If the stock market chose presidents, Joe Biden would be a shoo-in for reelection in 2024. The market rallied this month amid growing optimism about the economy, with the S&P 500 zooming 1.9 percent Tuesday on news that the consumer price index rose only 3.2 percent in October (compared to 3.7 percent in September). Stocks rallied again Wednesday on news that the producer price index fell 0.5 percent. Commentators are no longer debating whether the economy will experience a “soft landing” (i.e., a reduction in inflation without recession). The only question now is when it will arrive. The S&P 500 seems to have decided it’s already here.
But the stock market doesn’t choose presidents. Voters do, and polls continue to show they think the economy is in terrible shape. A Financial Times–Michigan Ross Nationwide Survey conducted November 2–7 is absolutely brutal on this point.
Fifty-nine percent disapproved of how Biden is handling his job as president, and 61 percent disapproved specifically of how he’s handling the economy, the area where Biden’s job performance has been strongest. Seventy-six percent rated overall economic conditions in the United States to be negative. Seventy-five percent thought rising prices posed the biggest threat to the economy over the next six months, a proposition for which there is zero evidence. That’s more than twice as many who identified the biggest threat to be the political situation in Washington, D.C. (30 percent), or political instability overseas (24 percent), both of them far more worrisome.
Before you lose hope, though, please note that a 52 percent majority conceded that they knew little or nothing about what Biden is actually doing to fix the economy. We Americans have a tendency to shoot our mouths off before we know what we’re talking about. But this fault is mitigated, at least somewhat, by our willingness to admit our ignorance. In theory, at least, that makes us educable. Which suggests that Biden, who on Wednesday told supporters at a campaign rally that “we have the strongest growth and lowest inflation of any major economy in the entire world,” must continue to repeat and substantiate that message at every opportunity, even if it seems as though nobody is listening.
As noted, economic experts no longer equivocate about whether there will be a soft landing. “We expect the economy to weaken quite a bit,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told The Wall Street Journal this week, “but it does look like we’ll avoid an outright contraction.” Indeed, Goldman Sachs this week predicted gross domestic product will grow 2.1 percent next year. The only bad news Jim Cramer could find was that it’s too late to make a killing from it, because pessimistic market expectations that previously pushed stock prices down have vanished; stock prices are back up again. The soft landing isn’t a secret anymore! Boo freaking hoo.
It’s hard to overstate how unusual a situation this is. When inflation took off in the fall of 2021 and the Federal Reserve started raising interest rates in early 2022, experts almost uniformly predicted a recession because that almost always happens when the Fed acts to lower inflation. Since 1965, we’ve had 11 periods during which the Fed raised interest rates to check inflation. Three of these ended in soft landings. Even if you reject the binary of “soft” versus “hard,” as Princeton economist Alan Blinder does, and instead call some landings “softish,” the majority of landings were hard, i.e., the economy entered a nontrivial recession.
The very softest economic landing since 1965, according to Blinder, occurred between December 1993 and April 1995. The problem then wasn’t inflation but a fear of incipient inflation. The Fed raised interest rates seven times, by a total of 3.09 percentage points (compared to 5.26 during the current period). Inflation plateaued at 3 percent, then fell slightly. (In those days nobody thought 3 percent inflation was a problem because Kiwis did not yet control the world’s central banks.) Unemployment, which is supposed to go up when the Fed raises interest rates, actually fell between 1993 and 1995. Even discounting for personal bias—Blinder became the Fed’s vice chairman in June 1994—it’s hard to dispute his description of these results as “fabulous.”
During this period, President Bill Clinton moved to steady the economy—then, as lately, the bond markets were freaking out about the budget deficit—by pushing through Congress a bill that cut spending by $255 billion over five years. Clinton also increased revenues by raising taxes. He boosted the top marginal income tax rate from 31 percent to 39.6 percent and the top corporate income tax rate from 34 percent to 38 percent. He expanded the taxable portion of Social Security benefits, and he removed a ceiling on income subjected to the Medicare tax. He expanded the Earned Income Tax Credit and indexed it to inflation. He increased the gas tax by 4.3 cents. This was all packaged into a single bill, the Omnibus Budget Reconciliation Act of 1993, that put the economy on a successful glide path for the rest of Clinton’s two-term administration. Every single Republican voted against the bill, along with a few Democrats, but Clinton got it passed.
Was there a great cry of huzzahs? For Fed Chair Alan Greenspan, yes. The soft landing of 1993–1995 created the bipartisan myth of invincibility that clung to Greenspan until the Great Recession of 2007–2009. (Before Greenspan’s fall, Bob Woodward actually titled a book-length portrait of the Fed chief Maestro.) But while it’s certainly true that the Fed exercises greater control over inflation than any president can, Clinton’s contribution during this period to more general economic health, like Biden’s contribution today, went ignored by the American public. In late December 1993, when the Fed started tightening screws, Clinton’s approval rating was 54 percent. It then proceeded to drop through 1994, bottoming out in September at 39 percent before edging up to around 46 percent in April 1995, when the Fed stopped raising interest rates. Since Labor Day, Biden’s approval rating has hovered around 40.
The good news is that Clinton’s rebound helped win him a second presidential term in 1996. The bad news is that the midterms took place while Clinton’s approval rating was closer to where Biden’s is today, with the result that Clinton lost majorities in both houses of Congress. In the House, it was the first time in four decades that Republicans won the majority. “On virtually every objective indicator of macroeconomic performance, the country has prospered,” marveled political scientists M. Stephen Weatherford and Lorraine M. McDonald, both of the University of California Santa Barbara, in the September 1996 Political Science Quarterly. “Yet the public impressions of Clinton’s performance, in the economy as much as in other areas, ranges from an image of well-intentioned haplessness to one of insensitive big-government liberalism.” Sound familiar?
It remains to be seen whether the 2024 election will echo Clinton’s loss in 1994 or his victory in 1996. An encouraging difference from 1994 is that it’s doubtful Republicans can keep the House. A disquieting difference from 1996 is that the age issue, which bedevils Biden, hurt Clinton’s unsuccessful challenger, Bob Dole, who was considered an old man at 73. Perhaps we might now consider that Dole lived another 25 years, most of them fairly active. Biden can’t will himself to be any younger, but he can continue to publicize the success of his economic policies. A soft landing doesn’t happen every day.