Opinion
Published
December February 15, 2023, 7:41 PM ET
Official figures show the economy grew 5.2% in the third quarter of this year, but voters' pessimism is high.
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Something is wrong with the Biden economy.
Official figures show it grew 5.2% in the third quarter of this year, the highest rate the U.S. economy has seen in nearly two decades.
But voters are deep in pessimism: Two-thirds rate the economy as “bad” or “not good,” and just as many say it has gotten worse in the past two years.
That's consistent with Gallup polls showing economic confidence is at its lowest since early 2008, when the country faced the Great Recession.
It would be wrong to dismiss this ongoing pessimism just because the official GDP figures tell us otherwise.
Crucially, unofficial economic surveys in the private sector show the same weaknesses that voters feel in their bones.
For example, they show that US manufacturing has been shrinking since 2022; The service sector is expanding but remains very weak.
Consumer confidence is at a low point, lower than during the Great Recession.
Why do the unofficial metrics look so different from the official ones?
I suspect that the growth numbers are being supported by the Biden administration's out-of-control spending, which is not benefiting most Americans.
According to the Committee for a Responsible Federal Budget, the deficit will explode to around $2 trillion in 2023.
Part of this is due to higher payments on federal debt as interest rates rise.
But much of that comes from President Biden's huge, flagship spending bill, the Inflation Reduction Act of 2022, totaling $891 billion in spending mostly targeted at green energy.
Keynesian economists (presumably the majority of the Biden team) support extensive debt-financed government spending – but only when inflation is low and unemployment is high.
However, the IRA pumps enormous amounts of money into an economy that is so hot that the Federal Reserve is raising interest rates to cool it down.
Economists would normally say that this is a case of fiscal policy (government spending) and monetary policy (Fed interest rates) working against each other and advise against it.
But because of strong partisan divides (i.e., fears that voicing their concerns publicly could help Donald Trump win), few economists appear willing to speak out.
In the '80s film “Weekend at Bernie's,” two insurance workers pretend their dead boss is still alive and resort to ridiculous measures like physically propping up his corpse and manipulating his limbs.
This is basically what the IRA is doing to the American economy.
From a normal standpoint, it looks like the economy should stagnate or even slip into recession, but Biden's IRA gives it an illusion of life.
The “Weekend at Bernie's” economics explains why most Americans aren't experiencing official growth, which is limited to a small subset of insiders, especially those with government ties and “green” credentials who are on the IRA's clean gravy train can access energy.
Look at a map of where clean energy investments are happening: mostly on the East Coast, with some extending into neighboring states – but as we move further from DC, past Indiana and Michigan, the investments dry up.
Can the IRA prop up the economic corpse from now until next year's election?
Possibly, but the polls suggest the American people don't think so.
Philip Pilkington is a macroeconomist and investment expert.
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