Bidenomics, the economic policy of President Biden, has been put to the test. President Biden is back on the campaign trail and he has been trying to sell the success of Bidenomics to low-income Americans, but not all low-income Americans agree with the economic message and the exaggerated success the President has been bolstering. Bidenomics, to put it simply, is demand-side economics.
Demand-side economics is an economic theory which argues that economic growth and full employment are most effectively created by high demand for products and services. According to demand-side economics, output is determined by effective demand. High consumer spending leads to business expansion, resulting in greater employment opportunities. And the way to stimulate demand is by increasing government spending. In short, according to demand-side economics, the economy grows when the government increases spending to encourage consumer demand.
Now that we figured out the essence of Bidenomics; did Bidenomics truly help the poor? President Biden pitched his plan last week to build the economy from the “bottom up,” he did so in the poorest big city in America. Nearly a quarter of Philadelphians are living below the poverty line and almost half meet the definition of “cost-burdened”—spending at least 30% of their income on rent, according to the Philadelphia Inquirer.
One of the major economic policies of President Biden was to implement the American Rescue Plan and the Infrastructure Investment and Jobs Act. Both economic policies were designed to reduce poverty, to provide financial assistance to low-income families, and to create new jobs. The poverty rate fell from 10.5% in 2020 to 9.3% in 2021 following the implementation of both policies. According to the Biden administration, this decline coincided with the passage of the American Rescue Plan, which provided direct payments to low- and middle-income families.
The American Rescue Plan Act of 2021 cost $1.9 trillion and the Infrastructure Investment and Jobs Act cost $1.2 trillion. Both legislation cost $3.1 trillion. For Bidenomics, these $3.1 trillion are part of what’s needed to stimulate consumer spending in order to trigger economic growth. But these same $3.1 trillion are what contributed to the surge in inflation in late 2021.
The Federal Reserve loaned these $3.1 trillion to the federal government, which led to a dramatic increase in the money supply. The increase in the money supply outpaced the total level of goods and services. Thus, inflation occurred. When inflation occurred, the most hit by it were the low-and-middle-income families. The price of basic necessities became unaffordable for these families. In a way, Bidenomics contributed to triggering inflation and reducing further the purchasing power of the American consumer, which means making them even poorer than they already are.
Unemployment is low. It currently is at 3.6-3.7%. And President Biden takes credit for it. But it is essential to unfold exactly what job creation means. A job is created when it did not have a prior existence. For the government to actually jobs, it means that it needs to create new government agencies that did not previously exist. When the federal government hires a person in a government agency, it does not create a job, it only adds a job because the position for which the person was hired already exists.
The private sector is the one that creates jobs because millions of businesses are created every year. A newly formed business means new jobs are created because a business needs a workforce to sustain its operations. According to the U.S. Bureau of Labor Statistics, there were nearly 118 million private sector jobs in May 2020, representing 85% of U.S. employment while government jobs (state and local governments) were nearly 18.7 million, representing 13.3%. Hence, the low unemployment rate that we have now is not the doing of Bidenomics, but the doing of the private sector.
To fully answer the question of whether Bidenomics helped the poor or not, it is fair to say that President Biden's economic policies are what led to inflation in the first place, and put the poor in a much tougher spot.