The U.S. economy has been on a rollercoaster ever since the Covid pandemic of 2020, first with high unemployment and near deflationary levels as the global economy was locked down, followed by a deluge of government spending, borrowing and printing almost $7 trillion, followed by inflation that has largely outstripped incomes.
The last of the Covid transfer payments, which contributed substantially to the inflation — what Milton Friedman dubbed “helicopter money” — went out in March 2021, and so the question is how have the American people been faring since?
Nominal personal income has increased at an average, annual rate of 4.4 percent, according to data compiled by the Bureau of Economic Analysis. In the meantime, the Consumer Price Index has increased at an average annual rate of 6.1 percent.
The Bureau of Economic Analysis defines personal income as “The income that persons receive in return for their provision of labor, land, and capital used in current production, plus current transfer receipts less contributions for government social insurance (domestic).”
That’s slightly confusing, and so the St. Louis Federal Reserve Bank defines personal income it as “the income that persons receive in return for their provision of labor, land, and capital used in current production and the net current transfer payments that they receive from business and from government.” That is, personal income includes “net current transfer payments” from the government.
Interestingly, when the first quarter of 2021 is included — and the final Covid stimulus passed in March 2021 — it’s a wash, with personal income up 5.6 percent, and inflation up 5.7 percent. Even then, inflation still wins by a nose.
By either measure, then, the American people are no better off than they were when President Joe Biden took office in Jan. 2021. He could work to spend, borrow and print more money and throw it from helicopters, but it would make no difference.
Overall, whenever inflation rises faster than income, even for a short time during a presidency, politically, the result is always the same: The incumbent party loses.
It impacted Gerald Ford in 1976, Jimmy Carter did in 1980 and George H.W. Bush did in 1992. Also notable was the loss by Republican John McCain to Barack Obama in 2008, as inflation outstripped incomes as the economy overheated prior to the global financial crisis.
But usually, income still grows faster than inflation, even when inflation is high.
During former President Donald Trump’s term of office, discounting Covid (which boosted income considerably in 2020 thanks to the government transfer payments), personal income grew at an average rate of 4.8 percent while inflation was 2.1 percent. If you include the Covid lockdowns and the transfer payments, then income grew at 5.4 percent and inflation was 1.9 percent.
During Barack Obama’s term from 2009 to 2016, personal income grew at 3.2 percent, and inflation was 1.6 percent.
For George W. Bush, from 2001 to 2008, income grew at 4.7 percent and inflation was 2.8 percent.
For Bill Clinton, from 1993 to 2000, income grew at 6.0 percent and inflation was 2.6 percent.
For George H.W. Bush, from 1989 to 1992, income grew at 6.1 percent and inflation was 4.4 percent.
For Ronald Reagan, from 1981 to 1988, income grew 8.0 percent and inflation was 4.7 percent.
For Jimmy Carter, from 1976 to 1980, as bad as the inflation was, income grew at 11.5 percent and inflation was 9.7 percent.
For Gerald Ford’s term office (and the end of Richard Nixon’s shortened second term), from 1973 to 1976, income grew at 11.2 percent and inflation was 8.1 percent.
For Richard Nixon, from 1969 to 1972, income grew at 8.8 percent and inflation was 4.7 percent.
For Lyndon Johnson, from 1965 to 1968, income grew at 8.5 percent and inflation was 2.9 percent.
And for John Kennedy (and Johnson’s shortened first term after the Kennedy assassination), from 1961 to 1964, income grew at 5.8 percent and inflation was just 1.2 percent.
But never, by this particular measure, has consumer inflation ever outpaced personal income for the entire duration of a presidency going back to Kennedy, and yet, with just a little more than a year left in his presidency, it’s entirely possible Biden might pull it off.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.
