The best way to describe ‘Bidenomics’ now being touted by a growing consensus of economists is best explained in the recent resurgence of construction spending, as portrayed in the FRED graph.
Nobel Laureate Paul Krugman, among others, has been touting the strength of the post-pandemic economic recovery, which is being called ‘Bidenomics’ in a play on words to compare it to Reaganomics, the 1980s recovery from the 1970’s era of stagflation and double-digit inflation.
“The economy’s resilience in the face of rate hikes suggests that overall demand has been stronger than anyone expected — possibly in part because Biden administration policies appear to have unleashed a huge wave of manufacturing investment,” said Krugman in a NYTimes Op-ed.
The big difference between the two eras is government’s role. President Reagan decreed that government was the problem, so it financed its recovery with tax cuts that inflated the first substantial federal debt since World War Two.
Bidenomics is being financed with tax receipts, private investment, and some increased taxes, but without tax cuts. So, it must pay for itself, and government-funded programs are providing the incentives.
President Joe Biden’s Infrastructure Investment and Jobs Act has become a part of the domestic economy, “driving a boom in large-scale infrastructure,” wrote Ellen Zentner, chief U.S. economist for Morgan Stanley, in a research note out last week cited by MarketWatch.
As a result, Morgan Stanley now projects 1.9 percent economic expansion in the first half of this year. That’s nearly four times the bank’s previous 0.5 percent forecast for growth in gross domestic product in the first half of 2023.
Some $1 trillion in infrastructure spending signed into law in 2021 marked an early legislative win for a president handed only a slim majority in Congress upon his election over then-incumbent Republican Donald Trump in November 2020.
It was followed up by another legislative banner for Biden: the Inflation Reduction Act, a climate-change- and healthcare-focused spending bill signed into law about a year ago. Many of the incentives in the laws are tied to domestic manufacturing and a reason manufacturing activity is beginning to expand again after a period of contraction, per the S&P U.S. manufacturing-sector index that rose to 49 from 46.3 in July, but has been negative for months.
Tomorrow the first estimate of second quarter GDP growth will be released by the US Bureau of Economic Research (BEA). The Atlanta Fed’s latest GDPNow estimate of second quarter GDP growth by Blue Chip economists is 2.4 percent.
Construction spending in manufacturing is soaring, up 76 percent YoY and helping to boost employment, traditionally with higher-paying jobs. So Bidenomics is a win-win solution for both continued economic growth and keeping workers fully employed.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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