Winners and Losers in the Biden Economy
De Long is wrong about current economic conditions
Yesterday President Biden discussed his efforts to “bring manufacturing back home” and “our progress in building the economy from the middle out and the bottom up, not the top down”. Biden went on to explain how “when the middle works and the bottom has a shot up the wealthy will do very well… when the middle class does well everybody does well”. Biden claims that Bidenomics “is working”. Economist Brad DeLong agrees. De Long claims that the large number of unfilled jobs in the current economy gives workers “more bargaining power to exact nominal wage increases”.
Biden and De Long are both confused. If workers had abnormally strong bargaining leverage they would bargain for real wage increases, not for nominal wage increases. Data reveals an all time record decline in real worker compensation since 2020.
The above graph does show that the most recent real compensation losses are less, relatively minor. Still, the idea that workers have gained overall in the Biden economy is incorrect.
Some people have realized financial gains in the Biden economy. The next graph plots unit corporate profits, adjusted for inflation1.
Statistics indicate that US workers have endured record hourly compensation losses, while real profit rates are at their highest level since the 1960s. How does this fit with Biden's claim that he is building the economy from the middle out and the bottom up- rather than from the top down?
The problem with Bidenomics is that it focuses on transferring wealth, rather than on creating wealth, or what economists refer to as rent-seeking. The idea that Democrats would focus on transferring wealth is unsurprising. The apparent direction of Biden’s wealth transference may come as a surprise to his rank and file political supporters. I doubt that Biden's corporate donors are surprised by this at all.
It is also worth noting that fluctuations in unit profits may be a leading economic indicator. This makes perfect sense, as declining profit rates should discourage hiring and additional production.