Growing up in America, my favorite time of year was easily Indian summer, the ethereal last few days of sun and balmy weather that came to the land, usually following the first frost. Legend has it that the term “Indian summer” came about when the Native Americans described the phenomenon to the newly arrived colonists as a warning that winter was about to descend. It has come to mean a last swansong ahead of decline.
There is no better phrase in the English language to describe the present political fortunes of President Joe Biden, flush with the success of his first 100 days in office, when both a vaccination boom and success in passing his mammoth $1.9 trillion American Rescue Plan crowned his efforts. But the storm clouds are now gathering, along with structural political realities that threaten his present success, making this Biden’s Indian summer.
First, jobs numbers are not as rosy as many economists hoped would be the case following the gradual opening of the US economy. The April jobs report was particularly stark. While it was predicted that fully 1 million new jobs would be created, the actual number was only 266,000. A report prepared for the Federal Reserve highlighted the sluggish creation of lower-wage jobs. For all that its economy is undoubtedly bouncing back, the US is still an eye-popping 7.5 million jobs short of where it was before the pandemic.
This, Biden’s critics believe, is the direct result of the new administration’s overly generous fiscal policy. The American Rescue Plan allows an extra stipend of $300 a week in unemployment benefits to run until early September. The White House’s economic critics charge that this has persuaded many lower-wage workers to defer re-entering the job market, as they are making more a month with benefits than would be the case if they were working. In response, 25 Republican-led states are preparing to end the $300 supplement in an effort to get more people back to work. The fear of European-style safety nets leading to European-style unemployment rates is growing.
Biden’s fiscal splurge is also being attacked on a second front, as the fear of inflation — dormant since Paul Volcker’s Fed slayed the dragon in the early 1980s — is returning. The April headline inflation rate increased to 4.2 percent, its highest level since 2008.
It is not just Republicans that fear that the Biden White House — with a proposed emergency stimulus amounting to an astronomical $6 trillion — is unwittingly pouring gasoline onto a raging fire. Larry Summers, treasury secretary during Bill Clinton’s presidency, has gone public with these very concerns. As pent-up demand is just now being released following more than a year of lockdown, Biden’s economic critics wonder why much stimulus is needed at all. Instead, this Franklin D. Roosevelt-like extra stimulus is likely to resurrect the dreaded specter of inflation. The White House was itself worried enough about this prospect to invite Summers to a private meeting so he could make his case.
Third, Biden is at a fork in the road over passage of his next major piece of legislation, the $1.7 trillion American Jobs Plan, which is designed to upgrade the country’s creaking infrastructure. Having used the Senate parliamentary procedure of reconciliation, which allows certain types of budget legislation to pass with a majority of only 50 votes (rather than amassing a filibuster-proof 60 votes) to pass the American Rescue Plan, Democrats were stunned to hear that Elizabeth MacDonough, the Senate parliamentarian, has decreed that reconciliation can only be used once more this year. This means that either the Democrats must compromise over the bill with Republicans or pass the vote in a party line manner, knowing they cannot do so again.
Compromise seems to be out. Sen. Shelley Moore Capito, the leader of the Republican efforts over the infrastructure bill, says talks with the White House have come to an end as there is deadlock over how to pay for the massive new program.
That leaves reconciliation and negotiating instead with Sen. Joe Manchin, the Senate’s most conservative Democrat, if the bill is to become law. Manchin has made clear he will not accept the White House’s proposed corporate tax rate rise to 28 percent, and would also much rather a bipartisan deal be struck. It is an open question as to whether Manchin will remain on board. Even if he does (which is more likely than not, but not inevitable), this is surely Biden’s last real bite of the apple in terms of passing anything of major domestic significance.
For winter is coming. Republicans are likely to retake the House following the 2022 midterm elections. They need only a net gain of five seats to do so. With Republicans largely in charge of the state governments that manage congressional redistricting, the GOP is expected to gain eight seats through this process alone. Then there is the historical reality that the president’s party loses on average 30 House seats in the middle of his first term. To lose the House (the Senate is more analytically problematic) would firmly bring down the curtain on Biden’s big-government initiatives. All of this means that the president had better enjoy his brief Indian summer while he can.
- Dr. John C. Hulsman is the president and managing partner of John C. Hulsman Enterprises, a prominent global political risk consulting firm. He is also senior columnist for City AM, the newspaper of the City of London. He can be contacted via chartwellspeakers.com.
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