With the 2024 presidential election less than a year away, supporters of President Biden are worried that his popularity rating is stuck around 40 percent with his handling of the economy the principal reason cited.
A recent Times/Siena College survey of voters is especially concerning: It showed Biden trailing Donald Trump in five of six key battleground states with support fraying from demographic groups — Blacks, Hispanics and younger voters — that backed him by wide margins in 2020.
A major challenge that Biden faces is that voters across all income levels felt his policies had hurt them personally, while they credited Trump’s policies for helping them.
At first blush, this may be hard to comprehend considering that growth of the economy and labor force has been stronger during Biden’s tenure than Trump’s. However, the main reason for voters’ dissatisfaction is they equate the performance of the economy with inflation, which has been higher over the past three years than at any time since the 1970s and early 1980s.
Thus, while inflation has fallen faster than expected this year, voters are cognizant that price levels today are considerably higher than before the pandemic struck — in the vicinity of 20-35 percent for items such as food, utilities, rent and motor vehicles. A recent poll by the Financial Times and University of Michigan’s Ross School of Business found that 82 percent of respondents said price increases are their biggest source of financial stress.
Meanwhile, Biden has been emphasizing his legislative accomplishments, which include the passage of bills to invest in infrastructure, clean energy and semiconductor manufacturing. He maintains that these programs, which, per my calculations, will cost $1.75 trillion over 10 years, will reshape the U.S. economy and create more jobs for the middle class while also promoting clean energy.
Of these, the Infrastructure Investment and Jobs Act has the potential to be the most transformative legislation impacting public infrastructure since the National Highways Act in 1956. It is also the easiest piece of legislation for voters to understand and to witness firsthand.
Accordingly, Biden initially made “Investing in America” the focus of his economic message. During May, he toured parts of the country to tout the bill, which led to 32,000 projects being announced across 4,500 communities according to the White House.
Yet, despite this attempt, those surveyed in a Bloomberg poll of voters in seven swing states credited Trump as doing a better job on infrastructure than Biden.
Based on this rendering, Biden and his backers might well conclude that the American electorate is woefully misinformed, and they should persevere in getting their message across to voters. My take, however, is that he should heed the message of voters and change his economic playbook before it is too late.
The principal reason Biden was elected was to restore normalcy to public office. When the Democrats gained control of both houses of Congress by the narrowest of margins, Biden sided with progressives in seeking the biggest expansion in government programs since LBJ’s Great Society. But he forgot how LBJ’s “Guns or Butter” strategy fueled inflation and led to higher interest rates. Instead, he listened to proponents of “Modern Monetary Theory” who claim that government spending is costless when interest rates are low.
This lesson is particularly germane now considering that federal debt held by the public has nearly tripled from 35 percent of GDP in 2008 to 98 percent in fiscal 2023. Moreover, it is on course to approach 130 percent of GDP in the next 10 years according to the Congressional Budget Office.
Meanwhile, yields on long-dated Treasuries at one point increased by about a full percentage point since the Fed raised rates at the end of July, while the 30-year mortgage rate surged to 8 percent. This has made homes unaffordable for many Americans, especially those who are first-time buyers.
In these circumstances, Biden would do well to study Bill Clinton’s playbook.
When he assumed office in 1993, the ratio of federal debt to GDP had doubled over the prior decade and the 10-year Treasury yield hovered around 7 percent. One of Clinton’s top priorities was to reduce the federal budget deficit and run surpluses as a way to lower bond yields. This objective was achieved by the end of his presidency when the Treasury yield fell below 5 percent. Clinton’s tenure was also one of rapid economic growth and low inflation.
Some, of course, may question whether it is too late for Biden to change tactics. However, with five months to go in the 1992 election, Clinton was trailing President Bush and Ross Perot, and political commentators were convinced he would lose the election. The turning point occurred when his political strategists, James Carville and Stan Greenberg, developed a carefully honed message to change his image and to focus on improving the economy with the tagline “It’s the economy, stupid!”
What makes it harder for Biden to alter voters’ perceptions is that he is well-known, and many voters perceive his policies have left them worse off. Given Biden’s predilection for large government programs, it remains to be seen whether he will acknowledge that fiscal policy is on an “unsustainable path” as Fed chair Jerome Powell has recently.
If he does not strive for fiscal responsibility, the risk is that bond yields will stay elevated and the economy will weaken ahead of the 2024 elections, adding to the challenges Biden currently faces.
Nicholas Sargen, Ph.D. is an economic consultant for Fort Washington Investment Advisors and is affiliated with the University of Virginia’s Darden School of Business. He has authored three books including “Investing in the Trump Era: How Economic Policies Impact Financial Markets.”