in growth and in the job market. And we saw pretty rapid inflation. And I think that even the White House itself will kind of take partial credit for both of those things.

And so I think that's reasonable. I think it's been pretty well litigated at this point. I think the question going forward is, you know, to what extent can the administration take credit for sort of the huge amount of job growth we've seen recently for some of the, you know, big improvements we're seeing when it comes to things like inequality? We've had a real shrinking in inequality over the last couple of years.

And I think in those things, you know, we can point to the infrastructure investment, we can point to the CHIPS Act, but those things all take a long time to actually play out. So it's important to not sort of over assess how quickly these policies work. You know, it's obviously a good, it makes for a good political talking point. But one thing to keep in mind, you know, for voters and for people who are communicating that to them is all of this stuff takes time to actually have a full effect. Yeah.

So what I'm hearing maybe is that there are clearly things that there's a direct relationship between Democrats' actions with Biden at the helm and what we've seen in the economy. And in particular, that's around the enormous amount of spending sort of early on in Biden's presidency. There's also the second set of data points that you're starting to hear Biden talk a lot about as he talks about Bidenomics, which is like, you know, we, our policies are supporting the middle class. Our policies are supporting the working class.

And you see even in the data out, you know, on Friday that it's true that,

the parts of the economy that are lower wage earners and have historically been worse off, at least in recent decades, are the parts of the economy that are making the biggest gains at the moment and that the wealthiest are actually sort of feeling more of the hurt when it comes to real wages. And you can correct me if that's wrong. But overall, it's like the worst off among us

are doing the best in this economy. I think that's basically right. Or at least seeing the best gains. Yeah, the most gains. Yeah, I would put it that way. I would put it that way, best gains. Because I do think there's been a lot of talk about rich session or white-collar recession, and I'm a little skeptical of that because if you look at white-collar job growth, it's still pretty decent. And if you look at earnings calls, certainly it's the case that people who are in those white-collar jobs are still spending like crazy.

You know, like all the luxury retailers are doing really well right now. American Express is like basically jubilant on every earnings call. So, you know, I think those folks aren't exactly hurting in this economy. That said, I think what we can say is that sort of the leisure hospitality, your restaurant workers, your sort of rank and file everyday workers have seen huge job gains and wage gain.

And that's really a, but, you know, I think at the end of the day, that's a legacy to some degree of the pandemic. They lost a ton of jobs during the pandemic. Employment levels in some of those industries still really haven't even recovered. And so people just sort of reshuffled into different jobs. And so there's been this really intense competition for people at the lower end. To what degree you can actually attribute that directly to the White House, I think is up for debate.

You know, I think that's something you'd have to you'd have to talk out. I don't think, you know, it's necessarily the kind of thing that you can just immediately take credit for as the White House. I do think one way of thinking this is it's kind of the mirror image of the 2010s. So in the 2010s, we had elevated unemployment for many years after that recession ended.

We had fiscal austerity. The fiscal authorities were not really spending money. States didn't have any money. Meanwhile, the Fed was trying to do everything it could to stimulate activity. So it was cutting rates, doing quantitative easing, pushing money into the financial system. That was terrible for inequality. It did cause asset prices to rise, but it did not have as clear an effect in terms of wage gains and job gains at the lower end.

Even geographically, the 2010s had this growth that was very concentrated in these rich coastal metropolises. I feel like this is a kind of growth pattern that's more distributed, more even across the country, including in places that have not had the kind of growth in the past.

So, you know, as Gina says, look, how much of this is things Biden did versus how much of this is just the world's complicated and things have changed from 10 years ago, we can debate. But this is a very different economic backdrop to what we got used to after the 2008 crisis. And actually, to Neil's point, I actually think the geographic dispersion is a great example to sort of illustrate what we're saying here, because I think you can look at the geographic dispersion and you can say, wow, infrastructure spend.

Like, this is policy working. It was supposed to funnel money out all throughout the country. It was supposed to reach Western Pennsylvania and South Carolina and Georgia, and it's doing that. Or you can look at it and say...

wow, the pandemic, all these workers can do remote work now. And so a lot of high paying jobs that would have previously been concentrated in coastal cities are now locating in the middle of the country. And we've all heard and read the stories about people who are refugees from Manhattan moving to some small town in Pennsylvania. And so, you know, clearly both of those factors are at play here, to which degree you attribute the sort of newfound affluence of

cities in the middle of the country to policy versus the pandemic. I think that's something that we actually haven't fully debated. I don't think we have the full conclusions there yet. And we're in a world where Google and Goldman Sachs are doing layoffs and any company in industrial heavy industry stuff in the middle of the country is struggling to find enough workers. And that's a contrast to the recent past.

And yeah, there was a quote in the Wall Street Journal a couple of months ago that has just stuck in my mind ever since. And it was from the CEO of Waste Management, which is the big garbage disposal company. And he said, I can't hire a garbage truck driver in Houston for $90,000 a year, but I can have my pick of MBAs, first year MBAs from a second tier school for $60,000 a year. This is an environment that anybody who does real work involving moving stuff, involving the

physical world is in a very good position, even if they don't have a ton of education. And that's less true for professional. Look, as Gina says, it's things are pretty good for professional workers right now, too. But in terms of who's bearing the brunt of some of this adjustment, some of this labor market cool down, it's it's those of us who, you know, work in offices and type on a computer all day long. And of course, Biden. I mean, that's an amazing story to tell Americans, especially after the message for

many years, and especially the message from his, at this point, likely opponent, Donald Trump has been, you know, like, the middle of the country has been hollowed out, I'll save it. If Biden can say, hey, we actually did it, he's going to want to say that. It sounds like we're saying it's debatable how much Biden can take credit for it. Maybe we'll get more data as the economy plays itself out. And we'll be able to say more precisely what caused what.

The rest of to wrap up this conversation, the rest of Biden's Bidenomics pitch, how would you rate his assertions in terms of, you know, this is a new set of policies that is having the positive intended impact that I wanted them to have? Are there any other sort of pieces that you want to pull out in particular?

I feel like it's always actually really hard to assess Bidenomics in a quick, any kind of quick way, because it's this vast array of initiatives that they've kind of grouped under this one central umbrella. And so I think we've already talked about the really big, really different stuff. There's a bunch of other stuff they're doing sort of around the edges in these other tenets of Bidenomics.

that could potentially matter. You know, for example, like they're trying to make hearing aids available over the counter, which were previously something you had to have a prescription for, and that should lower the cost. And so things like that, like they are clearly taking on like certain aspects of competition, certain aspects of pricing, certain aspects of junk fees. Yeah, junk fees, exactly. Banning non-competes or trying to ban non-competes? Yeah, yeah, yeah. And some of that could be pretty meaningful. And I think there are, you know, things that have been on the Democratic wish list for a while now

But none of them are sort of sweepy and transformative the way I think the infrastructure stuff is, which is why it gets so much more sort of front page billing, I think. And I'm curious to hear what Neil thinks. And some of that's kind of a callback to the Clinton administration where – especially after the Republicans won Congress in 1994, their legislative options were limited. But they always had this drumbeat of kind of small-scale things that –

They make good headlines, make people's lives a little better, get you on the evening news and the Today Show that you can go out and talk about. And so it's one thing to talk about billion dollar semiconductor fab factories. It's another to say, hey, we're going to make sure you don't have to pay extra to sit with your family on your next flight.

You know, it seems to me that's good politics, but there are people who are, you know, I'm not a political strategist, but I can see why they want to talk about those sorts of things. And those things might get on the local news more than this kind of high concept theory stuff.

Right. Because like the more something becomes visibly partisan, the less feel good it is. Right. Like if there were a big national debate over whether or not junk fees should be allowed, it would be sort of less fun thing to talk about on the local news. And economists are skeptical of some of this stuff. Right. You know, in some ways, if you if you ban resort fees at hotels, that you'll end up paying that one way or another somehow. Yeah. So this stuff isn't you.

You know, you can debate any of these policies individually, but you can see why at the kind of micro level, the messaging level, why they find it appealing. All right. Well, on the topic of politics, let's make this very political and play a game.

As we've discussed, economic perceptions and performance, actual performance, can play a role in how people vote. And presidents to varying degrees either earn the credit or blame that they get for the economy, as we've debated here today. So we're going to package this all up into a game of

that I'd like to call Whose Economy Was This? So I'm going to share four stats about the economy during a presidency, and you will have to tell me which president it was. I've tried to choose economic data that will make this game not so hard, but we're gonna find out now exactly how hard it is. So the four pieces of data I will give you are average annual GDP growth, the average inflation rate,

then total S&P 500 growth, and the unemployment rate at the end of this president's time in office. Gina, we're going to have you go first. Here it is. So average annual GDP growth was 2.3%. Average annual inflation growth was 4.4%. S&P, total S&P 500 growth was 48%.

Unemployment was 7.3%. I should add some information here, which is that these go from Trump to Hoover. They do not include anyone before Hoover and they do not include Biden. Okay. That doesn't help. I feel like I had thought I knew who it was and then the unemployment rate's throwing me for a loop. So is there any chance it was Richard Nixon?

It was not Nixon. Let me see how good of a guess. I have a chance at a steal. You have a chance at a steal. Inflation was a little too low for it to be Nixon, but. I'm going to say George H.W. Bush. Ding, ding, ding, ding, ding. That was, I should have gone with it. I didn't think unemployment was that high when he left office. Was that what you thought it was at first? That's who I thought it was at first. And then I didn't think the unemployment rate had jumped that high. The jobless recovery after the 91 recession. It was a real thing.

Okay, all right. You know how old I was in 91, Neil? No. Yeah, we should say this is not entirely fair given the age discrepancy here. So, you know, maybe we'll try to even it out. I'm not that old. I'm teasing. I'm teasing. Neil's not that much older than me. I'm kidding. Okay, Neil, it goes to you to guess first. So GDP growth was 5.3%.

I'm going to go with LBJ. You got it. It was LBJ. Oh, okay.

I was thinking maybe Eisenhower, but I, all right, guess right. Wow. Okay. I'm impressed. What was the, was there a giveaway there? Inflation started very low. Well, the high GDP growth was the big thing. There's not been too many periods where there's 5% GDP growth for a long period of time and also unemployment. So unemployment bottomed out in, I believe 69,

And so that was right after. So that low unemployment was the other clue. Gina, did you know that one? Well, so I was in between. I thought it had to be someone in that era because there only would have been two or three presidents that had 3.4% unemployment. Yeah.

And one of them was Trump, but he didn't have that high of GDP. So one of the things that I find found crazy in looking up this data, I didn't know this all off the top of my head, of course, is that that's some pretty good economic data. And LBJ didn't run for reelection because the voters wouldn't have him. And it was all about Vietnam. And so like,

you know, the economy is everything until it's not maybe. I don't know if that's like a good application of that rule. But yeah, I mean, he didn't even run for reelection with data like that. I mean, he gets back to our conversation about, you know, maybe in 2024, abortion matters more than the economy. Maybe it's something else. Maybe there's a war. Maybe there's a crisis. And we just never know until the calendar hits the

It's time. Yeah, although you also get the flip side where you get like the Carter administration, right? And he couldn't run or he ran for reelection, but it was terrible because they hated him about the economy. Like there are times when the economy is the most salient issue. Yeah, yeah, absolutely. Okay, so it's two to zero. Here we go. Next one is...

GDP growth was negative 9.3%. Inflation was negative 5.5%. S&P 500 growth was negative 77%. Unemployment rate at end of term was 25%. So, Hoover. Okay. All right. There you go. That was a hard one. I know. I appreciate the softball. Give me my one to Neil's too. Okay.

Okay, so it is now two to one. Next one to you, Neil, is GDP growth was 3.5%. Inflation, 4.7%. S&P 500 growth was negative 30%. Unemployment, 5.5%. Gerald Ford. It is not Ford. Gina, you got the steel on this one.

Is it, are you breaking these up in separate terms? Like, could it be someone's first term? It is the full period that the person was in office. Neil was close. Is this Nixon? This is Nixon. This is Nixon. I don't know. I feel like I got a little screwed there with the help, but...

It's okay. It's okay. All right. Okay. So it's two to two. When I was putting this data together, I was like, I don't know if you're going to be able to guess these. Clearly, you guys know your ****. So I'll just say at this point, I am impressed. Gina, it's to you. GDP growth, 3.9%. Inflation, 2.6%. Total S&P 500 growth,

211% unemployment rate, 4.2%. That one I think is Obama. It's not Obama. It's not Obama. I think it's Eisenhower. Ooh, wait, I was just complimenting you guys on how well you're doing. It is not Eisenhower either. Inflation was too high for it to be Obama. Who would this be? Okay, we're going to keep going. It's back. Wait, can I take this back? Yeah, you can steal it back.

Um, was it Clinton? It was Clinton. Ding, ding, ding, ding, ding. We're like running out of modern presidents though, so it's getting easier. Here we go. So average GDP growth, 1%. Average inflation, 1.9%. Total S&P 500 growth, 63%. Final unemployment rate, 6.3%. Neil, this is to you. Is this like Harry Truman or something? I can't quite place one of the more recent, uh, I'll say Truman.

It is not Truman. Gina's smiling. I know she knows it. I'm not actually positive that I know it because I'm really having trouble remembering when unemployment fell, but I'm going to go with Obama again. What? No, it's not. It's not Obama again. All right, Neil, it's back to you. If I keep guessing it, eventually it's going to be Obama. The thing is, George W. Bush, the stock market was down because of the crisis and unemployment was higher because that was January of 2009. So it's not George W. Bush. Is it Trump? Yes, it's Trump.

See, the pandemic made Trump hard because it's easy to remember what the February 2020 numbers would have looked like. But remembering where we were in the kind of pandemic fluctuation. Absolutely. I was getting totally thrown by the 1.9% inflation because we had that long period of really low inflation pre-2020.

basically pre-pandemic um and it was the first one that we had had in like such a long time yeah we we we fell apart right when you praised us for really knowing i know we had a logic tower tower um okay so here's the thing it is three to three we need a time breaker

So we can all be winners here. Well, let's see. If you both get the tiebreaker question right, then you are truly all winners. So for this one, I'm going to ask you to write it down. And then I'll say three, two, one, and you guys can hold it up at the same time. All right. GDP growth, 4.4%. Inflation, 1.2%. S&P 500 growth,

19%. Unemployment, 5.7%. All right. I'm ready. Reveal. What do we have? We have Kennedy and Truman. Neil, you got it right. It was JFK. I'm surprised you got that right. I thought that was maybe the hardest one, but what was the tell for you, Neil? Inflation was low then. Growth was good, but only a 19% S&P return. That's because of such a short time period.

The 60s was a good time, but he was only president for two years. So that was my guess. So all told, I mean, like, did it feel like, oh, that economic data sort of rings true based on what else I know about this president and how popular they were and whatnot? I mean, maybe you were just focused on winning. And I think, look, one point that's kind of can be pulled out of this is

There are a lot of things that shape economic conditions, and there's not one number. Our memories are fallible. It's not all perfect. Why did Reagan have a good economy in 1984 and get reelected? Well, Paul Volcker's disinflation was a big part of the reason. It's not just what presidents do. It's about how people feel, and there are many facets to that that includes the economic data, but that's only a piece of it.

And seeing how that data looks and how those feelings look a year from now when the campaign is heating up is going to be fascinating to see. I think the sort of takeaway here, and any time you think about sort of the historical record of presidents and their economies, is the economy is a big thing. It feels different for different people. And how it affects disparate groups can affect someone's reputation in a lasting way.

And different aspects of the economy are salient to people at different times. You know, nobody remembers what the inflation rate was during the Great Depression because nobody was working. And so I think, you know, I think that's an important takeaway. Like, it's not this monolith. We talk about it as though there's just one economic data point that sort of dominates them all, but it's not actually true. Like, people feel, people respond to different data in different ways. Yeah, I think that's really well put.

Well, thank you so much for playing along, Neil. You're...

award will be in the mail as soon as I think of what exactly it's going to be. But let's leave it there for now. Thank you so much, Neil and Gina. Thanks, Galen. Thank you. My name is Galen Druk. Tony Chow is in the control room and also on video editing. You can get in touch by emailing us at podcasts at 538.com. You can also, of course, tweet at us with any questions or comments. If you're a fan of the show, leave us a rating or review in the Apple podcast store or tell someone about us. Thanks for listening and we will see you soon.

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