President Biden can’t understand why Americans are not sold on his spin about the economy. It’s an easy answer: their household finances are in a tough place. Carefully-selected macroeconomic data points do not outweigh the rising costs of day-to-day necessities. Inflation is up and so is debt, but savings are dwindling. Many families are a paycheck away from homelessness and a hospital bill away from financial ruin. Americans are right to peg their tenuous financial situation on the president’s policies because the buck truly stops at the President's desk.
This week, President Biden began pivoting back to the economy with a month-long campaign to tout his economic success. The kick-off was a Wall Street Journal op-ed laying out his plan to tackle inflation.
“The U.S. is in a better economic position than almost any other country,” he said. But he left out that the U.S. has a higher rate of inflation than many other countries. The San Francisco Federal Reserve Bank examined the core consumer price index, which excludes volatile food and energy prices, and found that U.S. inflation tracked relatively closely with other Organization for Economic Co-operation and Development (OECD) countries during 2020. However, by early 2021, U.S. inflation diverged from other countries and remained elevated (from below 2% to above 4%) through the rest of 2021 even as OECD countries’ average core CPIs remained in the 1% to 2.5% range.
Something happened in 2021 that should not be hard for President Biden to figure out. His $1.9 trillion American Rescue Plan fueled inflation by sending more government transfer payments and economic benefits to households — stimulus checks, expanded child tax credit payments, enhanced unemployment benefits, increased food benefits, and student loan forbearance — at a time when they were sitting on high cash reserves from the previous CARES Act and as vaccine distributions eased COVID restrictions on business re-openings, and the economy was rebounding. U.S. households enjoyed significantly higher increases in disposable income compared to their OECD peers. That fueled inflation by adding at least 3 percentage points to the current inflation rate, according to the Fed. Is this the American exceptionalism that the left has always wanted?
Nonetheless, high savings rates have steadily fallen since then as Americans draw down on their reserves just to afford daily life. According to the Commerce Department, the savings rate has fallen to4.4%in April, the lowest level since 2008. Meanwhile, household debt is$1.7 trillion higher than before the pandemic. Consumer spending remains strong, but how Americans are funding their inflation-hiked expenses should be concerning.
The president boasts that a “higher percentage of Americans reported feeling financially comfortable at the end of 2021 than at any time since the [Federal Reserve] survey began in 2013.” But that is an old survey six months into 2022. The S&P 500 hit68 record highs in 2021, but volatility in 2022 has wiped out over $7 trillion from the index. Furthermore, how do Americans feel now that inflation, which Biden promised last year was temporary, is stubbornly high at 8.3% and forcing them to make lifestyle changes and cutbacks?
New Gallup polling indicates that Americans rate current economic conditions and the economy’s outlook poorly. Just 14% of U.S. adults rate economic conditions as either "excellent" or "good," while 46% say they are "poor," with another 39% rating them as "only fair." U.S. consumer sentiment plunged29%from one year ago to its lowest level. Shoppers are clearly pessimistic about the economic look and inflation.
In poll after poll, no matter how the question was asked, Americans say inflation is their top concern.
There is real hardship across America as families make difficult decisions. “The prices have risen from $1-$4 in increases across the entire shopping list,” wroteSoniaCarmen. “This has caused me to settle for products that may not be as healthy or as good in quality.” For those on a fixed budget, high inflation forces them to live without the most basic comforts. Sara Keesling, a disabled woman who lives alone on just $750 a month, explained that “My house stays very cold,” because she has turned the heat down very low. “I figure I’ll get used to it.”
Finding work or low wages are not the issue. With 11.4 million open jobs, the labor market is tight. The problem is rising wages cannot outrun inflation, pushing real wages lower each month. Meanwhile, businesses are raising prices to offset increased labor costs. Volatile global energy prices are also adding to increased costs at the gas pump and for the goods. It’s a vicious cycle.
President Biden’s plan to address inflation rests on the Federal Reserve acting and Congress doing something — namely spending more money and cracking downon corporate greed. No one takes any federal price-gouging witch hunt seriously, because big profits are not driving inflation. However, Biden and his congressional allies (minus Sen. Joe Manchin (D-WV)) believe that by passing elements of the massive multi-trillion-dollar Build Back Better plan, inflation will suddenly disappear. That’s a grave misunderstanding — or perhaps dismissal — of how massive federal spending particularly in 2021 fed inflation and a miscalculation that the American people will believe this plan will work. They don’t. According to recent CNN polling, amajorityof Americans blame President Biden’s policies for making economic conditions worse.
President Biden has waged a war on U.S. energy production, flooded households with cash benefits decoupled from work requirements (decoupling disincentivizes work), and increased costly regulations across industries. We are reaping the harvest of his policies. Now is not the time to plant more of the same bitter fruit.
Patrice Onwuka is director of the Center for Economic Opportunity at Independent Women’s Forum (iwf.org/ceo).