Sixteen Nobel Prize winners in economics signed a public letter ahead of Thursday’s presidential debate supporting President Biden’s economic policies and criticizing those of Donald Trump. They write:
While each of us has different views on the details of various economic policies, we all agree that Joe Biden’s economic agenda is far superior to that of Donald Trump. In his first four years as president, Joe Biden signed major investments in the U.S. economy, including in infrastructure, domestic manufacturing, and climate. Together, these investments are likely to increase productivity and economic growth while reducing long-term inflationary pressures and facilitating the transition to clean energy.
The economists are supporting Biden’s re-election campaign and warning that Trump’s tax cut proposals will reignite inflation and destabilize the country’s economic standing in the world. The message was written and disseminated by Joseph Stiglitz and signed by other luminaries, including Edmund Phelps (Columbia University), Robert Shiller (Yale), Paul Romer (Boston College), Angus Deaton (Princeton), Oliver Hart (Harvard) and others. All of them are known as liberal or left-leaning economists with ties to the Democratic Party.
In 2021, 15 of these economists, including Stiglitz, Phelps, Shiller, Hart, Romer and Deaton, signed a similar public letter supporting Biden’s “Build Back Better” agenda, which included spending proposals for climate initiatives, health subsidies, schools, housing and other purposes. That bill eventually passed Congress with a $1.9 trillion cost tag. Several parts of a scaled-down plan were eventually included in the so-called Inflation Reduction Act of 2022, with an estimated cost of around $800 billion. The award-winning economists made the following comments on Biden’s economic proposals: “Because this agenda invests in long-term economic strength and improves the ability of more Americans to participate productively in the economy, it will reduce longer-term inflationary pressures.”
The economists also claimed that Biden’s agenda contains “a broader concept of infrastructure” that goes beyond spending on roads, bridges and the like and also includes investments in human capital, research, public education and health care. This is a well-known argument of the Democratic Party: spending on various social purposes is in fact “investment.”
How did this happen? The economists were very wrong about inflation. They said Biden’s spending packages would “ease inflationary pressures,” but today it is clear to everyone that these very measures have fueled inflation. When they signed their letter for 2021, the consumer price index was 273; since then it has risen by at least 15 percent to its most recent level of 313. That’s called “being wrong.”
Interest rates have also risen sharply since then, much to the detriment of prospective homebuyers and those planning big spending on cars, appliances, and school and college tuition. The interest rate on 30-year mortgages has more than doubled since the 2021 letter, from 2.8 percent to over 7 percent today. The benchmark interest rate, which banks use for most loans, rose from 3.2 percent in 2021 to 8.5 percent today. Economists would do well to reflect on their performance as forecasters.
We have no evidence that Biden’s spending packages have boosted economic growth. Real GDP rose to 5.8 percent in 2021, largely a rebound from pandemic lockdowns, but has since declined and stabilized, to 1.9 percent in 2022 and 2.5 percent in 2023. In a recent forecast, the Conference Board projects that growth will likely slow to less than 1 percent (year-on-year) in 2024. Contrary to what our Nobel laureates would have us believe, it is more likely that Biden’s policies have caused inflation and rising interest rates, which have slowed economic growth.
And then there’s the national debt, which was exacerbated by the Build Back Better Acts and the Inflation Reduction Acts. When the economists signed their letter in 2021, and before the new spending surge, the total national debt was $28.5 trillion—a massive sum that’s more or less equal to the country’s annual GDP. Since then, it’s risen to $34.5 trillion. As a result, interest payments on the national debt have risen from a total of about $500 billion to about $1 trillion today—a $500 billion increase in spending per year that’s expected to rise even more year after year as deficits continue to pile up.
One more thing about the bill falsely called the Anti-Inflation Act, parts of which were endorsed by Nobel Prize winners. When it was passed in 2022, the Congressional Budget Office estimated that its energy and climate provisions would cost $393 billion in subsidies and tax credits. Biden and other Democrats also claimed (perhaps not entirely seriously) that the provisions would reduce annual budget deficits in the near future. But last year, a Goldman Sachs report estimated that the cost of those provisions exploded threefold, to $1.3 trillion. According to the report, this happened because companies rushed to claim tax credits that were never capped.
In summary, the Nobel Prize winners who today praise Biden’s policies (and criticize Trump) are the same ones who recommended policies that fueled inflation, raised interest rates, ruined the housing market, increased the budget deficit and interest spending, stifled economic growth, and underestimated the true cost of those policies.
Judging by their track record, these award-winning economists have no idea what they are talking about when it comes to shaping economic policy.
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