When President Joe Biden first promised to “grow the economy from the bottom up and the middle out” through public investments, empowering workers, and promoting competition, critics scornfully derided his agenda as “Bidenomics.” And when the president defiantly embraced this epithet by making it the economic centerpiece of his reelection campaign, even some allies questioned the wisdom of stamping his name on an economic recovery that is as misunderstood as it is strong. Despite record-low unemployment, rising real wages, strong GDP growth, and a rapid fall in the inflation rate to below both global and historical averages, only 36 percent of Americans say they approve of Biden’s handling of the economy. Given such weak approval numbers, “Bidenomics” might at first appear to be an ill-advised slogan for a reelection campaign.
But to dismiss Bidenomics as mere sloganeering is to miss the point: The Biden Revolution is real, and running on Bidenomics is key, not just to winning reelection, but to winning the battle to establish a new consensus over how to manage and build our economy in the decades ahead.
Like Reaganomics before it, Bidenomics is largely an argument over economic cause and effect. Bidenomics argues that a large and thriving middle class is the primary cause of economic growth. “When the middle class does well, everybody does well,” the President has repeatedly explained. This is the core proposition of Bidenomics: that prosperity grows from the bottom up and the middle out.
Reaganomics, by contrast, argues that wealthy “job creators” are the primary cause of economic growth. “If we want job growth, we need to recognize who really creates jobs in America,” former House Speaker John Boehner memorably explained in a speech that lauded President Ronald Reagan for recognizing “that private sector job creators are the heart of our economy.” This is the core proposition of Reaganomics: that prosperity trickle’s down from the top.
This argument between Bidenomics and Reaganomics—between “middle-out” and “trickle-down”—reflects a fundamental disagreement over how market economies work with enormous implications for how we craft economic policy. Reaganomics argues that it is the availability of investment capital (that is, the money of the wealthy) that is the primary constraint on growth, and so it advances policies that focus on the needs of investors while trusting in the “invisible hand” of the market to fairly and efficiently distribute the benefits of any resulting growth. But Bidenomics understands that the only way to grow the economy is to fully include more people in it—as entrepreneurs, as innovators, as well-paid workers, and as robust consumers—and so it advances policies that intentionally focus on the needs of people, not money, while trusting in the dynamism of markets to innovate new solutions in response.
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It is impossible to overstate how consequential this disagreement is. The middle-out assertion that a thriving middle class is the cause of growth, not an effect, is a 180 degree reversal from the trickle-down consensus that dominated our politics and policy since the rise of Reaganomics in the early 1980s. The long term impact of this Biden revolution could be a generational shift in how we talk about, think about, and manage the economy. The immediate impact is an economic strategy that, for the first time in decades, is focused on directly growing, supporting, and enriching the American middle class rather than vainly waiting for prosperity to trickle down.
One can see this embrace of middle-out economics both in Biden’s words and in his policy agenda. The White House website describes Bidenomics as “centered around three key pillars”—public investments, empowering workers, and promoting competition—pillars that stand both in sharp contrast to the Reaganomics regime of tax cuts, wage suppression, and deregulation, and on a far stronger empirical foundation than the trickle-down alternative they seek to displace.
For example, Reaganomics argues that public investment inevitably “crowds out” the private investment it sees as “the heart of our economy,” yet “a core tenet of Bidenomics,” explains the White House, “is that targeted public investment can attract more private sector investment, rather than crowd it out.” This is a remarkably unorthodox assertion that implies an active role for public investment, not just in addressing market failures, but in helping markets work better to serve the needs of the American people. And it is an assertion that has quickly proven true. Just one year from its passage, the CHIPS and Science Act has already attracted $231 billion of private investment in domestic semiconductor manufacturing before a penny of the $39 billion it allocates for subsidies and incentives has even been spent. In the third quarter of 2023 real investment in U.S. factories hit an all-time high.
So much for the oft repeated warning against “crowding out.”
Bidenomics’ focus on “empowering” workers is an equally radical departure from an economic orthodoxy whose theories disingenuously ignore the role of power in determining economic outcomes while employing policies that do all they can to disempower workers. Reagan infamously broke the air traffic controllers union in 1981, firing all 11,345 striking workers and vindictively banning them from public service for life. Corporate America quickly followed his lead. Over the next four decades private sector union membership plummeted from over 20 percent in 1980 to barely 6 percent in 2020, an erosion of worker power that is exacerbated by a $7.25 an hour federal minimum wage that would be 63 percent higher today (nearly $12 an hour) had the wage Reagan inherited merely kept pace with inflation. By contrast, when Biden broke with tradition to join striking auto workers on the picket lines, he sent a clear a message that the balance of power was shifting. A few weeks later, Ford agreed to a contract that delivers auto workers an effective 33 percent raise. Stellantis, GM, and even non-unionized automakers quickly followed.
Contrary to the charts in the Econ 101 textbooks, employers don’t pay you what you’re worth. They pay you what you have the power to negotiate. When worker power erodes, so do real wages.
In fact, the stagnant wages of the past forty years are best understood as a feature of Reaganomics, not a bug. It is an economic ideology that sees wage suppression as an essential tool for keeping inflation low and profits high. This is the conventional wisdom that led the Federal Reserve to attempt to drive down inflation by driving up unemployment and that prompted former Clinton Treasury Secretary Larry Summers to austerely warn last year that “we need two years of 7.5% unemployment” to tame inflation. (Spoiler alert: we didn’t!) The anti-worker bias implicit in this wisdom—that what’s bad for workers must be good for the economy, and vice versa—is what leads pundits to loudly criticize Bidenomics for “piggybacking rushed child-care initiatives onto unrelated semiconductor manufacturing objectives,” as if creating good jobs with good benefits is somehow “unrelated” to the objective of bringing manufacturing jobs back home.
But of Bidenomics’ three pillars, perhaps the most dramatic departure from the old consensus has come in the administration’s historic Executive Order on Competition, which “commits the federal government to full and aggressive enforcement of our antitrust laws” for the first time in more than forty years.
On antitrust as on most economic issues, Reaganomics simply asks us to place our faith in the infinite wisdom of the market. If the winners from market competition use their market dominance to establish an uncompetitive market, the Reaganomics antitrust regime was okay with that, as long as, in theory, consumers don’t suffer higher prices as a result. That’s the argument that has permitted, for example, Office Depot and Staples to accumulate 69 percent of the office supply market, Lowe’s and Home Depot, combined, 90 percent of the home improvement store business, and CVS, Walgreens, and Rite Aid an astounding 99 percent of drug stores. Working on the assumption that consumers ultimately benefit from the efficiencies inherent in such economies of scale, antitrust enforcers looked the other way from the obvious anticompetitive consequences.
This emphasis on efficiency illustrates a fundamental disagreement between Reaganomics and Bidenomics. The orthodox economic theories that inform Reaganomics insist that the market functions primarily as a self-organizing tool for efficiently allocating capital, and if efficiency can be maximized through market concentration or automation or offshoring (or union busting), then so be it. By contrast, Bidenomics is grounded in modern economic theory that recognizes that, while markets are incredibly effective at evolving new solutions to human problems, they are often remarkably inefficient, and that what capital efficiencies they create can sometimes come with unacceptable amounts of economic and societal risk. For example, the capital efficiencies that arguably came from relying on “just in time” deliveries of masks and gowns and gloves and other basic medical supplies offshored to low-cost Chinese manufacturers surely cost American lives during the early months of the COVID-19 pandemic, while the subsequent shortage of semiconductors, mostly designed in America but efficiently manufactured overseas, ground our automobile industry to a halt for want of a domestic supply at any price.
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Bidenomics flatly rejects the prior consensus that our economic policies should maximize capital efficiency above all else. As U.S. Trade Representative Katherine Tai declared in a speech at the National Press Club in June, “today, labor leaders, CEOs, foreign leaders, and the President’s National Security Advisor all agree: our global supply chains, which have been created to maximize short-term efficiency and minimize costs, need to be redesigned for resilience.” This break from our decades-long infatuation with so called “economic efficiency” is not merely a break with Reaganomics. It is a break with economic orthodoxy itself.
Reaganomics offered a simple, compelling, and coherent story of growth that was well-grounded in orthodox economic theories—and over the past forty years, both in theory and in practice, it has catastrophically failed. Thanks to its trickle-down regime of tax cuts for the rich, deregulation of the powerful, and wage suppression for everybody else, nearly all of the gains of the past four decades have been captured by those at the top, resulting in a $50 trillion upward redistribution of wealth and income from the bottom 90 percent of Americans to those in the 1 percent. The vast majority of Americans now work longer hours for less money than they would have under the pre-Reaganomics regime. The American middle class has grown smaller, poorer, angrier, and less resilient. Even before COVID-19 hit, the U.S. was suffering through the longest stretch of life expectancy decline since the Spanish Flu pandemic of 1918, a uniquely American crisis the economists Anne Case and Angus Deaton attribute to “deaths of despair.”
“Government is the problem,” not the solution, Reagan famously declared in his first inaugural address. The nihilism implicit in Reaganomics, a market fundamentalist ideology that tells us if the market cannot provide the secure and dignified lives we crave then nothing can, is draining Americans of hope.
But Reaganomics hasn’t just failed to improve the lives of most Americans. On all three of its core trickle-down tenets—on wages, deregulation, and taxes—it’s theoretical assertions have proven to be flat out wrong: higher wages do not kill jobs, deregulation does not boost either competition or innovation, and there is simply no empirical evidence to support the claim that cutting top tax rates stimulates economic growth. The Reagan, Bush, and Trump tax cuts all promised to usher in a renewed era of economic growth, yet other than the bank accounts of the superrich, the only thing these tax cuts have proven to grow is the national debt.
In fact, on average, on job growth, wage growth, productivity growth, GDP growth, and nearly every other economic metric—even stock market returns—the economy consistently performs better under Democratic administrations than under Republicans. Even economists schooled in the old economics acknowledge the facts, though they appear unable to explain them: “The superiority of economic performance under Democrats rather than Republicans is nearly ubiquitous,” observed noted economists Alan S. Blinder and Mark W. Watson in the American Economic Review. “[I]t holds almost regardless of how you define success. By many measures, the performance gap is startlingly large—so large, in fact, that it strains credulity, given how little influence over the economy most economists (or the Constitution, for that matter) assign to the president of the United States.”
Bidenomics offers a credible explanation: A large and thriving middle class is the primary cause of growth, and the only way to grow the middle class is to include more people in it. Across the broader Democratic agenda—on immigration, on education, on climate, on workers’ rights, civil rights, reproductive rights, marriage equality, health care, childcare, pay equity, the minimum wage, antitrust, trade, and on many other issues—the one thing that Democratic policies have in common is that they tend to be more inclusive than the Republican alternative. For decades, Democrats have promoted their inclusive agenda largely as a matter of fairness—often while accepting the Reaganomic consensus that there is always a “Big Tradeoff” between economic fairness and economic growth. But the Big Tradeoff was always a lie. In an economy that grows from the bottom up and the middle out, inclusive policies are always inherently pro-growth.
Central banks worldwide have followed the Federal Reserve’s lead in raising interest rates, but through the American Rescue Plan, the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act, only the Biden administration has pursued an ambitious program of middle-out growth. And the results have already proven impressive. In October 2022, Bloomberg economists ominously forecast a 100 percent chance of recession in the coming year, yet the U.S. economy grew by an astounding 4.9 percent year-over-year in the third quarter, while the unemployment rate held steady at just 3.8 percent. Orthodox theory tells us that such a hot economy should drive up prices, but further defying the expectations, inflation stabilized at a rate of 3.7 percent, just below the historical average. By comparison, the economy of the 20-nation euro zone grew by only 0.6 percent over the prior quarter, while inflation and joblessness remained mired at 5.3 percent and 6.4 percent respectively.
Bidenomics is working.
That Biden has thus far failed to get credit from voters for his strong economy should not be surprising. Democrats never receive the credit they deserve for their economic accomplishments because they never before put forward a coherent theory of economic growth. But Biden is finally attempting to change this: “When the middle class does well, everybody does well,” the President relentlessly explains. This is the core principle of Bidenomics.
Eric Liu and I coined the term “middle-out economics” in our 2011 book Gardens of Democracy as an alternative to the failed trickle-down paradigm, and I have spent more than a decade pushing it to politicians, policymakers, and public intellectuals on both the left and the right. I’d always hoped that a president might someday embrace the middle-out narrative and its economic logic, and I have contributed to many aspirants along the way. But I never imagined that it would be Joe Biden who would ultimately do for middle-out what Ronald Reagan did for trickle-down by using the power of the presidency to usher in a new economic consensus.
Bidenomics is no more a finished product than the emerging middle-out economic consensus from which it draws, but neither is it the misguided campaign slogan that some pundits and critics have made it out to be. It is a thoughtful and coherent alternative theory of growth that is grounded in decades of sound economic evidence, and whose application is already producing positive economic results. But more importantly, Bidenomics offers hope—hope that the many problems Reaganomics hasn’t solved can be solved—that an America that fully includes the contributions of all its people can work together to build back better a more sustainable, secure, prosperous, and inclusive future.
Reaganomics is dead. Long live Bidenomics.
