Biden’s Economic Time Bomb: A Warning to Trump
Editors’ Note: This essay preceded the landslide election of Donald Trump as the 47th President. It is a cautionary prediction that must be acknowledged and managed as we move into the second Trump era. When so much inflationary spending has artificially puffed up the economy, and most of the job growth has been in government, it stands to reason that spending reduction and waste reduction will, at least temporarily, make some of the economic performance numbers look worse than before. But every binge must be followed by a hangover.
The insane neo-Keynesian policies implemented by the Biden-Harris administration have created persistent inflation and record levels of debt with two objectives: to bloat Gross Domestic Product and jobs with public spending and government jobs.
The United States’ insane inflation is solely due to out-of-control spending and currency printing. Corporations, wars, or supply chains cannot cause aggregate prices to rise, nor can they consolidate the increase even at a slower pace. Although this can have an impact on individual prices, the only factor that causes aggregate prices to rise year after year is the decline in the value of the US dollar that the government issues.
Over 20.5% accumulated inflation over the past four years, government deficit spending has reached nearly $2 trillion annually despite record tax receipts and a growing economy, public debt has reached almost $36 trillion, and the monthly job figure includes an astonishing 43,000 new government jobs each month. In 2023, nearly 25% of all job gains were government ones, and the entirety of the growth of the labor force in the past four years came from foreign workers. The latest jobs figure is so poor it seems disingenuous to blame it on hurricanes and strikes, as if economists and forecasters had not considered those two factors in their estimates. Furthermore, the only factor that continued to increase uncontrollably was the number of government jobs, adding 40,000 new positions to an overall total of just 12,000 jobs. No wonder the labor participation rate and employment-to-population ratios remain below 2019 levels. Furthermore, in the latest GDP figure, government spending accounted for 30% of the annualized growth, while investment was basically stagnant. In the past nine quarters, government spending has been one of the top drivers of GDP growth, and its contribution to GDP in the third quarter of 2024 was the largest in a year.
This is upside-down economics in full swing. Private sector investment weakness, higher taxes for the productive economy and government spending and debt driving the economy. Of course, this never ends well.
The Harris-Biden administration arrived in January 2021, when the economy was bouncing back strongly. Instead of allowing the private sector to thrive, it embarked on a strategy of out-of-control spending and tax increases with two objectives: increase the size of government in the economy so much that the next administration would be unable to reduce it enough in four years. The second objective was to bloat growth and job figures so aggressively that the next administration will see a recession if it reduces public sector growth. You may ask yourself why they would do it if Harris intended to win the elections. If Kamala Harris wins, she will continue to expand the size of government, inflate prices through spending and printing, and blame companies and stores for these actions.
The Biden-Harris administration has left a massive time bomb for Trump and Elon Musk’s government efficiency office if they win. It will be almost impossible to avoid a recession if they cut discretionary spending and eliminate duplicate jobs. It is the same strategy that the socialists followed in Greece, Spain, and France, by the way.
However, the socialist strategy may backfire. The evidence is that citizens do not value Biden’s policies and the state of the economy. The approval rate regarding the economy is atrociously low, 39.8%, according to RCP. United States citizens do not believe that they are better off than in January 2021. Inflation, immigration, and rising taxes have crippled small businesses and families. Furthermore, a strong pro-growth strategy and lower taxes will likely boost the dormant investment figure, create jobs in the private sector, and help small businesses achieve critical mass and grow. In Argentina, Milei recognized the necessary actions and cautioned the citizens about the inevitable reduction of the bloated state. The Kirchner socialists left a more significant time bomb legacy than what Trump might inherit. The response has been overwhelmingly positive. Lower inflation led to lower taxation, an eight-month budget surplus, and rapidly improving public finances.
The biggest risk for the United States economy and the US dollar as the world’s reserve currency is out-of-control public spending and constant currency printing added to tax hikes. Healing public finances and reducing government jobs may have a temporary negative impact on GDP, but higher exports, investment, and private sector jobs will likely compensate for it, and the result will be better for the US dollar and American citizens.
More government is always poorer citizens. The potential of the United States economy’s private sector is much greater than the short-term negative impact of efficiency and budget control on headline GDP.
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This article was published by the Ludwig von Mises Institute and is reproduced with permission.
