As Biden exits, how will he be remembered for his dealing with of the U.S. financial system?
As President Biden prepares to depart the White Home, he leaves an financial legacy marked by a historic pandemic that paralyzed customers and companies throughout the U.S.
After inheriting a COVID-scarred nation in 2021, Mr. Biden centered on righting the financial system, a technique that economists advised CBS MoneyWatch is seen within the nation’s strong GDP development and low unemployment. By a number of key measures, the financial system is stronger than it was 4 years in the past: The jobless fee is close to a 50-year low, wages are rising and the U.S. managed to sidestep a recession extensively anticipated by many on Wall Road because the Federal Reserve moved to curb inflation by ratcheting up rates of interest.
“He ought to have a robust legacy in the case of the financial system,” Mark Zandi, chief economist of Moody’s Analytics, mentioned of Mr. Biden. “He inherited an financial system that was flat on its again due to the COVID pandemic, and he is leaving an financial system that is flying excessive, not less than within the combination,”
Zandi added, “How a lot he can take credit score for that, it is a cheap debate, however I believe he deserves a variety of credit score.”
Zandi pointed to a number of items of landmark laws handed underneath Biden, together with the $1.9 trillion American Rescue Plan Act, or ARPA, as serving to to stabilize the nation and produce development that has surpassed most different main economies world wide.
Biden additionally rating some wins on well being care, resembling a brand new $2,000 out-of-pocket spending cap on prescriptions for Medicare enrollees and a $35 cap on insulin costs.
But looking back, he added, extra trillions in federal stimulus could have performed an element within the hovering inflation of the previous few years, which Zandi mentioned was additionally fueled by the financial affect of Russia’s invasion of Ukraine.
ARPA “was very controversial, however on the finish of the day it acquired the financial system again to full employment,” Zandi mentioned.
Deep structural issues
Though Biden’s insurance policies had been key in serving to the financial system get better from the pandemic, tens of millions of People proceed to battle with a cost-of-living disaster worsened by the most popular inflation in 4 many years. Lengthy-term challenges in housing affordability solely deepened through the Biden administration, whereas U.S. wealth inequality in the present day stays close to report ranges.
To make certain, well being care, little one care and schooling prices have outpaced inflation for years, weighing on tens of millions households and making many households susceptible to even minor downturns. However the inflation spike in 2022 intensified these current monetary pains, mentioned Lindsay Owens, government director of the Groundwork Collaborative, a progressive financial suppose tank.
“The American financial system for a very long time has been characterised by a scarcity of affordability for the largest ticket gadgets,” Owens mentioned. “Housing has been out of attain, well being care has been costly, little one care is pricey — that was all true earlier than Biden.”
In the meantime, a Biden plan to comb away scholar mortgage debt was largely shot down by the courts, though the Division of Schooling used different means to supply aid to tens of millions of debtors. Housing prices continued to soar underneath Biden because of rising residence values in addition to hovering mortgage charges after the Federal Reserve hiked rates of interest to battle inflation.
The upshot: Underneath Biden, many households remained dogged by the identical long-term pocketbook points which have prevailed for many years underneath earlier presidential administrations. Through the pandemic, the hovering price of necessities like meals, gas and lease solely deepened the nation’s widespread precarity — a gnawing sense of economic insecurity that has left tens of tens of millions of People susceptible to job losses, medical issues and even modest financial dips.
Ballooning debt
Biden’s legislative wins — ARPA and the Infrastructure Funding and Jobs Act in 2021, and the Inflation Discount Act and the CHIPS Act in 2022 — added trillions in extra federal spending. The concept underlying these efforts was to rejuvenate the U.S. financial system by investing in key sectors, resembling by constructing semiconductor chip crops, rebuilding U.S. roads or accelerating the shift towards inexperienced power.
However these efforts will probably take years to repay, economists observe. Within the meantime, the nation’s debt has ballooned to a report $36.2 trillion as of mid-January because of a mixture of fiscal stimulus approved by each Biden and Trump, in addition to Trump’s 2017 tax cuts.
With federal spending outpacing revenues, the nation will face powerful decisions, resembling whether or not to lift taxes, reduce federal applications or each. Requested to explain Biden’s financial legacy, Cato Institute vp of common economics Scott Lincicome summarized it in a single phrase: “Irritating.”
“For those who might have a look at the fundamental fundamentals — financial development, jobs — issues have been fairly good,” Lincicome, who describes himself as a “libertarian free marketer,” added. “However for those who look beneath the hood, there are some somewhat vital issues.”
Chief amongst them are the nation’s spiraling debt, Lincicome mentioned. Treasury yields have been rising forward of Trump’s inauguration on Monday, partly because of issues that the U.S. might battle in coming years to service its debt.
“By way of what Trump inherits — and it is not simply Biden’s fault, Trump did a variety of COVID spending, too — however we’re now at some extent the place you possibly can see bond markets are chirping, and you may see inflation has remained stubbornly larger than we’d have hoped,” Lincicome famous. “The [Congressional Budget Office] and a variety of folks agree that the debt is a reasonably urgent subject.”
Trump’s financial system on Jan. 20
Regardless of such issues, the economists interviewed by CBS MoneyWatch say that Trump will inherit a comparatively sturdy financial system when he is inaugurated. Not stunning, then, that Zandi and Lincicome had the identical recommendation for the Trump administration in the way it handles the U.S. financial system: “Do no hurt.”
“One of the best factor Trump might do is do nothing,” Zandi mentioned. “Biden acquired a basket case financial system and he is bequeathing an financial system that’s working at full tilt.”
For his half, Trump has signaled his intent to reshape the financial system by means of a mixture of steeper tariffs, deeper tax cuts, fewer federal rules and mass deportations of undocumented immigrants.
“Joe Biden’s legacy is marred by crippling inflation, a migrant crime invasion and American weak point on the world stage,” Trump-Vance Transition Spokesperson Anna Kelly mentioned in an announcement to CBS MoneyWatch. “Fortunately, in simply 5 days, President Trump will usher in a brand new Golden Age of American success and perform his mandate to make America rich, secure, sturdy and nice once more.”
Economists view a few of Trump’s said plans as doubtlessly inflationary, though some query whether or not the president-elect will comply with by means of with all of them, resembling a broad-based tariff on all imports.
“We anticipate tariffs on imports from China and autos, however not a common tariff, which might carry financial and political dangers that we predict the White Home will favor to keep away from,” Goldman Sachs analysts wrote in a December analysis observe.
On the similar time, the Trump administration needs to increase his 2017 Tax Cuts & Jobs Act (TCJA), an effort the nonpartisan Congressional Price range Workplace has projected might add $4.6 trillion to the federal deficit over the following decade. Trump has vowed that his tariffs would elevate sufficient cash to cowl the tax cuts, a proposition that economists assess as unlikely.
Tariffs might elevate “a number of hundred billion, perhaps, however that is whole, and you are still in an enormous gap,” Lincicome famous.
American oligarchs
Extending the tax cuts would additionally probably favor the nation’s wealthiest households, on condition that the TCJA reduce taxes for prime earners excess of for low- or middle-income People. Through the previous 4 years, America’s richest individuals have seen their wealth soar, with Elon Musk — the world’s richest individual and a detailed adviser and backer of Trump — now price $450 billion, greater than double his $175 billion internet price when Biden was inaugurated in 2021, based on the Bloomberg Billionaires Index.
In his farewell message on Wednesday, Biden warned that the rising focus of wealth within the U.S. poses a severe danger to the nation.
“At this time, an oligarchy is taking form in America of utmost wealth, energy and affect that actually threatens our whole democracy, our primary rights and freedoms and a good shot for everybody to get forward,” Biden mentioned.
That is unlikely to vary underneath Trump, economists predicted “The large story of American inequality is an easy one: It is the takeoff in prime incomes,” Owens famous.
She believes that “Till we tax the highest, we could have runaway earnings inequality.”
