Why Biden is in trouble about the economy
Why Biden is in trouble about the economy
– by New Deal democrat
A big focus of political discourse in the past two weeks has been about why Biden seems to be polling so poorly against Trump, and in particular has not consolidated support among younger voters.
Since the economy is always a very important component of voter intentions, unless there is a major superseding event like 9/11, economic performance has historically been a good predictor of Presidential election outcomes.
So let’s take a detailed look.
First of all, remember that the election is between two people, Biden and Trump. And the economy was actually doing pretty good during Trump’s mal-administration before COVID. Here’s what real hourly wages and the unemployment rate looked like:
Real wages for non-supervisory workers, increased 3.3% between January 2017 and the end of 2019. Meanwhile the unemployment rate fell from 4.7% to 3.5%.
And that wasn’t just something ho-hum. In the case of real wages, they were the highest since the end of the 1970s. The unemployment rate was the lowest since the end of the 1960s.
So people remembering that the economy was good while Trump was in office, before the pandemic, is not a fluke. It’s the truth, even though it is virtually 100% certain that he had nothing to do with it.
Now let’s take a look at how some important economic sectors have performed under Biden.
The unemployment rate has varied between 3.4% and 3.9% in the past year, about even with Trump’s best year – but not better. More importantly, while real wages for non-supervisory workers are up 2.2% since right before the pandemic hit, measured from when Biden came into office they are actually *down* -1.5%:
[Although I won’t bother with the graphs, other measures like the employment cost index and real personal income give similar results].
Some of this is compositional. That is, a lot of low-paid workers in sectors like restaurants and hotels were out of work during 2020 and have returned since. So their lot has improved. But this changes the averages, because more lower paid workers are in the mix. However the fact is, in the aggregate, real average hourly wages are down.
But perhaps more important is to compare the costs for some of the most important items with those wages.
Let’s start with housing, which has gotten a lot of good and insightful attention from commenters.
Below is a graph in which I compare average hourly earnings (nominal, not real) for non-supervisory workers (in red) vs. house prices (dark blue) and mortgage payments (light blue). All of these values are set to 100 as of January 2021 so you can see what has happened during Biden’s Administration. All of these are nominal, not “real,” so that we compare apples to apples:
Nominal average wages have increased 16%. But existing house prices have increased 32%, and monthly mortgage payments for new buyers have increased 279% (!!!), i.e., from roughly 3% to roughly 8%.
Is it any wonder younger workers who would like to buy their first home, or upgrade to a bigger home, would be upset?
A similar phenomenon is in place as to cars:
New car prices have increased 20%, and used car prices 23%, compared to 16% for wages (at least used car prices are down from their 40% increase 18 months ago). And new car loan payments have increased almost 70% (from about 5% to 8.3%).
Houses and cars are the two biggest purchases that most people ever make. and affording them has gotten much harder since Biden took office.
How about a couple of items the prices of which that people see almost every day, namely groceries and gas?
Grocery prices are up 29% since January 2021 (again, vs. 16% for average wages):
And gas prices, even after coming back down recently, are still up 55% since January 2021:
Now let me ask you: if you knew nothing about the personal qualities of the two Presidential candidates, i.e., if they were generic Candidate A vs. generic Candidate B, and you saw the two economic records shown above, who would you be most likely to favor?
That’s the problem Biden has.
Because I don’t like being a Doomer, let me point out that much of this is the doing of the Fed, which has raised rates at the most aggressive pace since Volcker over 40 years ago. And part of that is that the Fed fell behind the curve. Without going into all the gruesome detail, the Fed could started raising interest rates sooner but much more gradually, likely never reaching the level they are now.
Since the Fed will not want to lower rates right before an election, Biden should use whatever soft or hard clout he has to cajole the Fed into lowering rates at least some in the next 4 to 6 months. Additionally, he should explore regulatory actions, which won’t need Congress, to help out especially younger people trapped by higher loan rates. He can also propose actions to Congress, which will allow him to run against them when the GOP predictably yells that such actions are Commie Soshulist!
Also, because house prices all but stopped increasing about a year ago, housing inflation as measured in the CPI should continue to retreat. If Saudi Arabia and Russia are not successful in causing gas prices to skyrocket next year to hurt Biden, CPI on the whole should continue to moderate or at least not re-accelerate. And as supply chains continue to un-kink, we may see sellers actually lower prices on some things like groceries and yes, even cars.
Finally, and maybe most importantly, history shows that voters generally focus on the economy for the last 6 to 9 months before the election. In 2012, the economy improved a lot, and when the unemployment rate finally fell below 8% one month before the election, I knew Obama was in good shape. Contrarily, the economy was weakening close to recession in 2016. If we get better news on inflation and interest rates next year, Biden will be in much better shape.
Paul Krugman’s “Goldilocks” economy is likely to prove “transitory,” – Angry Bear, New Deal democrat
Don’t mistake Washington kabuki theater for reality.
Western central banks, including the Fed did not fall behind the curve. Instead, they fulfilled their unspoken mandate to prevent growth in real wages.
Central banks were extremely happy to encourage the post-pandemic boom as long as the gains flowed exclusively to the ultra rich. Only when the gains of the boom threatened to reach ordinary people, primarily via increases in real wages, did the central banks tighten. This wasn’t an accident. It was the latest manifestation of the unspoken but real zero wage growth policy that has been in effect since the 1980s.
You will not find a single person in any significant position of power in America — or, quite likely, in any G20 country — who does not believe that real wages are the only economic indicator which should never increase.
Biden is not an exception.
Nobody:
I agree. Real labor wages are the smallest part of manufacturing. Blaming Labor for manipulation is a ploy used quite frequently.
I saw this in an e-mail and am reserving judgement ~ not on the post, as ever good stuff ~ but this whole Biden Doldrums Drama. The Media is driving this horse-race, writing this narrative, and I’m not sure that I trust even Krugman @ The Times to not be caught up in it
@Ten,
Exactly. This is about the horse-race and clickbait. The polls are nowcasts. The only polls that really matter are on election day. The first primary hasn’t even happened yet.
Ten Bears:
Agreed with you and Joel. Good to have you two around here to support the effort.
It would seem that there is thought to be ‘excessive concern’ that the polling data indicates young and non-white liberal voters are not happy with Joe Biden, but so what?
Really? They’ll get over it. One sure hopes so.
There’s no danger that they’ll vote for Trump but they might well vote third party or stay home either of which could be very dangerous.
A few points –
There’s a clearly political element to the poor state of consumer moods which explains a great deal. The University of Michigan reports its indices of consumer sentiment, current conditions and expectations by political affiliation:
https://data.sca.isr.umich.edu/reports.php
Historically, there has been some swing in all three measures in response to changes in the party of the president, but in the change from Tump to Biden, the swing in sentiment was more pronounced than ever before. In January anf December of 2020, the consumer sentiment index as reported by Drmocrats had risen by 6.5%. Over the same period, the sentiment indexes reported by Republicans fell by 39.3%. That’s the sharpest divergence between Democrats and Republicans on record. Similar patterns are evident in the other two indices.
A purely economic explanation of crabby consumer moods misses the political elephant in the room.
Housing prices rising or falling isn’t a good or bad thing for the public overall. That’s mostly a winners and losers thing. Housing market disruption, on the other hand, is a bad thing. Owners who want to move up, but hold mortgages at 4.50% and face financing at 7.50% are frustrated. So are the first-time buyers who can’t find houses because the potential sellers aren’t willing to pay 7.50% to move up.
This is a problem with sudden changes in rates.
There is one problem with this statement: “If we get better news on inflation and interest rates next year, Biden will be in much better shape.”
It leaves out the labor market. If inflation and interest rates are lower next year, and the labor market remains strong , Biden is in clover. If inflation and rates cool along with a weakening labor market, Biden is probably a one-term president.
Yes, the economy is problematic for Biden, and historically, this is a very critical factor for voters. However, overall, the Administration has navigated this difficult, post-pandemic, recession-threatening situation very well. Unfortunately, they get little credit for it, and Republicans have skillfully turned “Bidenomics” into a substantial negative. Biden’s communications team needs to step it up and counter the Republican messaging, but more importantly, they need to accelerate the drumbeat that 2024 is not like any historic election — it’s about knowing the difference between right & wrong and good & evil. Hopefully, the electorate will overcome their historic focus on the economy and be able to distinguish between a temporarily problematic economy and the future of democracy in America. Here’s hoping!!
J.P.
The comparison made to the 2008 economic disaster brought to us by Wall Street gambling with CDS, naked CD, market backed securities, no-money down or little-money down mortgages tranched into larger securities certainly led to economic prosperity for citizens, didn’t it? Main Street paid the price for Wall Street gambling, Greenspan’s fopaux, helped by other significant economists.
Today’s Main Street suffered through inoculations and economic relief coming in various forms this go-around. A Democrat Congress passed the economic assistance to Main Street over a trump influenced Republican party resistance and an insurrection one January day. Too many in Congress have not paid the price for their (Jordan, etc.) support for this attempted coup.
People do not realize the bullet they dodged because of Biden, Democrats, etc.