The Bidenomics Effect: Who Felt It Most?

Between 2021 and 2024, the U.S. experienced significant inflation, driven by a complex interplay of factors. These included expanded government spending, energy policy shifts, and geopolitical tensions, all of which disproportionately affected lower-income households. This article dives into these drivers and examines how various income groups were impacted by inflation, with a particular focus on the effects of policies enacted by the Biden administration and Democratic-led Congress.

Monetary Policy, Government Spending, and the Expansion of the Money Supply

One of the primary drivers of inflation during this period was the massive increase in the money supply. In response to the COVID-19 pandemic, the federal government, under both the Trump and Biden administrations, rolled out unprecedented levels of stimulus. However, the Biden administration’s continuation of aggressive spending programs, including the $1.9 trillion American Rescue Plan and subsequent infrastructure and social spending bills, injected even more money into the economy. This led to an increase in demand that far outpaced supply, creating a demand-pull inflationary effect.

The Congressional Budget Office (CBO) warned that such large-scale spending could have inflationary consequences, particularly if supply chains remained disrupted and energy production did not keep pace with demand. These warnings materialized as inflation accelerated, impacting everyday goods, services, and housing costs.

Energy Policy and the Restriction of Domestic Oil and Gas Production

A significant factor that compounded inflation was the Biden administration’s energy policy. Early in his term, President Biden issued executive orders canceling the Keystone XL pipeline and placing restrictions on new oil and gas drilling leases on federal lands and waters. These policies aimed to accelerate the transition to renewable energy, but they also reduced domestic fossil fuel production at a time when global energy prices were rising.

By curtailing domestic production, the U.S. became more reliant on foreign oil imports, exposing the country to greater price volatility driven by OPEC+ decisions and geopolitical events like the Russia-Ukraine conflict. The administration’s stance on limiting fossil fuels caused energy prices to spike, a burden most heavily felt by lower-income households, which spend a larger proportion of their income on utilities and fuel.

The Green Energy Transition and Its Consequences

The transition to green energy, a central priority for the Democratic Party, introduced additional costs. Investments in renewable energy infrastructure, such as wind and solar, required significant government subsidies and investments, funded largely through increased spending. Additionally, energy partners like Saudi Arabia responded with production cuts to maintain higher oil prices, which exacerbated energy inflation in the U.S.

While the shift toward renewables is critical for long-term sustainability, in the short term, it has increased energy costs for consumers. As traditional energy production declined, utility costs and fuel prices surged, further driving inflation across the board.

Broader Fiscal Policy and Legislative Decisions

The Democratic-led Congress passed several large spending bills aimed at stimulating the economy, improving infrastructure, and supporting social programs. While these policies were intended to provide relief and long-term economic benefits, they also contributed to inflation. The combination of high federal spending, limited supply-side expansion, and the continued injection of money into the economy created conditions ripe for persistent inflation.

The effects of these policies were particularly felt in essential categories like housing, food, and energy. Rent and mortgage costs rose sharply as inflation drove up the cost of construction materials and reduced housing availability. At the same time, food prices surged due to supply chain issues and energy price hikes, both of which are closely tied to transportation and production costs.

The Effects of Inflation Across Income Percentiles

Bottom 0-10% Income Bracket: Households in this group saw inflation consume 30-35% of their income due to significant increases in essential goods. The combination of higher food, energy, and housing costs led to a substantial erosion in real purchasing power, with a loss of 7-10% of their income annually.

10%-25% Income Bracket: This group also faced considerable strain, losing 5-8% of their income to inflation. With much of their spending allocated to food, rent, and utilities, they were hit particularly hard by rising costs driven by energy policy changes and global market disruptions.

25%-50% Income Bracket: Middle-income households saw inflation erode 4-6% of their income. Although more financially stable, these families still felt the pinch from higher housing costs and energy prices.

50%-75% Income Bracket: Households in this bracket experienced a 3-5% reduction in their income due to inflation, largely from rising service costs and energy expenses. While better able to absorb these costs, they were not immune to the broader inflationary pressures.

75%-90% Income Bracket: Higher-income households were better positioned to manage inflation, with only 2-3% of their income lost. Their diversified spending patterns and investments provided some protection against the impact of rising prices.

Top 90%-100% Income Bracket: The wealthiest households saw minimal impact, with only 1-2% of their income affected by inflation. Asset appreciation during this period often offset inflationary losses, and discretionary spending adjustments were easier to manage.

The inflationary period from 2021 to 2024 was driven by a complex combination of policy decisions, including the expansion of the money supply, restrictions on domestic energy production, and increased government spending. These policies, while aimed at stimulating recovery and advancing long-term goals, had immediate consequences for everyday Americans, especially those in lower-income brackets. As the country continues to navigate the challenges of inflation, the need for balanced and well-considered policies that address both short-term economic stability and long-term sustainability is more critical than ever.

Sources

Penn Wharton Budget Model (PWBM): This source provided detailed data on household spending across various income percentiles. The breakdown included spending on key categories such as food, energy, and housing from 2019 through 2021. This dataset served as a foundation for estimating the inflationary burden across different income groups.

St. Louis Federal Reserve: This source offered insights into how the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) inflation rates evolved over time, emphasizing how inflation affected different spending categories like food and energy. The overall inflation rate and its impact on household budgets were used to model the income percentile analysis.

San Francisco Federal Reserve: This source highlighted how the transition to green energy, supply chain disruptions, and global energy price shifts contributed to inflation. It provided context for energy and housing-related inflation that was particularly impactful for lower-income groups.