Were the state of the economy determinative, Biden would skate to reelection

By Herbert Rothschild

In a TV interview with Lou Dobbs that aired Monday, former President Donald Trump declared, “We have an economy that’s so fragile, and the only reason it’s running now is it’s running off the fumes of what we did.”

Actually, not only is the economy far better than it was when he left office, by most measures it’s also better than it was before COVID-19 struck and promises to improve as the year progresses. The remainder of this column is a validation of these assertions.

First, jobs. More than 14 million have been created during the Biden administration, with a monthly average of more than 400,000 additions. During Trump’s first three years in office, the monthly average was 176,000. Then, thanks to the pandemic, 20 million jobs were lost. Biden’s numbers benefited from beginning at that low point, just as Trump’s early numbers benefited from the continuing acceleration of recovery after the financial bust in 2008. Still, the recovery under Biden has exceeded expectations.

That’s so especially because the Federal Reserve set out to cool the job market as a way to curb inflation. As I wrote in a column I published March 10, 2023, and titled “The Fed’s war on workers isn’t working so well,” Fed Chair Jerome Powell expected rapidly rising interest rates to “bring some pain to households and businesses,” but for several reasons that didn’t happen. Job growth has slowed — in December only 216,000 jobs were added — but the economy continues to need workers. There are now 1.4 openings for every job seeker. By contrast, at the end of 2019 there were 1.1 openings.

The good job market is also reflected in the unemployment numbers. For the last 23 consecutive months, it’s been under 4%. That’s comparable to the first three years of Trump’s term, after which the rate skyrocketed to almost 15%. The remarkable aspect of the current jobless rate is that it has stayed low even as the Fed’s rate hikes (along with great improvement in the supply chains and a drop in gas prices) brought inflation down from a high of almost 9% in 2022 to under 3% at the end of 2023. Under 3% is comparable to inflation in the pre-pandemic Trump years.

What’s particularly noteworthy about the job numbers is the expansion of employment in manufacturing. In December, those jobs numbered almost 13 million, somewhat more than at the end of 2019. But thanks to legislation Biden and the Democrats passed before losing the House in 2022, the expansion will accelerate. Many new plants are under construction. In November, spending on them rose at an annual rate of $210 billion, more than triple the average rate of spending in the last decade.

Manufacturing jobs have a high multiplier rate — referring to the jobs they create indirectly, such as jobs providing materials and other inputs for their work, and jobs in the businesses where workers spend their wages. So, for example, the multiplier rate for manufacturing jobs is nine compared to 3.4 for jobs in retail trade and 2.5 for restaurant and hotel jobs. Relatedly, manufacturing jobs tend to be more highly paid. 

In that latter regard, real wages of U.S. workers are rising and on average now exceed the rate of inflation. A tight job market during Trump’s first three years contributed to significant worker gains and then, during the pandemic, wages soared along with unemployment. As workers reentered the job market in large numbers, average real pay fell modestly but then leveled off in 2022 and rose throughout 2023. It’s now close to 4% higher than the pre-pandemic high. 

Given that the Fed drove up the cost of borrowing during the last three years, one would expect that construction would be a major weakness in the economy. Actually, there’s been a construction boom. Federal investment in manufacturing plants and public infrastructure accounts for much of the boom, but so does the high cost of existing residences. The latter has spurred new home building. Overall, construction firms added an average of 16,000 jobs each month last year, well above the 11,000 added monthly in 2019. With interest rates likely to fall significantly this year, the boom should continue if not accelerate.

Last, the deficit. The most persistent falsehood about our two major political parties is that Republicans are fiscally responsible and Democrats are not. From Ronald Reagan through Trump, Republican administrations, with one exception (Barack Obama’s first term, when he was rescuing the economy George W. Bush left in shambles) have consistently run up larger budget deficits than Democratic administrations. And the difference is worse when Republicans control both the White House and Congress. They run up large deficits, not by spending money on programs for people who need help, but by enacting tax breaks for people who don’t.

You can get all the data at thebalancemoney.com/us-deficit-by-year-3306306, but I’m going to reproduce some of it to equip you with the facts to challenge anyone who perpetuates that falsehood in your presence. Since the dollar deficits in the table on that site aren’t adjusted for inflation, the table also gives the percentage of that year’s GDP which each deficit represented. I’ll use the percentages so I can compare apples to apples. Also, be aware that, given the budgeting process, the years for which each president is budgetarily responsible begin the second year of his term and end the first year of his successor’s term.

Jimmy Carter: 2.3% average over four years

Ronald Reagan: 4% average over eight years

George H.W. Bush: 4% average over four years

Bill Clinton: 1.6% average over eight years (he ran surpluses in all his last four years)

George W. Bush: 3.3% average over eight years

Barack Obama: 4.9% average over eight years (6.9% first term, 2.9% second term)

Donald Trump: 8.9% over four years (4.2% first two years, 18% second two years)

Joe Biden’s deficits have averaged 6% in his first two years because he had to deal with the economic aftermath of the pandemic. My guess is that they will approach 3% in his second two fiscal years.

Herbert Rothschild’s columns appear on Friday in Ashland.news. Opinions expressed in them represent the author’s views and may or may not reflect those of Ashland.news. Email Rothschild at [email protected].

Jan. 14: George H.W. Bush’s number of years in office corrected.