On Monday, I talked about how Biden avoided a recession. But that is only a small part of what Biden has done for the economy. Today we will be talking about another area: inflation reduction.
Inflation caused by the pandemic hurt many Americans (and actually people all around the world — we faired better than many other places).
But the good news is that Biden and his team have succeeded in bringing down inflation.
Defying many forecasts, inflation has fallen by two thirds as supply chains have improved, while unemployment has remained low.
A year ago, the consensus forecast expected inflation to fall to roughly where it is today at the expense of a large increase in unemployment and slowdown in growth. President Biden did not agree such a sacrifice would be necessary.
CPI inflation is running at 3.1% over the last year—similar to the decades prior to the global financial crisis—and down two thirds from its peak. Core inflation has fallen to 3.4% over the last three months. At the same time, employment and growth have far exceeded expectations, with the unemployment rate remaining below 4% for 22 months in a row, and the economy growing by 3.0% over the last four quarters.
The rebuilding of supply chains, a large increase in Americans participating in the labor force, and a boost to productivity have enabled robust growth and employment to continue, while inflation moderated.
How did Biden reduce inflation? Well the Inflation Reduction Act worked in many ways. One by punishing companies that pushed inflation by raising prices out of greed. For example:
Drug companies that increase prices faster than inflation now have to pay a rebate to Medicare—which is translating into lower out-of-pocket costs for seniors, as Medicare has begun directly lowering co-pays for drugs whose price has increased beyond inflation. This past quarter, 43 drugs used by thousands of Medicare beneficiaries increased their prices too fast. Because of the Inflation Reduction Act, some seniors are saving up to $449 per dose on those drugs.
Biden also addressed the root cause of inflation — supply chain issues — head on
Robust supply chains are fundamental to a strong economy. When supply chains smooth, prices fall for goods, food, and equipment, putting more money in the pockets of American families, workers, farmers, and entrepreneurs. That is why President Biden made supply chain resilience a priority from Day One of his Administration—including by signing an Executive Order on America’s Supply Chains and establishing a Supply Chain Disruptions Task Force that worked with states, Tribes, local governments, businesses, family farms, labor, and allies and partners to address the acute supply chain crises caused by the pandemic. Since then, the Administration has made historic investments to strengthen supply chains and prevent future disruptions by expanding production capacity in key sectors and building infrastructure through the CHIPS and Science Act, the Inflation Reduction Act, and the Bipartisan Infrastructure Law.
These efforts helped unsnarl supply chains, re-normalize the flow of goods, and lower inflation. From October 2021 to October 2023, supply chain pressures as measured by the New York Fed declined from near-record highs to a record low, helping lower inflation, which has fallen by 65% from its peak.
There are some people, in particular on fixed incomes, who really suffered with inflation. Lots more needs to be done. But Biden’s plan did help many families keep above water while he brought down the rates. In fact, income rose at a higher rate (on average) than inflation.
How are household balance sheets doing?
Real wages aren’t the only metric by which American economic well-being has improved. The latest Survey of Consumer Finances (SCF) reported that real median household net worth is 37% higher than before the pandemic—the largest percentage gain in wealth in the history of the survey. Households in the lower half of the income distribution saw the largest gains, with particularly large gains for Black and Hispanic households. According to the Conference Board, job satisfaction has also reached its highest level in 36 years.
President Biden’s economic plan has helped enable American households to pay down debt and lower their debt payments, especially for credit card and student loan debt. Median debt payments as a share of income fell to the lowest level in the history of the SCF. This progress comes as the share of households without health insurance fell to a record low of 7.8% this year. Business ownership also reached new records: the business ownership rate rose 9% since 2019,with particularly strong gains for Hispanic and Black households.
Real wages grew and wage inequality fell.
Real wages began to grow in 2023 as inflation fell from its 2022 peak and workers received robust nominal wage gains. In the year ending in November, real wages grew by about 0.8 percent for all workers and 1.1 percent for the 80% of workers who are production and non-supervisory workers. Further, wage inequality fell. The ratio of wages at the 90th percentile compared to the 10th percentile fell by nearly 6 percent over the year. One reason to continue to be optimistic about this trend in 2024 is the historic union activity and wins in 2023. Strong unions help grow the economy by reducing inequality and raising incomes.
These gains came to the people who needed them most:
Women and Black Americans made historic gains in the labor market.
The year 2023 saw the highest rate of prime-age women participating in the labor force on record since 1948. The previous high of 77.3 percent in April 2000 has been surpassed in each of the last eight months. The record labor force participation of this group has served to boost incomes of American households and keep consumer spending strong.
In 2023, the economy achieved the smallest gap on record between the employment rates for Black versus white American workers, averaging–0.7 percentage point. The strong economy fostered by President Biden’s economic policies reduced some long-running inequities in the labor market and squeezed this gap to its lowest level on record.
Is there still more work to be done? 100%! Lots more work. But Biden did more than many people guessed could be done. And he deserves a lot of credit. AND he deserves to be re-elected.
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This is THE FIRST entry in our new series Boosting Biden
A new series, Boosting Biden, starts on 1/1:
- Daily diaries.
- Monday through Friday at 7:30 am eastern.
- Every diary:
- A Biden accomplishment.
- An invitation to donate.
- Action steps.
- From January 1st to the election.
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