Klein: This isn’t the presidency Biden imagined for himself
Joe Biden was Barack Obama’s vice president. His treasury secretary, Janet Yellen, was Obama’s pick to lead the Federal Reserve. The director of Biden’s National Economic Council, Brian Deese, was deputy director of Obama’s National Economic Council. His chief of staff, Ron Klain, was his chief of staff for the first two years of the Obama administration and then Obama’s top Ebola adviser. And so on.
The familiar names and faces can obscure how different the new administration, in practice, has become. The problems Biden is facing are an almost perfect inversion of the problems Obama faced. The Obama administration was bedeviled by crises of demand. The Biden administration is struggling with crises of supply.
For years, every conversation I had with Obama administration economists was about how to persuade employers to hire and consumers to spend. The 2009 stimulus was too small, and while we avoided a second Great Depression, we sank into an achingly slow recovery.
Democrats carried those lessons into the COVID pandemic. They met the crisis with overwhelming fiscal force, joining with the Trump administration to pass the $2.2 trillion CARES Act and then adding the $1.9 trillion American Rescue Plan, the trillion-dollar infrastructure bill and the assorted Build Back Better proposals on top.
They made clear that they preferred the risks of a hot economy, like inflation, to the threat of mass joblessness.
“We want to get something economists call full employment,” Biden said in May. “Instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract work.”
That they have largely succeeded feels like the best-kept secret in Washington. A year ago, forecasters expected unemployment to be nearly 6% in the fourth quarter of 2021. Instead, it fell to 3.9% in December, driven by the largest one-year drop in unemployment in American history. Wages are high, new businesses are forming at record rates, and poverty has fallen below its pre-pandemic levels.
Since March 2020, Americans saved at least $2 trillion more than expected. And that’s not just a function of the rich getting richer: A JPMorgan Chase analysis found the median household’s checking account balance was 50% higher in July 2021 than in the months before the pandemic.
It is easy to imagine the wan recovery we could’ve had if the mistakes of 2009 and 2010 had been repeated. Instead, we met the pandemic with tremendous, perhaps excessive, fiscal force. We fought the recession and won. The problems we do have shouldn’t obscure the problems we don’t.
But we do have problems. Year-on-year inflation is running at 7%, its highest rate in decades, and omicron has shown that the Biden administration wasted months of possible preparation. It is not to blame for the new variant, but it is to blame for the paucity of tests, effective masks and ventilation upgrades.
The conversations I have with the Biden administration’s economists are very different from the conversations I had with the Obama administration’s economists, even when they’re the same people. Now the discussion is all about what the economy can produce and how fast it can be shipped. They need companies to make more goods and make them faster. They need more chips so there can be more cars and computers. They need ports to clear more shipments and Pfizer to make more antiviral pills and shipping companies to hire more truckers and schools to upgrade their ventilation systems.
Some of these problems reflect the Biden administration’s successes. For all the talk of supply chain crises, many of the delays and shortages reflect unexpectedly strong demand, not a pandemic-induced breakdown in production.
Supply chains are built to produce the goods that companies think will be consumed in the future. Expectations were off for 2021, in part because forecasters thought demand would slacken as people lost work and wages, in part because the fiscal response was massively larger than anyone anticipated, and in part because when people couldn’t go out for meals and movies, they bought things instead.
Overall spending is more or less on its pre-pandemic trend, but the composition of spending has changed: Americans purchased 18% more physical goods in September 2021 than in February 2020.
Now the Biden administration fears that its supply problems will wipe out its demand successes. In recent remarks, Biden took aim at those who would lower prices by breaking the buying power of the working class.
“If car prices are too high right now, there are two solutions,” Biden said. “You increase the supply of cars by making more of them, or you reduce demand for cars by making Americans poorer. That’s the choice. Believe it or not, there’s a lot of people in the second camp.”
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