Closing The Books On Bidenomics — Our Experiment In Centrally Planned Prosperity
Edit: One of my readers correctly pointed out that much of this “stimulus policy” began in the final year of President Trump’s first term. When reviewing the history of this extraordinary time, we should attribute to both Presidents the responsibility for taking us down this wayward path. Thanks, SigFlo!
Imagine a world where everyone was guaranteed an annual salary, not-for-profits, hospitals, schools, and universities didn’t have to worry about their budget, and even corporations would receive income. This has been the dream of collectivists for generations. In their thinking, it would eliminate some of the basic limitations of capitalism, inequality, deprivation, and want. In short, this new economy would be heaven on earth.
It may surprise you to know that the United States took a giant step down this path during the Presidency of Joseph Biden. The year was 2021, just when the COVID-19 Disease plagued the nation. Taxpayers throughout the country received what was called “Stimulus” Payments. A perfect description as these payments, designed to provide aid to the average citizen, were also interpreted as “stimulating” the overall economy.
Economists from John Maynard Keynes to Ben Bernanke (economist and former Chair of the Federal Reserve) have long promoted the concept that in times of economic difficulty, the central Government should step in to promote commercial and economic activity.
Keynes, during the Great Depression of the 1930s, felt that governments ought to spend deficits (called fiscal Stimulus) to promote economic growth. Bernanke recommended direct payments from the Government to the consumers and corporations involved in economic expansion.
However, both stopped short of suggesting that the central Government should be a primary source of income. That is until Bidenomics in 2021. Through a plan that the Administration labels “Build Back Better,” the US Treasury sent money to everyone. During Fiscal Year 2020 (the US Government’s fiscal year ended on September 2021), the Federal Deficit ballooned to an astonishing $3 Trillion — more than three times the deficit of the year before.
We were well on our way to that guaranteed income for everyone that the collectivist dreamed about.
Of course, stimulus checks weren’t the only “stimulus” the Government and Federal Reserve provided. The Fed lowered interest rates and, through a program called Quantitative Easing, pumped billions of dollars into the financial system. In addition, more esoteric bank regulations, such as lowering loan requirements, were relaxed, all in an effort to return prosperity to everyone.
But here’s the really interesting part. What do you suppose the nation’s GDP (Gross Domestic Product/Economy) recorded for that year (2021)? That’s right, the GDP for 2021 was the best level in 37 years at a “growth” rate of 6%. But it was all artificial; there was virtually no growth at all. What there was was pure “Stimulus.” The Government places money in consumers’ pockets, which they hopefully spend, and in the hands of corporations and organizations, which they record as income that year.
The result: consumer spending and corporate income increased. Economists recorded it as a very good year for the economy. GDP was at the highest “growth” rate in a generation, ensuring prosperity for everybody.
However, take away the “Stimulus,” and this economy was flatter than a pancake.
In the intervening four years, the Treasury and the Fed have reversed some of the open spigots in monetary policy. We’ve all seen the Fed raise interest rates (and perhaps, as an acknowledgment that they’ve gone too far, reverse themselves recently). Less noticeable has been the Fed’s transition to Quantitative Tightening, removing about $2 trillion from the financial system. Finally, there are recent indications that Banks may soon scale back on their “open lending” initiatives.
When Joe Biden took office on January 20, 2021, our Federal Debt equaled $27.7 trillion. When he left office, the debt had grown by 29% to $35 Trillion. Even to the most euphoric, it’s become apparent that this level of debt and spending is not sustainable.
So, where do we go from here?
We can see that the Stimulus has been curtailed, making economic growth more difficult. In the politically charged environs of Washington, this will likely have significant political overtones. Notice how last week’s GDP Report was greeted by the Mainstream Press.
NPR: “The US economy is still doing well as Americans continue to spend”
CNN: “The US economy just had another robust year”
Most telling:
NBC: “The economy starts the year in solid shape. Now it’s in Trump’s hands.”
Is President Trump Being setup for the hangover from all that Stimulus?
It sure looks like it. For the record, the four-year economic growth rate for Bidenomics is 3.5% (barring any major adjustment in the coming revisions in February and March). However, take away the Stimulus year, 2021, and Biden’s economy only grew at a tepid 2.7%. Overall, robust economic “growth” was only achieved when substantial Stimulus was added. When the Stimulus was removed, the rate of growth for the economy slowed dramatically, from 6% growth (2021) to just 2.5% the next year (2022).
Perhaps it’s time to acknowledge that 2021 was not a “growth” year at all. Rather, it was a time when the Federal Reserve, US Treasury, and US Government “cooked the books.”
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