Bad economic policies and Biden’s loss
The US midterm election on November 8 was not such a disaster for the Democrats and President Biden as pollsters had predicted it would be.
On November 3, the president told a rally in Albuquerque, New Mexico: "Five days – five days to go until the most important election in our lifetime." At stake were all 435 seats of the House of Representatives (the lower house) and 35 (roughly one-third) of the Senate (the upper house).
While opinion polls had been predicting a major shift in voter sentiments away from the Democrats – who were in control of the White House and both houses of Congress – the news on election night, as results started to trickle in, demonstrated that the US electorate is much smarter than what political pundits had assumed.
One of the few axioms of US politics is the loss of seats by the president's party in midterm House elections. Data shows that, in the last 12 midterms, the party in command of the White House lost an average of 25 seats (except in 2002 after the 9/11 attacks).
Thus, it is no surprise that the 2022 elections were a setback for the Democratic Party, which is expected to lose control of the House of Representatives, and gave the incumbent President Joe Biden plenty of reasons to worry about the next two years of his term. Yale economist Ray Fair's forecasting model suggested that Democrats would get 46.7 percent of the national vote in November – down from the 51.3 percent in 2020 when Biden defeated Donald Trump. The actual number was pretty close, a little under 46 percent.
The outcome was not completely unforeseen. Polls leading up to November had uniformly pointed to the direction which US voters were leaning towards given the economic hardship and geo-political uncertainty that has resulted from two years of Biden's stewardship. It is also well-known that the Democrats were warned by many that the stimulus package unfurled by the-then newly elected Biden would only unleash inflationary pressures, and this was not helped by pandemic-related disruptions and geopolitical conflicts (in Europe and the Far East).
So, did Biden's economic policy determine the outcome of the elections? Yes and no. There were three factors in play: politics, policy, and economics.
Plato, the Greek philosopher said, "A democratic society in its thirst for liberty may fall under the influence of bad leaders," but added that "popular acclaim will attend on the man who tells the people what they want to hear rather than what truly benefits them."
It is known that Biden and the Democrats tried to distract people with their own agenda, including the January 6 riots, the Supreme Court's decisions, and the war in Ukraine. The Republicans played up the rising crime rate, immigration crisis, high interest rates, and defeat in Afghanistan.
The US economy overall is in very good shape, except for one issue: the rate of inflation has been high for almost a year, and there is no sign of it coming down soon.
The average price of unleaded regular gasoline has been ticking up again, reaching USD 3.80 a gallon on November 6, according to American Automobile Association (AAA). That is lower than the USD 5 we saw in summer, but 38 percent higher compared to the same period last year. And US consumers remember that the price of a gallon was only USD 2.40 when Biden took office.
The price of everything else has gone up considerably, too. The Federal Reserve, the US central bank, is on a mission to bring down the inflation rate to two percent, with only modest success so far.
The week before the election, there were two pieces of bad news: the Fed raised the interest rate another three-quarters of a percent and the rate of inflation was 8.2 percent in September. The good news on the economic front is that jobs are plentiful and the unemployment rate is low. But there are pockets of poverty and the wage rate is not rising with the cost of living.
The Fed also announced that, because inflation was higher and unemployment rate lower than what was necessary to curb inflation, it would be raising interest rates again and that the next year, the US electorate would have to live with a rising interest rate, high inflation, and possibly a recession.
Data shows that soaring prices and rising interest rates drove typical homebuyers in October to pay 77 percent more on their loans per month than they paid last year, according to Realtor.com.
Mark Zandi, the chief economist at Moody's Analytics, said "This may be the worst time in my living history for the home buyer – it just doesn't make sense."
So, yes, the economic news is not so good for homebuyers and commuters, but there are some silver linings. Used-car prices have come down, and home prices have reached a plateau in many markets.
However, the policies of the Biden administration are also facing strong headwinds before the new Congress convenes in January. Three issues need to be mentioned: the financial support for the war in Ukraine, Biden's kowtow to the rulers of Saudi Arabia, and the House Democrats' failure to control the January 9 investigation.
Although President Biden was not up for reelection, he was considered a weak and prevaricating leader. The Democratic Party was led by politicians who were clueless. A 30-member strong Congressional Progressive Caucus, a progressive group, came out with a statement beseeching the president to refrain from feeding the Ukraine War machine. According to the Congressional Budget Office estimates, US taxpayers are funding the war to the tune of USD 5 billion every month.
So, what can we expect in the coming months? Bloomberg Economics model projections show that a recession is effectively certain in the next 12 months because of tightening financial conditions, persistent inflation, and expectations of a hawkish Federal Reserve pressing ahead with rate hikes. The model is more certain of a recession than other forecasts. A separate Bloomberg survey of 42 economists, predicting the probability of a recession over the next 12 months, stands at 60 percent, up from 50 percent a month earlier.
Dr Abdullah Shibli is an economist and works for Change Healthcare, Inc., an information technology company. He also serves as senior research fellow at the US-based International Sustainable Development Institute (ISDI).