Biden bets the bank on Bidenomics

News analysis

It’s an age-old question when presidential elections roll around: Are you better off than you have been?

Seems straightforward, but it’s actually complicated because there’s a debate about how voters perceive the question. Some voters view it historically, that is, as Ronald Reagan first asked, are you better off than you were four years ago?

But others take a different view, seeing the question as “are you better off than you were yesterday, or a month ago, or last year?”

Viewed through the lens of the former scenario, most people’s expenses under Biden are way up from the previous administration and that tends to put a target on an incumbent’s back. In the latter scenario, though, voters could be more forgiving of an incumbent who has made a mess of things, so long as he or she has turned things around.

In 2024, Joe Biden hopes voters take the latter viewpoint. His historically low approval ratings show that voters think he has messed things up royally and are mad about it. 

On the other hand, Biden thinks the economy is in great shape, if only voters will see it, and he’s betting the Bidenomics bank that when they do they will thank 2022’s Come Back Kid for bringing them back from the brink, even if he’s the one who led them there.

This year the key indicator voters will look at in making that determination is inflation. That’s not unusual — inflation in tandem with unemployment and wage levels are traditional indicators of well-being for consumers who are also voters. 

In recent times, though, unemployment had become almost meaningless because of the low labor force participation rate (unless you’re involuntarily unemployed, of course, in which case it isn’t meaningless to you). And wages can only make a difference on the edges, that is, if they are rising or falling at dramatic rates.

They’re not. They are up, but only by a tick and not a leap.

That leaves inflation, and if you view the question in the good old-fashioned straightforward sense, things are definitely worse off than they were four years ago.

For instance, researchers over at Axios recently did a comparison of grocery prices between 2019 and the end of 2023. Supposing a weekly grocery budget of $100 at the end of 2019, Axios author Neil Irwin wrote, by the end of 2020 the bill had risen to $103.97. By the end of 2021, the tab for that same grocery list was $110.78.

By the end of 2023, the bill had risen to $125.51.

When it comes to groceries, no one is better off than they were four years ago. No one is even better off grocery-wise than they were one year ago, at least not yet.

The grocery index in particular is a critical indicator because it is up-close and personal. Indeed, an Axios Vibes survey found that 72 percent of Americans said groceries were where they felt inflation the most, and 59 percent of them also told Axios Vibes they felt “angry, anxious or resigned” while shopping for groceries.

Add a few pages, maybe a chapter

That sure looks bad for Biden, but it does not tell the whole story. For one thing, while important, groceries aren’t the only consideration in inflation, and, overall, the rate of inflation has slowed significantly.

Indeed, the overall inflation rate has fallen from 9.1 percent in June of 2022 to 3.4 percent, though in December it did inch upward from 3.1 percent. Still the precipitous drop in the rate of inflation has eased upward pressures on many households compared to a year or six months ago, and Biden has to be hoping they see that as an omen to stay the course.

On the other hand, as Axios reported, since the beginning of 2021, Americans are now paying on average $1,020 more each month compared with the same time two years ago. According to Fox, groceries have increased 33.7 percent, and, despite a recent amelioration in gas prices, energy costs have jumped 32.8 percent and housing expenditures are up by 18.7 percent.

The question is, will voters really overlook the steep increase in overall cost of living in the last four years just because prices seem to be leveling off? After all, they’re still rising, and rising faster than the Federal Reserve thinks they should.

However, voters just might be more forgiving — maybe — and again the main reason lies in short-term grocery prices. That is, when Axios looked at recent data, it found something interesting — after a significant increase in grocery prices that peaked at 15.7 percent in July 2022, a consistent decline followed, even tiptoeing into negative territory in April and May 2023, before stabilizing around a 2-percent increase toward the end of 2023.

In other words, many shoppers (and voters) have seen some grocery prices actually fall over the past few months, even if they are higher than four years ago. The sense of a rising tide — and lowering prices — could lift Biden in the fall.

Indeed, while positive sentiment toward Joe Biden’s economy hasn’t registered in any polls, it could be right around the corner, as William Galston reported in The Wall Street Journal this week. That is, Michigan’s Index of Consumer Sentiment has skyrocketed by 29 percent since late last year, Galston reports, the largest two-month increase since 1991. 

In addition, gas prices have fallen by nearly 40 percent since June 2022, and, according to the Federal Reserve Bank of New York, Galston reports, the share of consumers who expect to be better off a year from now is at its highest level since mid-2021. Not to mention, while for the early part of Biden’s term inflation outstripped wage increases, it’s just the opposite heading into 2024. 

And there might be your dagger, as they say. Those voters have Joe Biden written all over them.

As Axios and other political observers see it, grocery prices will not likely fall much, if at all, in 2024, but it may be enough for Biden if they just stay the same, that is, if overall inflation is kept with the Federal Reserve’s target of 2 percent inflation. 

It’s anybody’s guess what groceries will do, and, so far, the Fed has not reached its 2-percent target.

The real risk

The real risk for Biden, of course, is if rampant inflation returns. Even if there is just a modest jump in the inflation rate, it will be viewed much more severely in the current environment — manifested in a feeling that the standard-of-living war is lost — and voters might then head to the polls with a vengeance. 

How likely is that to happen?

No one really knows, but the Biden administration has been looking at some concerning reasons why it might be so. One reason is what many observers — and some inside the White House — believe is simply a corporate reluctance to lower prices to pre-pandemic levels for no other reason than they are able to keep them high. 

Simply put, in this view corporations passed on their own inflationary cost increases to consumers, but now are holding prices steady even when some of their costs decline marginally.

They could be hedging against future inflation, though some believe that manufacturers are just taking advantage of a new-found superior marketing position after the pandemic. That is to say, manufacturers who once believed they had no pricing power because of globalized competition — and who embraced discounting with a passion — now see that they do have pricing power in an era when globalization has flatlined, demand is high, supply chains remain disrupted, and labor is scarce and expensive.

In a recent earnings call, Apollo’s chief economist observed that shipping traffic through the Suez and Panama canals has dropped by 50 percent, jacking up transportation costs, and labor inflation is adding even more pressure.

Finally, housing costs remain high, jumping by more than 5 percent in December. Rents have climbed by almost a quarter since just before the pandemic, The New York Times reported, while home prices have skyrocketed by about 45 percent. That’s another indicator consumers feel acutely, in their ability to pursue their dreams and maintain upward mobility, if not in their actual pocketbooks. 

In a January 12 report, Scott Ladner of Horizon Investments said that’s just one concern in the upcoming year.

“Downbeat consumer sentiment, if it stays at recent low levels, could prompt people to rein in their spending,” he wrote. “A re-acceleration in the housing market and other interest rate-sensitive sectors could catch the Fed off guard, leading to ‘higher for longer than expected’ interest rates,” he wrote.

On the other hand, many believe the Federal Reserve will begin to lower interest rates this year. That might cause inflation to rise, but it could also cause mortgage rates to fall, prompting a surge in the housing market in a growth economy. If those rate cuts don’t ignite inflation too much, and even help forestall it through lower housing costs, it’s could be a win-win for the economy.

If the Fed finds the sweet spot, that will also be Joe Biden’s sweet spot.

But it’s risky. Housing prices are also affected by supply-chain issues and low inventory, so lower mortgage rates might not lead to lower housing costs even as prices surge again. Some observers think that’s the likely scenario.

In that case the Come Back Kid might become the Going Back Kid, as in going back to Delaware for good.

To be sure, the economy isn’t the only major issue in the contest, what with war, open borders, massive deficits, abortion, and Biden’s age and cognitive ability also competing for attention.

But it’s a big issue, no matter what — as someone once said, ‘it’s the economy, stupid’ — and right now all eyes are on the rate of inflation as the campaign season proceeds out of New Hampshire. 

It a very good place to focus attention. 

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.