- Biden grappled with a string of disappointing economic news in May, posing a major test for his plans.
- But the White House appears intent on pushing ahead with another $4 trillion in spending programs.
- The GOP is stepping up their attacks, criticizing the proposals as job-killers.
- See more stories on Insider’s business page.
The past seven days has been the toughest stretch yet for Bidenomics – the product of President Joe Biden’s ambitious effort to slash entrenched economic inequalities through major spending on infrastructure, childcare, clean energy, education, and cash benefits.
The lackluster April jobs report fueled Republican criticism of a labor shortage, prompting at least 17 red states to announce they will start pulling out of federal unemployment programs in June. Then a sharp rise in inflation heightened concerns that consumer demand is outpacing supply in various economic sectors, pushing prices up for goods like used cars, airline tickets, and recreational activities.
Meanwhile, a gas shortage is pummeling many Americans in the southeast just ahead of Memorial Day, following a cyberattack shutting down an important pipeline that supplies fuel to the East Coast.
Yet the White House says it’s not getting knocked off course as it pursues $4 trillion in new federal initiatives to overhaul the economy, with Republicans stepping up their attacks.
“We have consistently shared our expectations that inflation would rise, and we’ve also stressed why we thought that would occur,” a White House official who spoke on condition of anonymity told Insider. “No one expected it would be smooth or easy to reopen our economy, and we have anticipated disruptions as we slowly work towards the recovery.”
Republicans contend the problems largely stem from Biden’s $1.9 trillion stimulus law in March and the huge amount of federal money it channeled into the economy on the heels of another $900 billion coronavirus relief package in December.
“I think the president’s team deserves criticism for not diagnosing the problems correctly,” Douglas Holtz-Eakin, a former economic aide to President George W. Bush, told Insider.
Holtz-Eakin said “demand is outstripping supply” and cited shortages of materials like computer chips. He added a related issue is that fewer Americans are in the workforce, arguing federal unemployment benefits are “part of that story, not all of it.”
This supply-demand imbalance has led to soaring prices, especially for used cars. “Inflation is always a supply issue,” Holtz-Eakin said. “To simply throw more money at it is not a solution.”
‘The trend is our friend’
Biden advisors argue the economy is demonstrating signs of healthy progress after a year of crushing restrictions, unemployment, and business closures. Despite April’s big jobs miss of just over 266,000 jobs regained, they say 500,000 jobs have been created on average in the past three months.
“We’re making good progress,” Cecilia Rouse, chair of the Council of Economic Advisors, said at a news conference on Friday. “However we must keep in mind that an economy will not heal instantaneously. It takes several weeks for people to get full immunity from vaccinations, and even more time for those left jobless from the pandemic to find and start a suitable job. Supply chains have been disrupted and sectors hardest hit are just beginning to come back.”
“The trend is our friend, moving steadily in the right direction,” White House economist Jared Bernstein told Bloomberg on Tuesday.
Many economists cautioned against misinterpreting the 4.2% rise in consumer prices last month – the largest monthly increase since 2008 – given it was measured from a year earlier. Prices plummeted in April 2020 as businesses closed their doors and people sharply cut their spending, so the resulting increase appears larger which many experts had been forecasting.
But former Treasury Secretary Lawrence Summers, who has consistently criticized the scale of Biden’s spending, is not one of them. “I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers told Bloomberg. “That has to make us nervous going forward.”
Federal Reserve chair Jerome Powell said he expects inflation to subside later in the year.
Despite the recent tremors, Democrats remain confident that they will be able to secure passage of Biden’s economic proposals, financed with tax hikes on high-earning Americans and large firms.
“It’s way too early to say that this job recovery won’t continue robustly,” Rep. Don Beyer of Virginia, chair of the Joint Economic Committee in Congress, said in an interview. “I believe it’ll take until August that we get a House bill over to the Senate that’s dealing with the potential tax increases, so there’s still a lot of time to figure out what’s happening in the economy.”
The first is a $2.3 trillion spending plan devoted to highways and roads, in-home elder care, domestic manufacturing and clean energy. The other is a $1.8 trillion package focused on cash payments for families, free community college, affordable childcare, and paid family and medical leave.
Beyer said “there isn’t any anxiety about the spending plans” among Democrats he’s spoken to, though they’re open to a deal with the GOP that would likely diminish the size of a package.
“Politics is the art of the possible. We’re not going to be angry at a President Biden who ends up finding a compromise ground that 10 Republicans can live with,” he said, referring to the number of GOP votes in the Senate that Democrats need for a proposal to clear the evenly-divided chamber.
Biden could strike a spending deal with Republicans
The White House is in the midst of negotiating with Republicans on the $2.3 trillion package known as the American Jobs Plan. With Senate Minority Leader Mitch McConnell’s stamp of approval, Sen. Shelley Moore Capito of West Virginia is steering the talks on the Republican side with an initial $568 billion offer. Only a third of it is new federal spending.
On Thursday, Biden described it as “a genuine effort,” and added “I think we can get there” as a two-hour meeting with Capito and a group of Republicans got underway.
“It was a very positive meeting,” Capito told Fox News on Friday. “We’re going to go back to the president early next week with another offer that, in light of the conversation that we had, trying to seek that bipartisan agreement.”
Both parties remain far apart on the price tag of a plan and even defining what makes up infrastructure. Republicans are pushing to constrain it to only physical transportation and communications, while Democrats want to include robust safety net spending on childcare and education.
The White House is walking a tightrope when it comes to pushing a potential deal through a 50-50 Senate and narrow House majority. Many Democrats are calling for a large infrastructure package with large new investments, given their full control of Washington’s levers of power.
They are also wary of dragging out negotiations when they have the ability to approve a wide range of the spending plans in reconciliation, a tactic to approve a budgetary bill with a simple 51-vote majority in the Senate.
Sen. Ron Wyden of Oregon, who heads the Senate Finance Committee, is kicking off infrastructure hearings later this month. He said there’s “a lot more work to do to climb out of the deep economic hole the pandemic created.”
“Control of both chambers of Congress and the presidency is rare, and it’s critical that Democrats do all we can with this opportunity to make real progress for the American people,” Wyden said in a statement to Insider. “While it would be our hope that we can do much of what the president outlined on a bipartisan basis, it’s much more important to get things done for the American people.”