Has Bidenomics Worked? It’s Too Soon to Say

With the US economy booming, the job market growing and inflation retreating, the consensus is near-unanimous: Bidenomics has been vindicated. Allow me to offer a somewhat more skeptical perspective: Not that President Joe Biden’s economic policies have failed, necessarily, but that it is too soon to call them a success.

I fully concede that the US has some pressing problems — deindustrialization, infrastructure deficiencies, climate change and national-security issues related to semiconductor chips, to name a few — and that Bidenomics is an honest attempt to address them. What I take issue with is this new variant of industrial policy based on heavy government subsidies to private investment. The centerpiece of Bidenomics is the Inflation Reduction Act, passed in 2022, whose cost could top half a trillion dollars.

The biggest problem is that it’s not yet clear these investments are going to pay off. They are being paid for with borrowed money, not higher taxes or lower spending elsewhere. It is always possible to boost wages and employment in the short run by funding new investments with borrowed money. The critical question is whether those investments will succeed in the long run.

If they do not, today’s boom will eventually turn into a bust. Sooner or later, the federal government will have to pay for all this borrowing and spending, and that will mean some mix of (additional) tax hikes and spending cuts. That contractionary fiscal policy will hurt the economy, giving back some or all of the gains it is reaping today. The net effect of this reversal of fiscal policy could even be negative.

Conversely, if the new investments do succeed, future output will be accordingly higher, and those fiscal retrenchments will be manageable. Defenders of Bidenomics tend to assume this scenario, but its likelihood is an open question. By the same token, of course, critics of Bidenomics shouldn’t assume that the worse-case scenario is most likely.

But Will All That Spending Pay Off