It’s now becoming much clearer just how unnecessary the Biden administration’s 2021 spending spree was and why it sparked the worst inflation in decades.
The government on Thursday released its revised estimates for economic growth in 2020 and 2021. The new figures show the economy contracted by less than previously thought when the pandemic first struck and recovered more quickly than earlier estimates indicated.
The August estimates for Gross Domestic Product in the last year of the Trump administration, when the pandemic descended upon the country, showed output falling by 3.4 percent. The revised estimate says the decline was just 2.8 percent. Consumer spending was significantly higher in 2020 than was believed. The latest figures show it declined by three percent instead of the earlier estimate of 3.8 percent.
This highlights the inaccuracy of the accusations that Trump’s alleged “mishandling” of the pandemic had “bungled” the economy, a key part of Joe Biden’s campaign pitch. In the second quarter of 2020, when much of the economy was subject to severe lockdown restrictions, the economy shrank at a seasonally adjusted annualized rate of 29.9 percent, the new stats show. The earlier report had it shrinking at a 31.2 percent rate. The following quarter the economy grew at a 35.3 percent rate, revised up from 33.8 percent. At the time, Biden’s campaign was saying that Trump’s effort to campaign on an improving economy was a “desperate scheme.” Now we know the economy was indeed improving.
The narrative that Trump had left the economy in shambles led directly into the disastrous American Rescue Plan, the $1.9 trillion spending spree enacted shortly after President Biden took office. It was because Biden and fellow Democrats had loudly insisted that the nation’s economic affairs had been “bungled” that they could now claim it needed to be rescued. Indeed, they had to pass a large stimulus act in order to create a plausible case that they were responsible for the recovery that was actually already underway.
The GDP estimates show that the economy grew at a 6.3 percent rate in the first quarter of 2021. The following quarter it grew at a 7.0 percent rate, up from the earlier estimate of 6.7 percent. Meanwhile, nondefense government spending soared at an annualized rate of 64.8 percent in the first quarter, up from the prior estimate of 40.8 percent. For the full year, nondefense spending was up 7.3 percent from the hugely elevated pandemic spending level of 2020, much higher than the earlier estimate of 2.8 percent.
Personal consumption expenditures ripped 8.1 percent higher in 2021, upwardly revised from the earlier estimate of 7.9 percent. Spending on durable goods jumped 18.5 percent on top of the ten percent rise in 2020. Those figures are revised up from 18.1 for 2021 and 7.7 percent for 2020. Services spending in 2020 dropped by 6.6 percent, the new figures show, rather than the 7.5 percent estimated earlier. The following year, it rose 6.3 percent, a half a percentage point above the earlier estimate.
In short, the massive and unnecessary fiscal expansion of Biden’s first year in office pumped up demand so much that it set the economy on track for the worst inflation in four decades.