Do you hear the cacophony of voices sounding the alarm for the Democratic party in the 2022 midterms? In fact, President Biden has given Democrats a substantive platform on which to run with a broad and historic, progressive economic agenda.
Yet, polls show inflation is a Number One concern. A majority of Americans expect the economy to get worse over the next twelve months. Nearly half of Americans blame President Biden.
Really? Let’s review:
President Biden signed the American Rescue Plan (ARP) into law back on March 11, one year to the day after the World Health Organization officially declared COVID-19 a global pandemic. The original price tag had been negotiated down (what else is new), but the finished product still produced huge economic achievements. The combination of expanded tax credits, grants to small businesses, education funding, funding for housing, etc., resulted in a swift economic recovery with individual taxpayers seeing higher checking account balances and higher net worth.
President Biden’s economic vision, laid out in the ARP and in the Build Back Better framework, inverts the logic of classic supply-side economics. He counters disproven premises born out of Reaganomics by positing that the primary driver of business investment is not low taxes but high aggregate demand. Further, increasing public spending does not crowd out private investment. A high and rising consumer appetite for goods and services -- be it from government stimulus or higher wages -- force businesses to invest in producing more goods and services.
Acolytes of the Reagan-endorsed philosophy willfully maintain that an economy consigned to low taxes and low government spending is the only way to generate high levels of business investment and an abundance of jobs and economic growth. And if we see rising income inequality along the way, well, it’s a small price to pay for “our” abundance.
After less than one year in office, Bidenomics is already bucking that theory. According to the U.S. Census Bureau, U.S. investment in non-defense capital goods, a.k.a. business investment, has skyrocketed in the last year to over $76 billion. The peak of the Trump economy saw business spending top out at $68 billion.
No matter how you slice it, the goal of increased capital spending that Republicans have long sought to achieve, has been attained. The rub for them is that it has been attained under economic conditions they thought make it impossible: higher deficit spending, the liklihood of tax increases, growing labor strife and rising inflation. The reports of the death of our economy have been greatly exaggerated.
In short, the annoyance with inflation is a political pet peeve, not a warning bell for the economy. As Democrats, we would be wise to trust the data instead of reacting to the hysteria.
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