Measured by the value of the wages that workers take home, which this board regards as the most important metric for assessing the health of the American economy, President Biden’s first year in office was not a very good year.
The dollar figures on workers’ paychecks rose handsomely over the past 12 months. But for most workers, that wasn’t enough to keep pace with the highest inflation in several decades, which eroded the value of each of those dollars.
The purchasing power of the average worker’s weekly pay declined by 2.3 percent from December 2020 to December 2021. Data for the final 20 days of Mr. Biden’s first year, not available yet, is unlikely to improve that picture.
Mr. Biden inherited an economic crisis precipitated by the coronavirus pandemic, and his administration deserves credit for orchestrating a fiscal response on a scale commensurate with the nation’s need. The outstanding achievement of Mr. Biden’s first year in office was the passage of an economic aid package in March that shielded Americans from the economic effects of the pandemic and helped to deliver a faster recovery than in other developed nations. In simple terms, things could be a lot worse.
The administration also has taken some significant steps to improve the nation’s longer-term economic prospects, notably by pushing an infrastructure bill through Congress and by launching a revival of antitrust enforcement.
In a late December tweet, Mr. Biden quoted with evident approval an assessment that he had compiled “the strongest first-year economic track record of any president in the last 50 years.” The Treasury secretary, Janet Yellen, said Friday, “By most traditional metrics, the pace of our current recovery has exceeded even the most optimistic expectations.”
Most Americans don’t share the administration’s sunny view of its economic record, and it is little mystery why: The average worker’s paycheck doesn’t buy as many hamburgers as it did last year. (Using hamburgers to measure inflation is a twist on The Economist magazine’s Big Mac Index, which tracks the price of the classic hamburger in different currencies.) The government’s Consumer Price Index rose by 7 percent in 2021, the biggest jump since 1982. Mr. Biden’s approval rating remains low, and poll after poll finds that Americans are not pleased with his handling of the economy. Nearly two-thirds say the administration is insufficiently focused on inflation, according to a recent CBS News poll. There are similar numbers in other recent polls.
The nation’s mood has soured even as the economy has added more than six million jobs over the last year. For the core of the labor force, workers ages 25 to 54, employment recovered more quickly than in the prior three recessions, dating back to 1990. That’s a big deal: Even when paychecks are losing value, it’s better to get one.
Lower-wage workers have seen particularly strong wage growth. For workers in the bottom third of the wage distribution, Arindrajit Dube, an economist at the University of Massachusetts, Amherst, estimates that average wage gains have exceeded inflation. (If inflation remains strong, however, the number of workers in that fortunate category is likely to shrink. And even for those workers, the pace of wage growth adjusted for inflation is weaker than it was in the two years before the pandemic.)
Economic output, or gross domestic product, has climbed above its pre-crisis level.
Investors have reason to be happy, too: The S&P 500, a broad measure of the stock market, rose by 19.3 percent during Mr. Biden’s first year as president. The markets’ large losses this past week wiped out only a small portion of those gains.
The White House finds itself in the position of a physician who has administered a successful course of treatment but who has neglected to prepare the patient for the side effects or to give the timeline for a full recovery. A lot of pain was averted, but it’s hard to feel gratitude for things that didn’t happen. The economic outlook is strong, but it’s hard to feel gratitude for things that haven’t happened yet. Right now, the pain of inflation is front and center for most.
No one is surprised when recessions deliver unpredictable disruptions. We are now being reminded that recoveries are messy, too. People are trying to buy more cars than are readily available. Diners are more eager than waiters to return to restaurants. The nation’s cargo ports have been overwhelmed by a surge in imports.
Mr. Biden, however, has contributed to his own political woes. Through much of the fall, the president and other administration officials seemed to be downplaying the dangers of inflation. Mr. Biden also continues to present the administration’s longer-term economic initiatives, like antitrust enforcement and a push for child care subsidies, as measures that would help to combat inflation. The effect of such policies would not be felt for some time, and Mr. Biden’s insistence on this implausible narrative may be contributing to a sense that he is not taking inflation seriously.
The administration has not taken action in some areas that could help to restrain inflation or mitigate its effects. The tariffs that Donald Trump imposed on Chinese imports remain in place. Legal immigration has continued to decline, worsening labor shortages. A one-year expansion of the child tax credit helped to reduce the share of American children living in poverty to the lowest level since the government began to keep records in the 1960s. But Democrats, unable to agree on the terms of a permanent expansion, have allowed the expanded benefits to expire, depriving millions of working families of needed help.
Some of the president’s critics assert that the United States missed a chance for a Goldilocks recovery, neither too cold nor too hot. They argue that a smaller dose of economic aid would have delivered growth without higher inflation. But European nations, which generally administered proportionally smaller doses of aid, are now experiencing both less inflation and slower recoveries. Critics also ought to keep in mind the not-so-distant past: In the aftermath of the 2008 crisis, the United States similarly delivered an inadequate dose of aid. Inflation remained quiescent, but that was little comfort to the millions who waited years to find work.
The challenge now is to bring inflation back under control without undermining the economic recovery. The work will mostly be done by the Federal Reserve, not by Mr. Biden or his administration. The role of presidents in shaping the nation’s economic fortunes is generally overstated. But if the government can complete the work it has begun, this administration may yet deserve the victory laps it is taking for successful stewardship of the nation’s economy.
The discomforting truth is that the United States last year faced a choice between a protracted period of economic pain and an economic recovery whose benefits are temporarily attenuated by high inflation. Mr. Biden made the right choice. But it came at a real price — economically, for the nation, and politically, for him.
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