Biden-Harris policies and their consequences were no surprise to those paying attention

Milton Friedman used to advise researchers to focus on large policy changes rather than attempting to separate a small change’s signal from the noise. In this sense, the “ambitious” policy agenda of the Biden-Harris administration was expected to be a gift to the research community.

Accepting this gift, since 2020 I have been making forecasts of some of the consequences of those policies. Now is a good time to assess the accuracy of those forecasts, which relate to aggregate labor markets, insurance price controls, and drug price controls.

As promised, Biden and Harris redistribute income with health insurance expansions and student-loan forgiveness, although not necessarily in the Robin Hood direction. They give union bosses more tools for reducing competition in the labor market. They try to regulate the internet as a public utility. They distort healthcare markets in many ways, including a new ban on short-term health insurance plans, and granting selected companies a monopoly on a generic drug. They go significantly further than the Obama administration in terms of requiring the private sector to change behavior in ways the bureaucrats expect to reduce carbon emissions. At great human-capital expense, they enabled teacher unions and blue-state governments to maintain “social distancing” far longer than warranted.

The exhaustive list would have more than 1,000 entries.  Overall, even the federal agencies’ own low-ball estimates of the costs of the regulations finalized 2021-24 are almost $2 trillion.

1. Macro Performance

Four years ago, I released a study with Kevin Hassett, Tim Fitzgerald, and Cody Kallen of the economic effects of candidate Biden’s agenda compared to President Trump’s. Knowing that campaign promises do not necessarily turn into policy, we analyzed several policy scenarios. The scenario closest to the portfolio of policy changes over the past four years we called “capital taxation constant” (CTC). Biden-Harris climate regulations proved to be somewhat more aggressive than represented by the CTC scenario including, for example, a requirement that manufacturers of medical inhalers (sic) either cease production or convince the Environmental Protection Agency that they are earnestly seeking lower-emission technologies. On the other hand, as nonlawyers we did not account for such a high failure rate of Biden-Harris rules in federal courts.

Under the CTC scenario, labor and capital would be 5.0 percent below the Trump baseline in the long run. In tomorrow's Wall Street Journal, we show that a single trend fits the data well from 2017-Q1 through 2021-Q4, except for the first full pandemic quarter. Then inflation hit and employee compensation—and national income more broadly, which isn’t shown in the chart—fell 5 percent behind. To be more precise, the latest data (2024-Q2) show inflation-adjusted employee compensation per adult to be 4.6 percent below the trend.

Arguably, human capital would have fallen somewhat below its trajectory after 2020 due to pandemic behaviors unrelated to Biden-Harris policies. By itself, this would have pulled labor income somewhat below its prior trend for several years. On the other hand, with some of the regulations not taking effect until 2025 and beyond, we have not yet seen the full effect of the Biden-Harris policies. Large language models and other “AI” technologies have been a positive growth effect that was unanticipated in 2020 when we made the forecasts.

We used a closed-economy model (tariffs were modeled like other excise taxes) that imposes a constant labor’s share, a constant depreciation rate, no statistical discrepancy, and equality between GNP and GDP. In reality, labor’s share of national income has been pretty constant, but the national income’s share of GNP has fallen a bit. More significant has been a fall in the ratio of GNP to GDP. Conversely, a real GDP per capita chart would look “better” than our compensation chart, which of course is no consolation for workers.

Some of my price controls research was published in Public Choice this year. As that paper developed, I published two shorter articles in 2022 with predictions for consequences of the “Inflation Reduction Act” (IRA):

2. Insurance Price Controls

In an effort to shift funds from Medicare to new green-energy projects, the Inflation Reduction Act implemented drug-insurance price controls and “redesign” measures that would make it impossible for insurers to finance the previous level of benefits for the 2025 plan year. Tomas Philipson and I predicted in 2022, “the Inflation Reduction Act … will lead to benefit cuts and premium increases for seniors. Medicare's popular drug-coverage program is headed for a painful amputation.”

By 2024, the Biden administration acknowledged that the program was under severe financial stress, with insurers to exit the market and seniors to lose coverage in 2025. The administration used a temporary “demonstration” program in an attempt to delay the premium shock past the 2024 election. Biden's Centers for Medicare and Medicaid Services (CMS) and its demonstration are proving to be modern-day Lennie Small, because benefit cuts and plan cancellations are occurring anyway during October 2024 open enrollment. One October headline read “1 million+ patients lose coverage as insurers, hospitals drop Medicare Advantage.”

3. Drug Price Controls

I pointed out that the IRA’s “Price Negotiation Program” has anticompetitive elements, even in the short run. On that basis, I predicted that "The IRA will reduce the scope of the [drug] discoveries that do occur, because the price controls reduce the financial reward to conducting clinical trials on a wider range of patient demographics." Just now we see this for Phase I-III clinical trials in previously approved drugs: