By Peter J. Ferrara, Senior Fellow at The Heartland Institute
Perhaps the most important issue facing the country during the next four years is how our President will steer the economy and bring us out of the coronavirus recession. If history is any indicator, a Joe Biden Presidency would stifle the economic recovery.
Nobel prize winning economist Milton Friedman observed “the worse the recession, the stronger the recovery.” That is because the economy has to grow faster than normal, and typically does grow faster than normal, when recovering from a recession to catch up to where the economy would have been without the recession.
By this metric, after the deep 2008-2009 financial crisis, the Biden-Obama economy should have come out of that recession in an historic, skyrocketing boom. But nothing like that happened until Donald Trump was elected in 2016.
My 2016 paper for the Heartland Institute “Why the United States Has Suffered the Worst Recovery Since the Great Depression,” showed there were 11 other recessions since the Great Depression before Biden-Obama. Based on jobs, economic growth, poverty, middle class incomes, and inequality, the Biden-Obama recovery was the worst of any of them.
In the 11 other recessions since the Great Depression, the economy recovered all the jobs lost by an average of 27 months after the recession started. In the Biden-Obama recovery, the recession’s job losses were not recovered until after 76 months – more than six years.
Those Biden-Obama years included the longest period since the Great Depression with unemployment above 8 percent. Unemployment remained above 8 percent for 43 months, from February 2009, when Biden-Obama adopted the nearly $1 trillion dollar stimulus package, until August, 2012. That was almost the entire first term of Biden-Obama. It also included 30 months with unemployment above 9 percent, from April, 2009 until September, 2011. That was the longest period with unemployment above 9 percent since the Great Depression.
The only other period since the Great Depression with unemployment above 9 percent was a much shorter period of 18 months during the 1981-1982 recession. That recession was caused by tight Fed monetary policy to slay the double digit inflation of the late 1970s.
All the job losses from Reagan’s 1981-1982 recession were recovered after 35 months. By 76 months after that recession started, Reagan’s economy had created 12.8 million jobs. After 76 months of the Biden-Obama recovery, Biden-Obama had merely caught up with the jobs lost during the recession, leaving a net gain of zero jobs during those six-plus years.
By early 2016, 98 months into the Biden-Obama recovery, Biden-Obama had created 9.4 million jobs on net. By 98 months into Reagan’s recovery, the economy had created 21.5 million net jobs.
In the 11 previous recessions before Biden-Obama, the economy recovered the GDP lost during the recession within an average of 4.6 quarters, or just over a year. It took Biden-Obama 14 quarters, or fully 3.5 years, to recover the lost GDP of its recession. Reagan’s recovery took half that time, seven quarters, to recover the lost GDP from the 1981-1982 recession.
By 32 quarters (eight years) after the 2007-2009 recession started, compounded real annual growth in the Biden-Obama economy increased by 1.2 percent. After 32 quarters of Reagan’s recovery, compounded real annual growth increased three times as much, at 3.6 percent.
The Biden-Obama recovery performed so poorly because Biden-Obama increased taxes, government spending, government-centric jobs programs, and regulation, crowding out private sector jobs.
Joe Biden is now promising to do the same to President Trump’s economic policies. Biden is pledging to repeal Trump’s tax reform, increasing taxes by nearly $4 trillion. He is promising to increase regulation and government interference in the economy. He promises to impose the most expensive energy sources on American businesses and the American people. And he promises to massively increase federal spending with Medicare for All.
Joe Biden 2.0 would result in the same economic sluggishness as Biden 1.0. During these troubling times, our economy requires much better than that.
Peter J. Ferrara is a Senior Fellow at the Heartland Institute, and at the National Tax Limitation Foundation. He formerly served in the White House Office of Policy Development under President Reagan, as Associate Deputy Attorney General of the United States under President George H.W. Bush, and as the Dunn Liberty Fellow in Economics at the King’s College in New York.