Biden’s victory lap is smart politics but poor economics.
Biden's victory lap is smart politics but poor economics.
The Harsh Reality of the US Economy: Inflation, Job Numbers, and Debt Crisis
The recent Consumer Price Index (CPI) figure showing a decline in the year-over-year inflation rate to 3% seems deceptive. Behind this number lies a more realistic picture of inflation, known as the “trimmed-mean CPI,” which removes outliers like the 16% drop in energy prices. This trimmed-mean CPI reveals that inflation is still running at 5%, adding to the 4.7% increase in 2021 and the 8% price spike in 2022. If this trend continues, it could result in a nearly 20% decline in purchasing power in just three years. It’s important to note that this assumption assumes that oil and commodity prices will remain low, which, given the ongoing war in Europe and supply and demand dynamics, appears highly unlikely.
On the surface, President Biden appears elated with the job figures, boasting about the creation of 13.4 million jobs since taking office. However, a closer examination reveals a different story. According to the Bureau of Labor Statistics, only slightly more than 2 million additional people are employed today compared to the pre-pandemic period, meaning that more than 11 million out of the 13.4 million jobs were not truly “created” but simply recovered after pandemic shutdowns ended. Furthermore, real average hourly earnings have actually declined since March 2020 when the pandemic closures began.
While the economic decline predates the Biden administration, their policies have exacerbated and compounded the situation. Over the past 35 years, the real median family income has grown at a rate one-third lower than the previous three decades. This decline in productivity can be attributed to overregulation, government spending, monetary manipulation by the Federal Reserve, and rising debt. Productivity growth has slowed significantly since 2000, compared to the period between 1964 and 2000.
A vital factor contributing to this reality is the decline in private domestic investment. Under the current administration, private domestic investment has only increased by half of 1% (0.53%) per year, significantly lower than the growth rate seen before 2016. In addition, the amount of debt accumulated in recent years is staggering. Household debt has reached nearly $18 trillion, nearly one-third higher than the levels before the 2007-2008 financial crisis. The government’s debt currently stands at $32 trillion, a figure that will likely escalate to $50 trillion before the decade ends.
Although millions of Americans are already feeling the impact of inflation and high interest rates, the colossal amount of financial support provided by the government in response to the pandemic has temporarily cushioned the blow. Between the end of 2019 and the beginning of 2021, the total cash balances increased by $5 trillion, surpassing the size of the entire German economy. While some of this cash has been spent, a significant amount remains, meaning that Main Street has not yet experienced the full consequences of the current economic situation and Washington’s spending spree.
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Reversing the course of an over-indebted and overregulated economy burdened by years of excessive spending and political manipulation is no easy task. The current administration appears to lack a deep understanding of the economic mess the US is facing. Moreover, it remains unclear whether the GOP, given their current rhetoric, truly comprehends the gravity of the situation.
It is essential to address these challenges and steer the US economy towards a more sustainable and prosperous future. The road ahead requires thoughtful economic policies, responsible spending, and a focus on increasing productivity. Without a doubt, the situation demands urgent attention from both the government and society as a whole.
Álvaro Vargas Llosa is a Senior Fellow of the Independent Institute. His latest book is Global Crossings: Immigration, Civilization and America.
The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of ANBLE.com.
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