In his recent State of the Union address, President Joe Biden painted a rosy picture of the United States economy: Inflation in decline, strong job growth and an improving deficit all punctuated the president’s speech. But while technically accurate, this depiction masks underlying economic issues and sharply distorts the president’s record.
In reality, Biden’s policies continue to contribute to inflation, the risk of recession is significant and growing and the national debt is at an all-time high.
Perhaps most damaging for the president, no matter what happens to inflation going forward, higher prices are now a permanent fixture for consumers. And since inflation is a measure of changes in prices, those prices are still rising even as the rate comes down. In this sense, the increases from the past two years are already “baked into the cake.”
Unless salaries keep up with rising prices — and the evidence is clear that they are not — consumers will continue to find that paychecks don’t stretch as far as they used to. That’s why, even as the Biden administration touts that inflation is no longer at a record high, so many Americans continue to struggle.
Of course, the latest evidence also suggests that inflation may not be coming down as quickly as it first appeared. Last week’s Personal Consumption Expenditures Price Index (PCE) figures were up significantly more than expected, causing the market to plummet in response, and estimates from the last quarter also were revised sharply upward.
No wonder some commentators now expect the fight against inflation to last longer than expected.
To be clear, inflation is a complicated phenomenon with many root causes. But it is hard to forget that the president’s American Rescue Plan injected nearly six times as much stimulus into the economy as indicators suggested was necessary — an action for which Americans are still paying a price.
But the ongoing concerns for the U.S. economy extend beyond persistent inflation. The risk of a recession is climbing, too. Most surveys of economists now estimate the odds of a U.S. recession during the next year at greater than 60%. Likewise, the most up-to-date analyses by the Federal Reserve banks in Cleveland and New York put the odds at 63% and 57%, respectively.
A poll of C-suite executives by the Conference Board found that fear of recession is the top worry of U.S. CEOs, and the Board’s Leading Economic Index is now at its lowest point since the depths of the COVID-19-induced recession in 2020.
Of course, forecasts are just that, and anything ultimately can happen. But in an environment in which confidence is especially important to maintaining strong economic growth, concern about a potential economic downturn is itself a cause of concern.
Unfortunately, there is little evidence that President Biden is taking these warning signs seriously. Instead, his administration continues to pursue borderline reckless fiscal policy that jeopardizes economic wellbeing now and in the future.
Analysis of the last two years show that the president set in motion more new spending than any president before him — no impressive feat after the profligacy of the Trump years. Perhaps unsurprisingly, the latest Budget and Economic Outlook from the Congressional Budget Office (CBO) found that, despite the administration’s recent spin, the country is now on track to add an additional $19 trillion to the national debt over the course of the next decade. Most distressingly, the CBO report projects that interest costs will rise and make up a greater proportion of federal outlays as the debt increases as a share of the economy to “a level unseen since World War II.”
Indeed, the reduction in the deficit during the Biden administration reflects the end of COVID-19 spending. In fact, one analysis shows that President Biden’s spending made last year’s deficit 41% higher than President Trump’s largest pre-COVID deficit.
While this deteriorating fiscal picture is no doubt due to actions by both parties, President Biden’s response has been to play politics with the budget and accuse those who wish to make entitlement programs solvent as trying to eliminate them entirely. The president’s gambit appears to have worked, as now only former Vice President Mike Pence has proposed putting reforms to Social Security and Medicare “on the table.” Sadly, it appears that President Biden would rather look the other way — or cajole his political opponents — instead of addressing the underlying issues that threaten our short- and long-term economic wellbeing. But if Biden wants to ensure a strong economy heading into the 2024 election, he would be wise to spend more prudently and take seriously the pocketbook issues that remain top of mind for most Americans.
Jonathan Bydlak is director of the governance program at the R Street Institute. Write to him at jbydlak@rstreet.org.