Last week, Presiden Biden delivered a speech in my long-time city Chicago about how “Bidenomics” is working while at the same time ⅔ of Americans disapprove of the economy. While the press release was ill-received the statistics themselves were lengthy:
And that is where the issue lies. Never have I heard someone say, I have enough to get by- I know because of the GDP, or I love my job: the unemployment rate is 3%. There’s a huge disconnect in traditional economic indicators and what people’s day to day experiences with their finances provide. The biggest reason people are feeling this way has to do with the pandemic.
During COVID, when interest rates were low, and sharing was discouraged, prices surged for interest-driven fixed assets like homes and cars. As inflation has surged, so have interest rates. Many Americans are struggling with not only increased prices of goods and services, but increasing interest rates on assets. While the White House report cites real time income growth, the same website cited also shows a negative disposable income growth. This means that after all has been said and done, bank accounts are low.
However consumer spending is high. And while it can be adjusted to inflation, we also know that there is another interest rate vehicle plaguing Americans. Credit Card debt and all sorts of debt have been increasing, and credit card debt now stands at almost 1 Trillion dollars in the first quarter of 2023.
In the Fall, I wrote about how the increase in prices would lead to a struggle for increase in wages. I had noted that in companies with a union this would lead to standoffs, and those without would lead to shortages in workers hired, and decreased employee morale. But how marginalized groups that usually struggle with unemployment like people with disabilities and older Americans would see gains. This was in fact what was touted in the Bidenomics report. However low unemployment does not mean worker productivity, happiness, or income growth. Many places are still understaffed, while many workers are working more than one job. These are the realities the report doesn’t show.
The report also talks about the increase in business formation, but investments in businesses are down -11.5%, and have been down for the last three out of four quarters. The increase in the interest rates by the federal reserve have been harming business growth. So, while there are new businesses-partly driven by negative sentiments on the conditions of w-2 employment, those businesses aren’t able to invest in essential components to increase incomes.
Instead of GDP, we should be looking at GDI. Gross Domestic Income shows incomes earned minus costs incurred in the production of GDP and that is at -0.5 percent, and has been negative the last three out of four quarters.
The big issue is that many of the investments in Bidenomics are too focused on the long term. While an increase in public infrastructure, investment in companies, and increasing competition in industries is good, it doesn’t immediately reflect the challenges people face day to day.
Additionally some moves like the latest Securities Exchange Comission and Federal Reserve actions do not show an interest in encouraging competition and small businesses. Rather they continue to support larger banks and traditional banking while suing their competitors. After working with Binance and Coinbase for years, the SEC sued the companies, saying they were securities and that they did not have the same structures as traditional finance has, leaving them as operating illegally.
After prices sank, Blackrock, the biggest asset owner in the United States, along with Vanguard, submitted proposals to SEC that will likely be approved, showing the administration is not concerned with breaking up banking, as it promises. The Federal Reserve’s interest rate hikes also disproportionately impact small banks, small businesses, and lenders while knowing that the biggest banks will be alright in the case that the hikes would lead to an economic downturn. It does this as it states that bigger banks lead to higher interest rates for consumers in its own fact sheets.
Bidenomics doesn’t work for people, it works to maintain traditional indicators of the economy, prop-up big banks, and encourage long term investment while leaving Americans in a bind in the short term and with less economic freedom and mobility. It has discouraged new business growth, and will surely lead us to an acute economic crisis, even as it stabilizes our economy in the far future.