The Economy That Might Have Been Growth would be healthier if Biden had
done nothing in 2021.  By The Editorial Board Jan. 27, 2022 6:48 pm ET

Shoppers wait in line to enter a Prada store in the SoHo neighborhood
of New York, Aug. 25, 2021.  PHOTO: JUHARAT PINYODOONYACHET/BLOOMBERG
NEWS Imagine if the Biden Administration had focused primarily on the
pandemic as it took power a year ago. Get the vaccines out, accelerate
Covid therapies, and let an economy poised to soar take off on its own. No
$1.9 trillion “relief” bill in March, no threat of new tax increases
and spending to “transform” American society.

Would the economy now be healthier, with much less inflation, fewer
shortages, and more consumer and business confidence? We’ll never know,
but there’s a strong case for thinking so, as we examine Thursday’s
report from the Bureau of Economic Analysis that GDP expanded 5.7%
in 2021.

That’s the fastest annual growth since the 1980s, but the recovery
from the pandemic was always going to take off. Politicians shut the
economy down for much of 2020, then poured cash into consumer pockets
to compensate, and the Federal Reserve flooded the economy with more
money. A boom for the ages was poised to happen in 2021, and no doubt
the Biden Administration would take credit.

In the event, the economy in 2021 didn’t grow nearly as fast or in as
healthy a fashion as it should have. That’s clear from the details
of growth in the fourth quarter. Topline growth of 6.9% was robust,
accelerating from 2.3% in the third quarter that was affected by the
surge in the Delta Covid variant.

But by far the biggest contributor to GDP (4.9 percentage points) was
a buildup of inventories. This means retailers and other businesses
were restocking empty shelves, not making sales. There’s probably
more inventory buildup to come due to shortages across the economy,
but the fourth-quarter increase is unsustainable.

Consumer spending contributed 2.25 percentage points, but much of that
came from spending down accumulated savings from all that government
largesse. The personal saving rate fell to 7.4% from 9.5% in the third
quarter. Real disposable income, after inflation, fell 5.8% in the fourth
quarter after falling 4.3% in the third. The consumer sugar high from
government transfer payments is wearing off as 2022 begins.

The White House hailed the GDP growth figure, but if times are so
good then why do the polls give the economy low marks and Mr. Biden
little credit? The best explanation is inflation, which is running at
7% in the consumer-price index. Even the Fed’s preferred inflation
measure—personal-consumption expenditures—rose at an annual rate of
6.5% in the fourth quarter, accelerating from 5.3% in the third. Real
wages after inflation are falling for most Americans, despite businesses
paying far more to retain scarce workers.

This is where the focus on Covid strategy would have helped. The March
spending blowout caused a surge in demand that met with a historic
supply shortage. The uncertainty from the proposed Build Back Better tax
increases and vows to punish business with new regulation added to the
supply problems. All of these were needless policy blunders driven by
Keynesian advisers who focus only on economic demand, and by President
Biden’s desire to please the Democratic left.

It’s not too late to learn, and the best policy course now would be for
Mr. Biden to do nothing at all. Drop BBB, kill the plans for regulation
that will raise costs and prices, drop the hostility to domestic
energy and exports. Let the Fed take on inflation. The U.S. economy
has remarkable powers of recovery when the political class gets out of
the way.