Bidenomics: What is it? Has it worked? What is its significance?
Context- 2024 is going to be a massively significant year for the global economy because it will witness elections in some of the biggest and most influential economies. These include India, Russia, the UK, the EU and the US. Together, the GDP of these countries is more than $54 trillion — that’s around 52% of the global GDP in 2023.
However, with just about 12 months left, Biden is facing a stiff challenge from Donald Trump — the man he defeated in 2020. Most opinion polls suggest that President Biden’s approval ratings are at their lowest point.
Why Bidenomics matters
- While electoral reversals are par for the course in any democracy, Biden’s loss could result in another policy shock — both to the US and the global order. That’s because of two reasons.
A) Many of Trump’s policies were radical departures from the established US positions or the global consensus. For instance, under Trump, the US walked out of the Paris agreement on climate change. Similarly, Trump saw US trade deficits as necessarily bad, especially when they were against countries such as China
B) When Biden took charge, he unveiled his own version of a radical shift in economic policies — Bidenomics — that have since attempted to turn the clock back half a century. A Trump victory could lead to several reversals yet again.
- When it comes to Bidenomics, there are two main concerns.One, whether it is working or not. Two, whether enough voters are convinced that Bidenomics is working.
- But none of these factors take away from the significance of Bidenomics.
- Bidenomics is being seen as a blueprint for the kind of change that people want. For instance, in the UK, the Labour Party, which is widely expected to win in 2024, is reportedly taking notes on Biden’s more interventionist approach.
- There are others who are worried that Bidenomics, with its focus on providing subsidies for domestic producers, could be unleashing a global subsidy race where each country does the same and, in the process, increases inefficiency and inequity.
What is the rationale behind Bidenomics?
- In common parlance, Bidenomics is a term that is used to refer to any and every policy choice made by the Biden administration.
- Under Reagan/ Reaganomics, the idea was to provide tax cuts to the businesses in a bid to incentivise economic activity even as the role of the government in the economy was reduced. The hope was that the resultant benefits of lower taxes and faster economic growth will trickle down to the broader economy.
- To some extent this happened. But broadly speaking, over the decades since, this top-down approach made the rich richer without necessarily bringing about as much widespread prosperity as its proponents had promised.
- Biden bluntly stated: “trickle-down economics has never worked. It’s time to grow the economy from the bottom and the middle out.”
What is Bidenomics?
According to the White House, Biden’s economic vision is centred around three key pillars:
- Making smart public investments in America
- Empowering and educating workers to grow the middle class
- Promoting competition to lower costs and help entrepreneurs and small businesses thrive
- In other words, Bidenomics involves policies that improve US’s physical and digital infrastructure, reduce its trade dependence on rivals such as China, raise the living standards and opportunities available for the middle 40% and the bottom 50% of the US population and, in doing all these things, boost job creation within its borders.
- To achieve these goals, the Biden administration has tweaked both the tax regime as well as its spending choices. On the one hand, it aimed to raise $737 billion via more and higher taxation, while on the other, it decided to make fresh spending worth $500 billion towards investments in clean energy and in reducing healthcare costs.
- It has also taken several steps to contain the concentration of economic powers in the hands of the few and tried to empower labour unions to safeguard labour rights.
Did it work?
- As things stand, if one looks at the macro indicators — GDP, unemployment and — inflation the Biden administration seems to have done quite well.
- CHART 1 shows, US economic growth level is just 1.4% below the pre-pandemic trend; in other words, its recovery has been so fast that it has almost caught up with where it would have been had it not been for the Covid pandemic.
- Same holds true for the unemployment rate, which has fallen sharply since Biden took charge and hit a historic low (CHART 2).
- The only, albeit substantial, downside is in terms of inflation , which spiked to its highest levels in four decades in 2022 in the wake of the Russia-Ukraine High energy prices and supply bottlenecks exacerbated the ill-effects of excess money that the government pumped into the economy
Then why are so many people unhappy with Bidenomics?
There are two broad reasons.
- One has to do with the fact that Bidenomics has not had the kind of improvement in terms of income and wealth inequality that many may have expected. To be sure, it has been just two and a half years.
- The second reason has to do with the ideological disagreement with Bidenomics.
- Given its rationale and its components, the final goal of Bidenomics is to reduce existing inequalities in the economy. While many Americans seem to be benefiting on this count, almost an equal number are not.
- At the ideological level, many argue that Bidenomics is regressing to many policy choices that will not only increase inefficiency and corruption within the country but also lead to a global subsidy war that will eventually hurt the poorest nations.
Conclusion- On the face of it, Bidenomics has its heart in the right place. It aims to address the widening economic inequalities in the wake of so-called neoliberal policies that started with the Reagan presidency. As a course correction, it is a valid move and should perhaps be given enough time to show results.
Syllabus- GS-3; Economy
Source- Indian Express