The Economy is Doing Best Where People are Most Angry About It
Following on from last time, where we explored how people are much more concerned about kitchen table issues than they are about democracy, I thought it would be interesting to look at how the economy is doing. Specifically, how is the economy doing in Trump country—the places where people are most angry at Biden about the economy?
Turns out, the economic policies chosen by the Biden administration are helping Trump voters a whole lot more than they are helping progressives.
Much of this simply is due to the large, and growing, partisan gap of college and non-college educated voters. President Biden promised he was going to work to build a better life for people who have been left behind. This feeling of being left behind is a big part of the attraction many voters felt toward Trump in the first place. By definition, then, if President Biden helps those left behind, he is going to be disproportionately helping Trump voters.
And he has.
Relative to counties won by Biden, Trump voting counties have seen more population growth; more growth in employment, more growth in business establishments, and less inflation.
Quite often I find myself cautioning people about the amount of impact a president can have on the economy. In all honesty, a President’s ability to impact an economy is pretty small, and far smaller than most people realize. Because of this, it is still possible for Trump voting counties to feel like the economy isn’t doing great; but however they feel about the economy, they are getting more benefits than Biden voters.
In addition to this, and contrary to my cynical axiom, Congress has actually done stuff too. Congress has, or at least can have, an immense impact on the economy—Americans just tend to think in terms of presidential administrations. In this case, that might be a fair paradigm, because everything Congress has done to help the economy in the last two years has been through the encouragement and support of Biden.
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The supply chain disruption from Covid showed businesses that ‘just in time’ inventory strategies left them vulnerable if global logistics hit a pothole. On top of this, businesses are growing less tolerant of the stringent requirements the Chinese government places on foreign firms that use Chinese manufacturing. Many businesses that rely on Chinese customers are still playing friendly with China—Elon Musk is the best example here—but companies that don’t sell a lot in China are starting to lean away from manufacturing in China. These natural business tendencies have been accelerated by several of the Biden administration’s policies, some of which also came with the help of Congress.
President Biden’s Made in America policy has a lot fewer loopholes than did President Trump’s. The US government buys a good deal of stuff for all its programs, so making them more likely to buy products made in the US is helping manufacturing.
The CHIPS act provides a lot of incentives, including cash, for microchip and semiconductor companies to make their chips in the US. After the huge logistical logjam Covid threw into the chip market this was likely to happen anyway, but the CHIPS act both increases the amount of reshoring and speeds up the reshoring of chip manufacturing.
The Inflation Reduction Act was really more or less a clean energy bill with a few other tack ons—like cheaper prescription drugs. This increases manufacturing jobs as well for clean energy capital.
There have been other policies pushed by the White House as well, but the end result is over 600,000 manufacturing jobs returning to the US in the last two years. That is a massive number that keeps being overlooked. The bottom line to think of here is that roughly 5% of all US manufacturing jobs are jobs that came back from overseas in the last two years! That is remarkable progress.
Manufacturing jobs are overwhelmingly staffed by demographics that heavily lean toward the conservative wing—men without a college education. Given the need for a lot of space and resources for new manufacturing facilities, they are also much more likely to be located in rural areas which are conservative strongholds. It is wildly underappreciated by these areas just how much help they have gotten, and will continue to get from Biden economic policies.
In general, Biden has really amped up the crack down on China. He has left in place the tariffs imposed by President Trump, and has strengthened and expanded Trump’s prohibition on certain Chinese tech equipment. Biden has also prohibited US investors from collaborating with Chinese tech companies that might use the expertise of American partners to expand their surveillance and chip making capabilities, as well as banned US companies from selling high tech chip manufacturing equipment to China.
The cynic inside of me won’t let me stop thinking about how the elites in the United States were totally fine with China when it was just the rural, blue collar Americans suffering from Chinese competition. Kentucky, where I grew up, and central Kentucky in particular, where all my kids were born, was particularly hard hit by jobs shipping out to China. Now that China’s growing capabilities in advanced manufacturing and military threaten the livelihood of the elites in the United States, the elites finally care about Chinese competition. It’s a sad reality of a country that has built a pipeline from rich parents to east coast prep schools to Ivy League colleges to Fortune 500 Companies or high government positions. Few of these folks ever crossed paths with the rural workers who were hurting, and fewer still cared enough to do something until China came knocking on their own doors.
Either way, late is better than never, and this has already and will continue to help rural Trump voting Americans more than urban Biden voting Americans.
Far beyond just battling China, Biden policies are helping rural Americans in many ways.
The most meaningful policy shifts aren’t even these immediate impacts of the policies I’ve described so far. Biden has set his sights on long term economic gains too—some which will continue to benefit Americans long after he has left 1600 Pennsylvania. These most important policies are in antitrust. For the first time in my lifetime a president is using the agencies created by Congress to punish companies that want to manipulate the economy for their benefit.
I’ve written about this stuff in it’s theoretical implications before, but these are real world impacts. Mergers are being challenged, inside dealing is being punished, opaque and predatory practices are being investigated, tax cheats are being chased, and monopolies are being fought from big tech to meat packing.
The pattern with all of these economic policies is to move free markets back toward being competitive markets—which economic theory requires for capitalism to produce optimal outcomes. More competition will breed economic benefits for decades to come. Even this will be disproportionately more beneficial for rural areas. Smaller populations are more susceptible to monopolization in many markets. There are fewer customers, and locally sourcing products can be expensive for many different reasons. Often, rural areas have only one place to go for any particular category of good. More competition will help.
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All of this adds up to an economic agenda that is most beneficial to the very people who hate Biden the most. It’s an irony that has been lost on almost everyone in the political arena as they discuss the upcoming midterms. Biden really deserves more credit for this, but he won’t get it because of social issues dominating the headlines. More on that later this week.
Biden could go further if he wanted. With the help of Congress he could pass divestment tax incentives for companies that leave China. When companies get new equipment—whether it’s buying a computer or building a plant—they get to write off a portion of the cost on their taxes. This is called depreciation, and the goal is that by the time the useful life of the truck, warehouse, backhoe, or drill reaches its end, the entire cost of the item will have been allowed to depreciate and be written off on taxes. But businesses benefit from immediate depreciation—allowing 100% of the write off to occur in the first year—for financial/investment reasons. Biden, with the help of Congress, could accelerate depreciation schedules for any capital that is built as a result of divestiture from China.
Big companies are growing increasingly weary of China’s internal politics and regulations, so this nudge would help get them out the door. The policy could be written so the companies that move to Korea, Singapore, Malaysia, or any other Pacific ally get benefits, but companies that move back to the US get larger benefits.
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