JV Last at the Bulwark points to a column by Noah Smith, a centrist (ish) economist who just can’t find a good reason to say that the Biden economy is terrible:
[H]ere’s economist Noah Smith struggling not to praise Biden—and failing—in a post titled: “If this is a bad economy, please tell me what a good economy would look like.”
I do not want to be a shill for the Biden administration. Yes, I like most of what Biden is doing on industrial policy. But I really want to resist being one of those center-left pundits who always just blasts out the latest press release of a Democratic administration and trumpets how many jobs the President has “created”. . . .
And yet when I look at how the U.S. economy is doing right now, I find it difficult to describe it in terms that allow me to avoid sounding like a shill. I know lots of Americans still think the economy is doing poorly, and are upset about that. But when I look at objective measures, I just can’t rationalize that negative viewpoint. Because as far as I can tell from the actual numbers, this economy is doing really, really well.
Here’s Noah again:
What do we want from the macroeconomy?
We want employment to be high, meaning that as many people as possible who want jobs can get them.
We want inflation to be low, so that people have certainty about how far their paycheck and their savings will go in the future.
We want real incomes to rise, meaning that we’re able to consume more than we could in the past, or save more if we want to. . . .
Basically, this is the whole list. . . .
And when we look at the objective numbers, they are great.
Smith goes on to give detailed explanations of the employment, inflation, and real income indicators—go read the whole thing—before trying to put Biden’s accomplishment in perspective:
This economy isn’t just good; it’s impressive
Anyway, this is all very good news. But I want to point out how improbable and surprising it is, from a macroeconomic standpoint. The basic theory of macroeconomics — still, in this day and age — includes the idea of the Phillips Curve. That means that when the government takes action to reduce inflation — raising interest rates, cutting deficits, etc. — it’s supposed to reduce real income growth and employment. There’s supposed to be a tradeoff there!
And yet instead there seems to have been no tradeoff at all. OK, maybe the Fed’s rate hikes just haven’t had time to work their way through the system yet — maybe 1.5 years isn’t enough. Maybe we’ll still eventually get that recession that everyone was forecasting up until a short while ago. But so far it looks like we’ve managed a macroeconomic miracle — bringing inflation down without damaging the real economy noticeably. . . .
This is a remarkable achievement. Who gets the credit? Because we don’t really know how macroeconomics works, we can’t actually give a definitive answer to this. Some of it was probably luck. . . .
But there’s a good argument for U.S. policy doing a lot here too. We’ll probably never know just how much the Fed’s rate hikes were responsible for taming inflation, but to think that rates can go from 0% to 5.5% with no effect would be quite an assumption. . . .
There’s also the financial side of things. Remember that a large-scale collapse of financial institutions very reliably causes economic downturns — 2008 being the most dramatic example. This could have happened in the U.S. banking system last year — rate hikes put a lot of banks in danger, and a few mid-sized regional banks like Silicon Valley Bank actually failed. But the FDIC, the Fed, and the Treasury stepped in and guaranteed bank deposits and provided emergency loans, and the banking crisis that lots of people were predicting never materialized. In fact, financial conditions in the U.S. actually improved after SVB’s collapse! . . .
In addition, the Biden administration might have had something to do with low oil prices. Biden released a bunch of oil from the strategic petroleum reserve back in 2022, and teamed up with Europe to put a price cap on Western purchases of Russian oil that may have allowed China and India to negotiate lower prices as well. Biden also mended fences with Venezuela and encouraged U.S. companies to start investing there again, which is starting to bring that country’s production back on line after a long hiatus. Remember that a drop in oil prices is a positive supply shock, which economic theory says should boost growth while also reducing inflation — i.e., exactly what we’ve seen over the last year or so.
And finally, there’s the investment boom. The CHIPS Act and the Inflation Reduction Act are spurring a ton of private investment in semiconductors and green energy . . .
[I]t seems fairly likely that this is making a positive impact right now. Morgan Stanley and other banks think it’s having a major impact, in any case. . . .
So although I always stress that the President has a limited impact on the economy, there are several reasons — oil policy, bank rescues, and industrial policy — that I feel inclined to give Biden some credit for the economy’s surprisingly stellar performance. Not all, but some.
While we’re all doing back flips to account for the public’s unrelenting negativity (*cough* the media *cough*) the numbers don’t lie.