A Bidenomics score chart

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

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There is an ongoing exercise of pulling one’s hair out among economic and political observers of the US. In brief, the polling on how people assess the economic situation — which should feed into how they feel about their political choices in next year’s presidential election — paints the economic situation as much worse than it actually is. At the start of the month, my colleague John Burn-Murdoch thoroughly documented this paradox. Two big takeaways are, first, that what Americans tell pollsters about the state of the economy is linked to their political affiliation to an absolutely wild degree. (See Burn-Murdoch’s chart below.) Second, the partisan motivated thinking on both sides does not cancel itself out: average US opinion diverges from economic reality in a way that does not happen in other western countries.

So there is something to explain here. But it is not something I think I understand, and I am not going to attempt to do here. For what it’s worth, I think Paul Krugman is probably right that there is a “vibecession” going on: people are not as dissatisfied with their personal situation, which they experience directly, as they are about the economy overall, which they learn about from actual and social media.

While we scratch our heads about this, however, I think it’s worth being clear about how well the US economy is, in fact, doing. And it’s perhaps no big surprise that the easiest source for information about things going well is the Biden administration itself, whose officials are keen to point out the benefits of Bidenomics. But they are also quite good at collecting and presenting the facts to support it, and these facts are not always as well known as they should be.

Start with employment. It is well known that the jobs market has been strong, with unemployment near historic lows and the number of vacancies still high. What I find the most important employment fact, however, is that the prime-age employment-to-population rate is so strong. This is the share of 25- to 54-year-old Americans in work — an important gauge of the labour market over time since it is less affected by population ageing than the overall rate. As the White House Council of Economic Advisers has pointed out in a blog post, the prime-age rate is now higher than before the pandemic, higher than before the global financial crisis, and almost as high as the all-time 81.9 per cent peak before the dotcom bubble in 2000.

What the CEA doesn’t say, but which I think is a crucial implication, is that this is a sign the US labour market could expand further. Here is how I think about it: if 82 per cent of prime-age workers could work in early 2000, why can’t 82 per cent of prime-age workers do so in 2023? This was a more powerful point in the past decade, when the rate fell as low as 75 per cent, yet people were worried that low interest rates were overheating the economy. But it’s a big reason why I think it was wrong to see the strong post-pandemic labour market — the first in decades where the balance of power tilted strongly towards workers — as a problem rather than a success. The pressure on real wages, in combination with plentiful jobs that could pay higher wages to which workers switched, was precisely the dynamic needed to bring people in from the sidelines and expand the labour force. If policymakers hadn’t panicked, there is all reason to think we could have matched the 1999 record. As it is, the rate has slipped slightly from 80.9 in August to 80.7 in November.

Another big achievement has been a boost to investment of various kinds. We have mentioned before the extraordinary jump in factory construction under the Biden administration. The rate of manufacturing construction has doubled. So has foreign direct investment in factory building and expansion.

Next, an analysis from the US Treasury shows that state and local spending on infrastructure, funded by the Bipartisan Infrastructure Law, has grown much faster than what would be expected from earlier recoveries. Moreover, the spending is disproportionately being channelled to infrastructure projects in states with infrastructure in the worst state of disrepair, and with lower incomes. Public transport will get a boost, again with much more spending than normal in states where it usually is neglected.

The Treasury has also published a note on the economic growth benefits from the climate policies pursued in the Inflation Reduction Act and the other industrial programmes — for reasons ranging from higher R&D incentives, smaller losses from natural disasters, fewer sick days from less local pollution, to reducing economic volatility from fossil energy dependence. Not all of those arguments are entirely convincing. But on the whole they do serve as a useful reminder that some smart spending creates more benefits than it costs.

A health warning: these are the administration’s own boastful displays, so need to be taken with the requisite addition of salt. And announcements are not the same as outcomes. But that shouldn’t distract from the fact that it has things to boast about. As for the argument that climate action can be good for growth, the Biden administration is in good company. In France, the government-commissioned expert study on the economics of climate policy, recently available in English, says the same thing.

On the overall macro level, too, there are good things to say. A few weeks ago we highlighted how US growth has outperformed Europe’s after the pandemic.

And this growth has, for the first time in a very long while, largely benefited the worst off. On one measure, 40 per cent of the rise in wage inequality over the previous 40 years has been reversed in the post-pandemic recovery — that is to say, through the highest inflation in as many years.

In sum: so far, Bidenomics works well on the ground but not, it seems, in people’s minds. That is not because it doesn’t work for them; on the contrary, everything about people’s economic behaviour signals optimism. But when asked to assess the economy, they are negative. This could mean one of two opposite things. It could mean that the age of “it’s the economy, stupid” is over — in which case, Bidenomics copycats elsewhere (like the UK) should beware, as Claire Ainsley writes in an FT op-ed. Or it could mean that current polling of economic sentiment is not a good indicator of how people are going to vote, and the good economic reality — if central banks don’t ruin it — will win the day. I have argued something like that was at work in the Democrats’ surprisingly strong showing in the 2022 midterms. It could happen again.

But we don’t know which is right. As we go into next year’s US election season, we are flying unusually blind.

Other readables

Numbers news

• A good teaser of a question: which country has the fastest growth rate in Europe? In 2023, it is shaping up to be Ukraine. Although it remains devastated by Russia’s war, the signs I reported to you after visiting in April seem to have held true. The IMF’s latest “Article 4” report shows how impressively Ukraine’s economy has stabilised — and then some. The IMF sees the growth rate coming in at 4.5 per cent, and set to continue at 3 to 4 per cent next year. Inflation is coming down fast, from a 19 per cent average over 2023 to 6 per cent at year-end. Real wages are up 6.3 per cent after a 16 per cent fall in 2022. Even private investment has jumped. Of course, the economy is vitally dependent on huge financing flows from abroad. The relatively good 2023 performance shows what European and US decision makers are about to sabotage if they can’t deliver on the promises they have made.

• Germany’s coalition government has agreed a budget for 2024 after the earlier version was blown out of the water by the constitutional court.