What is Bidenomics and what’s the potential risk in the long-term?
Biden recently kicked off his reelection campaign. The White House has been touting that the president's policies have kept the economy on a steady path and maintained a healthy labor market.
The term “Bidenomics” was originally created by Republicans as a pejorative term, but the campaign is hoping to reclaim the word and use it to describe the administration's success.
The concept of Bidenomics consists of more investments in infrastructure, and strengthening the safety net, funded by tax increases on higher-income individuals and corporations.
Tax Policy
Biden administration enhanced tax enforcement, by investing $80B in the IRS over a decade on systems and personnel. CBO estimates an additional $200B in collections over a decade.
Corporate taxes were raised, by implementing a 15% minimum tax applied to accounting income and a 1% tax on stock buybacks. Studies suggest corporate profits after tax might drop by up to 12% and the income of the top 1% of earners by up to 14%.
Fiscal stimulus to boost employment
Biden proposed a $2.65 trillion American Jobs Plan with investments over 10 years. A White House fact sheet described the plan: "The American Jobs Plan is an investment in America that will create millions of good jobs, rebuild our country's infrastructure, and position the United States to out-compete China." The June data showed the unemployment rate now is 3.6%. The jobs created during this presidency are much more than most former presidents, partly due to the recovery after the pandemic.
Infrastructure Plan
Biden administration is keen on a giant infrastructure boom to correct decades of underinvestment: the average American bridge is 43 years old. Government research and development (r&d) has dropped from over 1.5% of GDP in 1960 to 0.7% today. President Biden proposed to spend $1.3 trillion on infrastructure over a decade. This plan includes $50 billion for repairing roads, highways, and bridges, $20 billion for rural broadband infrastructure.
Green energy policy
Mr. Biden’s climate policy made progress. Building green-power grids and charging networks makes sense because the private sector may hold back. However, the inefficiency of investment is a problem because of the rule that 40% of spending must favor disadvantaged communities and by perks for domestic suppliers. His plan to cut emissions involves targets, but shies away from a carbon tax which would harness the power of capital markets to reallocate resources. That is a missed opportunity.
Technology industry policy
The House and Senate passed The CHIPS and Science Act with bi-partisan support during July 2022 and was signed into law by Biden on August 9, 2022. Biden said: “America invented the semiconductor. It’s time to bring it home.” The New York Times reported that it is valued at $280 billion and is designed to help strengthen America's manufacturing and technology capabilities, including "$200 billion for scientific research, especially into artificial intelligence, robotics, quantum computing, and a variety of other technologies.”
Although under Biden's presidency, the unemployment rate is low, the inflation reading seems to be cooling down, there are still some worries over the long-term effect it hasn't shown yet.
Worries about Resilient inflation
Jamie Dimon, CEO of JPMorgan Chase, said in an interview with the Economist that it's a tough question to answer whether Bidenomics is successful.“There shouldn't be social policy around that,” he said adding that “it shouldn't be political it should be purely economic.”
And the $5 trillion of stimulus the government authorized, including Biden's $1.9 trillion American Rescue Plan, to counter the economic effects of Covid, was excessive and is “causing inflation,” Dimon said.
The deficit level is hard to alleviate
The growing gap between how much the government spends and what it collects in taxes must be part of the discussion. Net tax collections are down about 10 percent compared to last year, the CBO notes, while spending has increased by about 8 percent. Raising the debt limit will accomplish nothing of substance unless the wildly out-of-whack federal budget is meaningfully addressed too. That means cutting spending.
Efficiency of government investment is questioned
The private sector is profit driven; therefore managers in private companies have the incentive to cut costs and be more efficient. Decisions in private companies are less susceptible to be influenced by political or electoral motives. The intervention of governments in the public sector can be a great problem because party interests sometimes come first than the public good.
WSJ was skeptical about Bidenomics in a recent article as well. The risk of government investment is obvious. Without a coherent economic framework, industrial policy is more likely to fail and discredit the entire concept. For example, during the Obama administration, the federal government loaned to Solyndra, the solar manufacturer, and it went bankrupt in 2011.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo News Official Account
Follow the top news of US market!
53KFollowers
7Following
28KVisitors
Follow
Wardogone11 : But, we’re not fascists, so there is that.
bobbyjuk : bidenomics is when a feeble minded buffoon destroys an entire country in less than 6 months, than spends the remainder of his residency blaming Trump
103859386 : The lanterns are dead and gone. All the political hooligans are over. Many people don't believe their economy won't die like this!
htxjoe Wardogone11 : Yeah, communist is so much better…
Wardogone11 htxjoe : Read harder!!!
Benzodiazepine bobbyjuk : You do realize Trump is the one who started the Covid stimulus, right? After lying through his teeth about it for 6 months. You Trump supporters are all such ignorant morons who love to cherry pick "facts".
bobbyjuk : o lordy, watch the news much haha . womp womp womp
Benzodiazepine htxjoe : 99% of people using the words socialism and communism don't have a clue what they actually are and their differences. Keep that blindfold on and parrot the ignorant babble of your ilk while taking that big orange and red rod up your a$$
bobbyjuk Wardogone11 : are you sure about that?
bobbyjuk 103859386 : the lanterns may be going out but freedom still calls to those who know it.
View more comments...