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Aug 25, 20239 min read

What is Bidenomics?

Updated: Aug 26, 2023

"Despite a voluminous and often fervent literature on "income distribution," the cold fact is that most income is not distributed: It is earned."― Thomas Sowell

A note to readers: This is the longest blog I have written, and the subject is not a fire-in-the-belly outrage as some other blogs are. I like to know what the circumstances are that got us here. If you find economics dull and uninteresting, jump to the end of the blog for just Bidenomics.

We keep hearing about President Biden's economic plan that the Media has labeled

"Bidenomics." No doubt this is a play on words to put Biden's program on the same level as Ronald Reagan's economic strategy, referred to as "Reaganomics." Economics is extremely complicated; however, the rules are straightforward. Your results depend on how you apply the principles and what you want to accomplish.

To understand Bidenomics, it is wise to try and understand Reagonomics. Before you understand Reagonomics, you should know about the Laffer Curve. The application of these principles does not work in all situations. As an economist, one must understand what occurred in the past and do we have a problem currently that mimics the same situation. If the current state of affairs is different, what principles will change it and bring about the change we desire?

The Laffer Curve

Developed by economist Arthur Laffer in 1976, the Laffer Curve has two effects on the federal budget.

Arithmetic

Every dollar in tax cuts translates directly to one less dollar in government revenue.

Economic

A tax cut puts money into the hands of taxpayers, who then spend it. The increase in demand creates more business activity. For this, companies hire more workers, who then spend their additional income.1

A tax cut's impact on the economy also depends on four other components:

The time period being considered

How easy it is to switch to an underground economy

The availability of tax loopholes

The economy's productivity level

Any of these factors can prevent tax cuts from stimulating economic growth. If all these circumstances lined up right, the tax cut could generate enough economic growth to generate a more extensive tax base. Eventually, it could replace any revenue lost from the tax cut. 2

This is an excellent explanation of the Laffer Curve By Joshua Kennon.

Imagine you have a friend. You do everything for him. You don't feel like he's mainly responsible, but you still help him pay off his credit card debt, drive him to work, help him study, and take him to the free clinic when he shows up on your doorstep after a night of binge drinking. Finally, his behavior escalates out of control, and he demands more of your time and money. You start dodging his calls. You avoid him when you see him at the store. One day, it becomes too much trouble. You throw up your hands and decide to stop. You quit. You're done. You're out.

Now, imagine that you are the responsible one and the irresponsible friend is the government.

Congratulations, you now understand the economic concept known as the Laffer Curve.

What Is the Laffer Curve?

The Laffer Curve, which is sometimes called the Laffer-Khaldun Curve, is a theoretical

relationship between the money a government raises through taxation and all possible taxation rates. The underlying hypothesis behind the Laffer Curve is that if tax rates are 0%, no money will be raised. If tax rates are 100%, no money will be increased because people will refuse to work or cheat to avoid taxes, forming a shadow economy (i.e., throwing up their hands and giving up).

The lesson to take away from the Laffer Curve is that there comes a point at which raising tax rates further will result in a decline in tax receipts because it changes the behavior of the population being taxed. 3

"Taxpayers understand that a high tax rate, 70%, for instance, takes a lot of money out of the hands of consumers and into the coffers of government. The idea here is that the government knows better how to spend the money than the one who earned it." Quote by Abe Glaser

Reaganomics

When Ronald Reagan took over as president, something had to be done to curb the rising inflation.

“Reaganomics refers to a four-point economic program introduced by Ronald Reagan. Reagan was the 40th US president. In 1981, the US faced stagflation and recession. To alter the course of the US economy, Reagan implemented a partial blend of trickle-down theory and supply-side economics. As a result, the compound annual growth rate of the GDP rose by 3.6% during his tenure.” 4

I am getting weary of the article just quoted above. They claim Ronald Reagan took over the

Presidency from Gerald Ford, under whose presidency we got Stagflation. We all know this is incorrect. Having lived through this era, I know that former Georgia Governor Jimmy Carter was President during Stagflation. (I looked it up just in case I was wrong.)

You can see from the chart above what Reaganomics tried to do. Reagan's policies reduced burdensome taxes, decreased unemployment, market deregulation implementation, and increased military spending. The GDP rose 3.6% compared to 2.7% in his eight years in office. This spurred economic growth and created more jobs. Please note: Donald Trump did the same thing during his term in office.

Wallstreet Mojo claims in their article that the Reagan policies led to the savings and loan crisis in 1986. They further state:

“In hindsight, Reagan’s trickle-down effect failed. The tax savings offered to the rich did not lead to job creation. The savings were accumulated, and the rich became richer.

The policies created a wide divide between the wealthy and economically challenged sections of the US.” 5

I don't know about the folks at Wallstreet Mojo. Still, after Reagan took over, instead of paying 12% interest to buy a truck, the interest rates dropped substantially so hoi polli (Greek for the many or commoners) could breathe again.

Objectives

"Let us understand the objectives behind curating the Reaganomics economics during turbulent times in the U.S. economy through the explanation below."

Cut Down Taxes: The rich and the high-income groups were allowed a tax relaxation—from 70%, it was brought down to 28%. Corporate taxes were also brought down from 48% to 34%. But, at the same time, excise duty and social security payroll taxes were raised—to offset losses.
Reduce Government Spending: Reagan changed the pattern of government spending. Instead of funding the domestic programs, the government spent a significant sum on defense, nuclear power, and strategic defense initiatives.
Decrease Regulations: To establish a free-market equilibrium, Reagan waived off-price control over domestic gas and oil (a tax formerly levied by President Nixon). Moreover, Reagan deregulated bus service, cable T.V., ocean shipping, and long-distance telephone service. On the other hand, he reinforced import regulations.
Slacken Inflation: Reagan implemented various contractionary monetary policies to reduce inflation. As a result, the Federal Reserve increased the fed fund rates. By 1988, inflation decreased from 13.5% to 4.1%." 6

“Effects

In the 1980s, Reagan’s economic program tried to rejuvenate the US economy. The results had both positive and negative impacts. Let us discuss both ends of the spectrum of the Reaganomics impact through the discussion below.

#1 – Positive Impact

The government’s tax revenue rose from $517 billion in 1980 to $909 billion in 1988. From 13.5%, inflation was brought down to 4.1%. Twenty million new jobs were created in the US.

US GDP increased by 26%.

From 7.6%, unemployment was brought down to 5.5%.

From 21.5%, interest rates were brought down to 10%” 7

Reagan's policies were labeled "VooDoo Economics" by its detractors. What would they prefer, double-digit inflation instead? The Dow Jones Industrial Average grew 14 times during this monetary cycle. At least 40 million jobs were added to the economy. The dollar gained in strength internationally. Markets stabilized, and investors were motivated to put their money back into the market. The military was re-equipped, although domestic spending slowed significantly.

Bidenomics

Before I get into the highlights of Bidenomics, please remember what the U.S. economy was like when President Biden took over. Gas and food prices were low. Unemployment was low. Employment was at an all-time high for Black people, women, and Hispanics. Our military was strong, and the world respected America. In fact, most democratic governments looked to us as the guardians of world order. Then, the China Virus swept across the planet, and the Biden Administration took over.

The White House explanation of Bidenomics is riddled with misinformation. Some might call them lies. You can find the link here to wade through this commentary. 8

The Biden Administration hates Trickle-down Economics. Yes, the rich got richer. When you cut the taxes of the money makers, they tend to re-invest in new projects, new factories, and fund innovation. This theory seems to get lost by the Marxist/Communists/liberals. As the saying goes, "Would you apply for a job with a poor person?" Middle-income and low-income people tend to spend their extra cash.

"The President (Biden) took office determined to move beyond these failed trickle-down policies and fundamentally change the economic direction of our country. His plan—Bidenomics—recognizes that the best way to grow the economy is from the middle out and the bottom up. It's an economic vision centered around three key pillars:" 9

Making intelligent public investments in America
Empowering and educating workers to grow the middle class
Promoting competition to lower costs and help entrepreneurs and small businesses thrive 9

It was tough to wade through the misinformation and made-up figures claimed in this official White House position. They claim Bidenomics will rebuild the economy from the middle out and the bottom up, not the top down. The White House claims this strategy is working.

The chief elements are the three laws Biden signed in his first two years: the bipartisan infrastructure law that's spurring road and bridge building; the CHIPS and Science Act, which boosts the manufacturing of semiconductors inside the U.S., and the Inflation Reduction Act, which contains hundreds of billions of dollars to fund clean-energy projects and address climate change. 10 (Green New Deal)

Please remember that the government voted to spend four trillion dollars to enact these laws. That is, Democrats and Republicans who voted to create money from thin air. Do you wonder where did the money go? The killer thought, who will pay for this massive expenditure, and what do we get for the money?

The Infrastructure Law has funded 32,000 projects in 4,500 communities. The 1.2 trillion dollar law funds roads, bridges, railways, broadband internet, and electric car charging stations. Biden claims Donald Trump could not get this law passed. 11

The CHIPS and Science Act of 2022. The White House claims $150 billion has been invested by business. So far, Micron has invested $40 billion, Qualcomm, and Global Foundries 4.2 billion.

The Inflation Reduction Act does not reduce inflation. President Biden has said he should not have named it that, but the name he gave it helped get it passed by the legislature. Claims that the Act will reduce emissions are rooted in government subsidies for electric cars, hence, less carbon emissions. More electric car charging stations will be built to make it more convenient to charge vehicles when away from home.

The Act will also help Americans upgrade their old household appliances; This is legalese for requiring buyers to purchase electric stoves and water heaters. The Act will also make solar panels, electric HVAC, and water heaters more affordable. Jennifer Grandholm's Department of Energy is forcing ceiling fan makers to revise their fans to be more energy efficient. Savings to homeowners is $39.00 for the life of the fan. The cost to manufacturers is $89.1 million. This makes no sense until you understand that the Marxist push is to get rid of small businesses.

This legislation is designed to wean us off fossil fuels and force us into electric products that...wait for it...require fossil fuels and coal to make electricity. This sounds idiotic. Bernie Sanders, Alexandria Ocassio Cortez, and Xi Jinping of China are pretty happy, though.

This Act is not a quick fix for inflation; rather, it will have long-term effects until 2025. Who benefits from this legislation? The big Green Donors top the list of those who profit from this Act. Some of the manufacturers are having some problems with their electric products. Ford Motor Company has ceased production of the Ford Lightning truck. It seems they don't work, and Ford can not make a profit.

So there you have it. Bidenomics explained for the rest of us. Can you teach someone what you have learned?

References

1. Amadeo Kimberly. What Is the Laffer Curve? Why Tax Cuts No Longer Work, the balance, March 4, 2021

https://www.thebalancemoney.com/what-is-the-laffer-curve-explanation-3305566

2. Ibid

3. Kenno, Joshua, The Laffer Curve for Beginners, Thoughts on Business, Politics, and Life, https://www.joshuakennon.com/the-laffer-curve-for-beginners/

4. Vaidya, Dheeraj, CFA, FRM, Reviewed by, Article by Wallstreetmojo Team, Reaganomics, Wallstreet Mojo, https://www.wallstreetmojo.com/reaganomics/

5. Ibid

6. Ibid

7. Ibid

8. The White House, Bidenomics Is Working: The President's Plan Grows the Economy from the Middle Out and Bottom Up—Not the Top Down, Briefing Room, Statements and Releases, June 28, 2023, https://www.whitehouse.gov/briefing-room/statements-releases/2023/06/28/bidenomics-is-working-the-presidents-plan-grows-the-economy-from-the-middle-out-and-bottom-up-not-the-top-down/

9. Ibid

10. Sasso, Michael, Bloomberg, What Is Bidenomics? It Depends If You're a Democrat or Republican, The Washington Post, August 15, 2023, https://www.washingtonpost.com/business/energy/2023/08/15/what-is-bidenomics-president-biden-s-economic-philosophy-explained/e9ba8398-3b9b-11ee-aefd-40c039a855ba_story.html

11. Garrison, Joey, Biden infrastructure law has funded $220B in projects. But are Americans noticing?, USA Today, May 12, 2023, https://news.yahoo.com/biden-infrastructure-law-funded-220b-091123377.html

The 'Bidenomics' plan, explained

https://www.cnn.com/2023/06/28/politics/bidenonmics-explained/index.html