Biden vs. Trump Economy: What You Need to Know

President Joe Biden and former President Donald Trump faced off during the first presidential debate of the 2024 campaign on June 27, 2024, in Atlanta.

Andrew Harnik | Getty Images News | Getty Images

During the recent US presidential debate, both candidates traded barbs about the economy, with pandemic-era high inflation among the grievances.

“He caused the inflation,” Trump said said from Biden during the June 27 debate. “I gave him a country with no, in fact, no inflation,” he added.

Biden responded by saying that inflation was low during Trump's term because the economy was “completely shut down.”

“He has decimated the economy, absolutely decimated it,” Biden said.

But the cause of inflation is not so black and white, economists say.

Biden and Trump, they say, are not responsible for much of the inflation consumers have experienced in recent years.

'Neither Trump nor Biden is to blame'

Global events beyond Trump and Biden's control have disrupted the supply-demand dynamics in the U.S. economy and led to higher prices, economists say.

Other factors also played a role.

For example, the Federal Reserve, which operates independently of the Oval Office, was slow to curb high inflation. Some Biden and Trump policies, such as pandemic relief packages, likely played a role, as did so-called “greedflation.”

“I don't think it's a simple yes/no answer,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a left-leaning think tank.

“Generally, presidents get more credit and blame for the economy than they deserve,” he said.

Biden's perceived role as fueling inflation is partly a matter of appearances: He took office in early 2021, around the time inflation was surging, economists say.

Similarly, the Covid-19 pandemic plunged the US into a severe recession during Trump's term, causing the consumer price index to fall. almost zero in the spring of 2020, when unemployment soared and consumers cut back on spending.

“In my view, neither Trump nor Biden are responsible for high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The blame lies with the pandemic and Russia’s war in Ukraine.”

The main reasons why inflation rose

Inflation has many tentacles. At high levels, hot inflation is largely a matter of mismatched supply and demand.

The pandemic has turned the usual dynamics on their head. First, it has disrupted global supply chains.

There was a labor shortage: illnesses kept workers on the sidelines. Child care centers closed, making it difficult for parents to work. Others worried about getting sick on the job. A decline in immigration also reduced the supply of workers, economists said.

China factories and cargo ships close could not be released for example in ports, which reduces the supply of goods.

Meanwhile, consumers changed their purchasing behavior.

They bought more physical items, like furniture for their living rooms and desks for their home offices, as they spent more time indoors. This is a departure from pre-pandemic norms, when Americans tended to spend more money on services such as eating out, traveling and going to the cinema or concerts.

Cargo containers are stacked on ships at the Port of Los Angeles, the nation's busiest container port, on October 15, 2021 in San Pedro, California.

Mario Tama | Getty Images News | Getty Images

High demand, which increased as the US economy reopened, combined with a shortage of goods, pushed prices higher.

Other factors also played a role.

For example, automakers didn't have enough semiconductor chips to build cars, and car rental companies sold off their fleets because they thought the recession wouldn't last long. That made it more expensive to rent a car when the economy picked up quickly, Wessel said.

As Covid cases hit record highs in 2022 and further disrupted supply chains, Russia's war in Ukraine “fueled” inflation by sending global prices higher for commodities like oil (and gasoline) and food, Zandi said.

As a result, inflation in the global economy reached levels “higher than in decades,” the International Monetary Fund wrote in October 2022.

“We only have to look at the still high inflation rates in most other advanced economies to see that most of this inflationary period was actually related to global trends … rather than the specific policies of any particular government (although those of course played a role),” said Stephen Brown, deputy chief economist for North America at Capital Economics. wrote in an email.

Impact of major spending laws 'only clear in retrospect'

Still, Biden and Trump are not entirely innocent: For example, they greenlit additional government spending during the pandemic, which contributed to inflation, economists say.

For example, the American rescue plan: The $1.9 trillion stimulus package that Biden signed into law in March 2021 provided $1,400 stimulus checks, enhanced unemployment benefits and a larger child tax credit for households, among other relief.

The policy has led to “some good things,” such as a strong labor market and low unemployment, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-wing think tank.

But the size was larger than the U.S. economy needed at the time. Prices rose as consumers got more money, which boosted demand, he said.

“I think President Biden is partly to blame for the inflation that we've seen over the last few years,” Strain said.

He estimates the American rescue plan added about 2 percentage points to underlying inflation. The consumer price index peaked at around 9% in June 2022, the highest since 1981. (It has since fallen to 3.3% in May 2024.)

The Fed, the US central bank, aims for a long-term inflation rate of around 2%.

“I think if it wasn't for the American Rescue Plan, the U.S. would still have inflation,” Strain added. “So I think it's important not to overstate the situation.”

However, Zandi viewed the inflationary impact of the ARP as “good” and “desirable,” and saw it as a way to return the economy to the Fed's long-term inflation target after a prolonged period of below-average inflation.

Trump had also approved two stimulus packages, in March and December 2020, worth about $3 trillion.

These so-called “fiscal policy responses” were insurance against a lousy economic recovery that may have gone too far after the US's tepid response to the Great Recession, which had plunged the country into years of high unemployment, Wessel said.

He said that the US had taken too much stimulus measures was the fault of the presidents, but that was “only clear in hindsight”.

Economists say Biden and Trump have also implemented other policies that could contribute to higher prices.

For example Trump imposed rates on imported steel, aluminum and various goods from China, which Biden largely kept intact. Biden also imposed new import duties on Chinese goods such as electric vehicles and solar panels.

The Fed and 'greedflation'

Economists say Fed officials also bear some responsibility for inflation.

The central bank uses interest rates to control inflation. Rising rates raises borrowing costs for businesses and consumers, slowing the economy and increasing inflation.

The Fed has raised interest rates to their highest level in about two decades, but was initially slow to act, economists said. The Fed first raised them in March 2022, about a year after inflation began to spike.

The ECB also waited too long to scale back “quantitative easing,” a bond-buying program designed to boost economic activity, Strain said.

“That was a mistake,” Zandi said of the Fed’s policy. “I don’t think anyone would have done it right under the circumstances, but in retrospect it was a mistake.”

Some observers have also pointed to so-called “greedflation” – the idea that companies are taking advantage of the high inflation narrative to raise prices more than necessary, thereby boosting profits – as a contributing factor.

Economists say this was probably not the cause of inflation, but it may have made a small contribution.

“To the extent that something like that happened — which I'm not sure it did — it would be a very small factor in the inflation that we had,” Strain said. He estimates that the dynamic would have added well under 1 percentage point to inflation.

“Companies are always looking for an opportunity to raise prices when they can,” Wessel said. “I think they've benefited from the inflationary environment, but I don't think they've caused it.”