The Economy Grew Again, But Not Because of Biden's Fiscal Policies
The national economy finally grew again over the third quarter after two consecutive declines from the two previous quarters of the year 2022, which marked an economic recession. The U.S. Bureau of Economic Analysis released its report for the third quarter and asserted that the national economy improved from negative rates (-0.6 percent in Q2 and -1.8 percent in Q1) to an annual rate of 2.6 percent. The fact that the economy has slightly grown is good news for us all. However, it is important to remain lucid and understand that this good news is only temporary as the shadows of an even more pronounced recession are still hanging over the national economy. But the most important question to ask ourselves is to know who benefits from this temporary relief.
Joe Biden and his administration are clearly the big winners. Indeed this news is a major political win for President Biden personally for the time being. The Biden administration has been struggling to regain the confidence of the public since last October when inflation became significantly rampant. The economy shrunk twice consecutively, and this situation was so worrisome that the Biden administration attempted to change the definition of a recession to make it look like the country was just experiencing some economic turbulence rather than an actual recession. His Treasury Secretary, Janet Yellen, underestimated the magnitude of the situation and thought that inflation was merely transitory. She later conceded that she misjudged the economic situation of the country and that it was far more serious than she would have anticipated. The quarter has produced encouraging results and Joe Biden will ruthlessly exploit this opportunity by taking all the credits he can to save his political career which hangs by a thread. The economic situation has undeniably improved. But this improvement remains timid. More importantly, this economic improvement is not the doing of Biden’s fiscal policies, but rather the doing of other factors unrelated to Biden’s policies.
The first factor is the parity of the Dollar to the Euro. This recession has been an important opportunity for the dollar to strengthen its value and match the Euro. Today one dollar equals one euro. This regains people’s confidence in the dollar. Second, the Federal Reserve has been aggressively increasing interest rates in order to tame inflation. This, in turn, has been reducing consumer spending to a degree. Inflation remains, nonetheless, high; above 8 percent. The latest report from the U.S. Bureau of Labor Statistics shows that inflation was at 8.2 percent in September 2022, while it was at 8.3 percent in August and 8.5 percent in July. Third, total factor productivity remained fairly constant. Manufacturing sector labor productivity increased by 4.7 percent in the second quarter of 2022, as output increased 4.0. percent while hours worked decreased 0.7 percent. In fact, the manufacturing labor productivity index was 4.7 percent higher in the second quarter of 2022 than in the fourth quarter of 2019, despite the fact that real output annual rates declined during the second quarter of 2022. What is important to fathom here is that between the first and the second quarters of 2022, manufacturing output continued to grow steadily from 102.451 to 103.465 while manufacturing productivity grew from 103.506 to 104.709. Fourth, the annual rate of private services remained positive while private goods dramatically decreased during the second quarter of 2022 as we can see in this graph.
Fifth, unemployment has continued to decline consistently despite a decline in real output during Q1 and Q2 from 3.8 percent to 3.5 percent. This means that the private sector has been hiring unswervingly. The Biden administration does not create jobs in the private sector, and the number of people who could work in the public sector is limited.
The Inflation Reduction Act signed into law by Biden is definitely not responsible for increasing real output over the third quarter since inflation remains high. Moreover, throughout the year, the Biden administration has increased the national deficit by $1.38 trillion. The deficit has indeed shrunk this year compared to the two previous years. Nonetheless, the government continues to spend more than it collects in revenues, and increasing the deficit does not make our economy better if we are bound to pay endless debts. This slight economic growth is a relief for President Biden in the sense that it could save the credibility of his presidency during the midterm elections. Nevertheless, many economists have forecasted a forthcoming recession in the next twelve months. And this could potentially happen with the housing market which is currently in a bubble.