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At a recent health check-up I had a heart-stopping moment. An African-American nurse told me she would probably vote for Donald Trump next year because she felt much better off when he was president. What about the future of US democracy? “I don’t have much time to think about that,” she replied. And Joe Biden’s economic reforms? “I’m not feeling them,” she said.
Anecdotes can be misleading. But there is data to back up the nurse’s view. Under Trump, US blue-collar wage growth beat inflation for the first time in years. Under Biden they have fallen in real terms. This is why barely a third of Americans approve of Biden’s economic record. It is also partly why only a third of African-Americans — an overwhelmingly pro-Democratic bloc — say that Biden’s policies have helped black people.
If US voters rated how a president has acted in difficult circumstances, Biden’s 2024 prospects would look far rosier. He came to office at the height of the pandemic as a freakish disruption to global supply chains was hitting the economy. America has comfortably outperformed the rest of the world in its rebound from Covid.
At 3.6 per cent of the workforce, US unemployment is at a near 50-year low. America’s economy is now about a tenth larger than when Biden came to office two and a half years ago. And US inflation is falling more rapidly than elsewhere. It is quite possible that America is heading for “immaculate disinflation” — the kind of soft landing that usually eludes it.
Yet there is a big gap between America’s impressive macroeconomic picture and how most Americans are feeling. There is also not a lot Biden can do to change that in the 15 months before the nation votes. The whip hand lies with the US Federal Reserve, which on Wednesday is likely to raise interest rates for the 11th time in 12 meetings (it paused at its last one).
US mortgage costs are increasingly beyond most people’s budgets. Inflation is ranked as the highest concern by US voters. The only happy people are those at the top with exposure to the stock market, which has had an unexpectedly sharp rebound this year. How the rest feel will be a big factor in what happens next year.
Biden’s strategy is twofold. The first is to sell “Bidenomics” to voters. This includes the most ambitious series of Democratic reforms since Lyndon Baines Johnson was in the White House — a big infrastructure upgrade, a lot of money for the green energy transition, subsidies to reshore semiconductor plants to the US, a cap on prescription drugs prices and an overhaul of the Internal Revenue Service so the super-rich pay more in taxes.
Political messaging works best when it aligns with reality. Bidenomics fits with future reality: it has the potential to lift middle class income growth. The question is how long it will take for that future to arrive. That is mostly beyond Biden’s control.
Which brings us to the second part of his strategy — luck. Economists missed the most critical aspect of the post-pandemic economy. They failed to anticipate inflation. Most now think America is probably going to avoid a recession. Biden will hope that they are right this time. There is really no way of telling.
If things go Biden’s way, inflation will continue to drop without triggering job losses. At some point very soon, wage gains would outstrip inflation and consumers would start to feel the benefits. At that point, his approval rating would rise.
It is just as likely, however, that growth will slow in the next year even if the US does not dip into recession. Monetary policy works with a lag and the Fed is not necessarily done with tightening. In which case Biden would do well to win re-election in 2024, even if his opponent were Trump.
There are two points on which Biden has let himself down. The first was his too large stimulus of $1.9tn shortly after he took office. That undoubtedly fed inflation. There is nothing he can do about that now. The second — scrapping Trump’s tariffs on a range of imports, including steel and aluminium — Biden could do with a stroke of the pen. It would take a big chunk out of inflation.
America’s elites are obsessed with the threat Trump poses to democracy. They are right to be: it is deadly serious. Blue-collar voters of all ethnicities are also worried about their bottom lines. The worst position Biden could find himself in would be to ask voters to choose between their wallets and their conscience. Insisting that Trump would ruin the economy is probably right (and a lot more besides). But it does not fit with everyone’s recollection.
