Drastic decline in the purchasing power of the U.S. dollar can be attributed to the Biden administration and federal government’s poor fiscal policy.
For the past several years, conversations about stagnant wage growth and escalating housing costs have dominated the news cycle, and it’s not difficult to see why. While nominal wages have seen modest increases over time, adjusting for inflation reveals a different story. Real wage growth has remained largely flat for the majority of workers, resulting in a decline in purchasing power and financial stability for many American families.
“Home ownership was supposed to be the American dream, the thing to which the entire middle class could not only aspire but also achieve,” writes the Heritage Foundation’s EJ Antoni. “That dream has turned into a nightmare, thanks in large part to the Biden administration and the big spenders in Congress.”
Antoni notes that the Home Ownership Affordability Monitor Index “has plunged 36 percent since President Joe Biden took office [and] is the lowest in its history and indicates record unaffordability. It now takes 44 percent of median income—before taxes—to afford a median-price home.”
Of course, housing costs have risen because so too have building costs— namely labor. A report from San Jose concluded that the cost of building one unit of affordable housing in the city grew from $757,900 in 2022 to $938,700 in 2023. Wage growth simply cannot keep up.
Another report by job search platform Monster.com found that 81% of Americans say that their wages have not kept up with the rising cost of living; 55% said that they have not gotten a raise in over a year; and nearly half said they are considering taking on a second job. But what is the root cause of this epidemic?
Ultimately, whether examining the rising cost of development or the lack of wage growth, it all comes back to the ever-present problem of inflation.
Across the last decade, the annual inflation rate varied minimally— its lowest being 0.1% in 2015 and its highest being 2.4% in 2018. Yet in just the first sixteen months of President Joe Biden’s administration, the inflation rate shot from 1.4% in January 2021 to 9.06% in June 2022— a 647% increase. The President’s critics have dubbed this phenomenon “Bidenflation,” while his supporters reject this as an oversimplification and instead posit that this inflation is merely transitory. But regardless of where one stands on the political spectrum, it’s true that inflation has become, in the words of Harvard Business Review, “one of the biggest threats to global prosperity.”
To combat inflation, the Federal Reserve continues to increase interest rates, which makes it more expensive to borrow funds in a bid to reduce the overall money supply. In other words, the Fed is disincentivizing loans, which should in theory lower inflation. In September of 2022, rates climbed three full percentage points in just a six-month span— the fastest pace in a single year since the 1980’s. Today, the Federal Funds Rate sits at 5.33% and shows no signs of going down any time soon.
One surefire way the federal government could curtail inflation is by decreasing government expenditures— and yet government spending continues at an exorbitant rate. In the 2023 fiscal year, the federal government spent $5.5 trillion. It also spent $6.27 trillion in 2022; $7.38 trillion in 2021; $7.47 trillion in 2020; and so on, according to U.S. Treasury Fiscal Data. All of this should be taken within the context of a $33 trillion (and growing) gross federal debt that was worsened by a $1.52 trillion deficit in 2023; $1.38 trillion in 2022; $2.77 trillion in 2021; and an extraordinary $3.13 trillion in 2020.
It’s also worth noting that the federal budget has not seen an annual surplus in over two decades (the last year being 2001). Furthermore, all three of the previous presidents, regardless of political affiliation or their stated attitudes toward big government spending, authorized trillions in stimulus packages during their tenures. Such action has dramatically expanded the money supply and devalued the U.S. dollar.
Although the consensus is not unanimous, many economists point to this history of spending as reckless and fiscally irresponsible. While there is still no easy singular answer— no magic wand that can be waved to solve all the myriad problems presented by and contributing to inflation, there are seemingly obvious solutions that will likely not be implemented for strictly political reasons. These include dramatically cutting back on government spending and working to lessen our dependence on foreign governments for energy and infrastructure.
Fiscal policy is an intersection not only of domestic trade and local policy decisions, but of special interests and foreign dignitaries betting against and/or lobbying for certain outcomes in the U.S. economy. An unspoken truth about inflation, beyond the obvious economic burden, is that it represents a hallmark of a time characterized by uncertainty. And it is a sad reality, but it harms the average American taxpayer more than anyone at the Federal Reserve, on Wall Street, or in the federal government.
The intersection of rising housing costs and stagnant wage growth has profound implications for economic inequality and social mobility in America. The former has already outpaced the latter. But it is important to remember that both are symptoms of the larger issue of inflation. Until the Federal Reserve and the federal government enact smarter monetary and fiscal policies respectively, the problem will only worsen and the American Dream will, for most Americans, continue to slip farther out of reach.
