Since the pandemic, ordinary Americans’ perceptions of the economy have confounded liberal-leaning experts and commentators, who have hailed the US recovery as the envy of the industrialized world. Brought on by global supply-chain shocks, including China’s extended Covid lockdown, high inflation from mid-2021 through mid-2023 stoked voters’ fears of a broader cost-of-living crisis. Yet disinflation has been fairly steady for more than a year at no great cost to economic growth and the employment rate. Recent reports show that real wage growth has finally outpaced inflation after failing to keep up until the end of last year. Despite the turbulence, many stalwart Democrats hope that the “soft landing” is imminent, if not already here, and that the Biden administration’s assertive fiscal, infrastructure, and industrial policies have underpinned a much stronger rebound than would have otherwise occurred.
The macroeconomic picture would indeed seem healthy, particularly when compared to European countries like Britain and Germany or to America’s halting recovery from the Great Recession. But there are other indicators that underscore how fragile the recovery is—and portend worse to come.
High interest rates to combat inflation have been needlessly protracted, making it more costly for businesses to borrow to invest in upgrades, expansion, and hiring, and for working families to pay down their monthly credit-card balances. Interest rates have also been counterproductive to spurring home construction and homebuying among middle-class Millennials. This has exacerbated the housing shortage, while allowing high rents, a major source of inflation, to continue unchecked.
But perhaps most ominous are signs that domestic manufacturing is on the cusp of a full-blown sectoral recession. Output has declined for five months, no doubt due to uncertainty over interest rates, as well as the debilitating shortage of skilled workers. The contraction, however, isn’t merely a reflection of Federal Reserve policy reinforcing supply-side choke points, which has undercut Team Biden’s efforts to reshore industry. In fact, production has been largely anemic since at least the slump of 2019; according to the Institute for Supply Management, a leading industry association, a 13-month stretch from 2022 to 2023 was the longest downturn since 2000-2002, when Permanent Normal Trade Relations with China went into effect.
There are many long-term structural factors behind this pattern, not least the vicious cycle of plant closures, regional underemployment, atrophied skills, and diminishing interfirm and consumer demand for domestic goods. After decades of disinvestment, neither higher tariffs nor generous subsidies for fixed investment can bring about a sudden miracle in America’s rust belts. Promising new factories aided by the CHIPS and Science Act or the Inflation Reduction Act are still overshadowed by the decline of other manufacturing hubs, where major firms continue to threaten to offshore already slimmed-down operations. All this, notwithstanding the protectionist mood in Washington.
To be sure, the depth of the challenge isn’t necessarily an indictment of the intent and scope of the Biden administration’s industrial strategy. Delays caused by bureaucratic hurdles, local political disputes, and project decisions by firms slated to manufacture goods such as chips, cleaner steel, and electric-vehicle components are somewhat inevitable, particularly when explicit economic planning in the United States remains taboo. Nor does the current manufacturing slump automatically mean that an economy-wide recession is at hand.
The downturn, however, is emblematic of the recovery’s frustrating unevenness, a challenge which the Harris-Walz campaign evades at its peril. A recent report by The New York Times covering trends from 2019 to 2023 illustrates the extent of divergent economic fortunes by county. While infrastructure spending has fed a construction boom in many locales—an encouraging sign, given the limits imposed by Fed policy—strong growth has mostly favored the Sun Belt, especially Florida and Georgia, as well as the interior Northwest and Mountain states, which experienced an overwhelming influx of wealthy Americans and remote workers during the pandemic.
“Nowhere is the problem more acute than in all-important Pennsylvania.”
By contrast, the dynamic in the Midwest and interior Northeast is a reminder of just how intractable industrial decline has become. For two decades, regional vitality has depended upon a handful of dynamic metro areas boosted by ongoing growth in health care, education, and professional services. But that is an unsustainable approach to political economy at the state and national levels. With numerous medium-sized cities and micropolitan areas suffering job losses of 5 percent or more in the last few years, it is clear that much-touted federal investments in clean energy and infrastructure have eluded many areas. Nowhere is the problem more acute than in all-important Pennsylvania. The former industrial giant has been a bellwether of the broader region’s falling share of gross domestic product and population decline driven by out-migration and deaths of despair.
These patterns should be of grave concern to progressives—as a matter of politics and policy. A similar, overlooked downturn late in President Barack Obama’s second term likely contributed to Hillary Clinton’s defeat in Pennsylvania, Michigan, and Wisconsin in the 2016 election. That, along with her campaign’s astounding indifference to the industrial Midwest, practically cemented the view among many working-class whites that today’s Democrats have abandoned their New Deal roots. Although the Harris-Walz ticket appears to be sustaining momentum and has trained its focus on preserving the “Blue Wall,” unanticipated headwinds in battleground counties could spell the same fate as Clinton’s.
Indeed, Harris’s fuzzy economic vision leaves the party exposed to charges it is aloof to enduring hardships, even as it promotes “joy” and “normalcy.” The reality is that dozens of counties reeling from job losses have effectively experienced what many wage-earners rightly feared: stagflation. In more rural regions, peak inflation was higher than the national average, a trend which spread from the South to the postindustrial Northeast. Its toll undoubtedly compounded the sense of helplessness among rural households, who tend to pay more for groceries and other staples. Mainstream liberals seem reluctant to acknowledge as much. Instead, Democrats and their media and academic allies have oddly taken a page from Ronald Reagan’s 1984 campaign, stressing a rosy outlook, while playing down entrenched regional disparities.
This strategy may suffice, given the state of the race. Progressives certainly have tactical reasons to highlight the economy’s upsides, particularly when Team Trump, to the extent it has any discipline, is doubling down on ill-explained across-the-board tariffs, gratuitous corporate tax cuts, and worshipful treatment of anti-union tech overlords.
But anyone supportive of Bidenism’s core domestic objectives should worry about the ways in which the country has reverted to the neoliberal status quo. Child poverty has surged since the 2021 Child Tax Credit expired, gig work is exploding, and unionization drives across the private sector continue to face setbacks. An economy pockmarked by mini-regional downturns, moreover, belies headlines heralding a manufacturing renaissance. Taken as a whole, Team Biden’s developmental policies are well overdue and may eventually be credited with forging a more resilient and equitable economy. But for various reasons, some beyond the administration’s control, it seems more accurate to say that the basic ebb and flow of fixed investment since the China Shock has merely kept up.
The Democratic elite’s skewed view of the recovery has fed a strange sense of complacency at odds with the urgent goals set by Biden. Reasonably confident that the GOP’s economic populism has withered on the vine, Democrats seem content to once again tinker à la the Clintons and Obama—to be a “small-c conservative party of the liberal but comfortable coasts and other economic hubs,” as the political theorist Jedediah Britton-Purdy recently wrote.
Harris’s proposal for a lower tax increase on capital gains at a recent speech in New Hampshire is illustrative of this misguided timidity. The ticket and its surrogates should be trumpeting antitrust measures taken by the Federal Trade Commission, pointing to the ways fair competition could raise both the purchasing power and bargaining power of workers, especially in small towns. They could likewise embrace strategic tariffs and trade controls on national-security grounds, as Biden has done, while highlighting how a majority of House Democrats support closing unfair trade loopholes like de minimis, which allows importers to evade duties to Uncle Sam so long as the goods sold are valued under $800. Post-debate, however, the campaign seems keen to mop up what’s left of those affluent independents and “liberal” Republicans (aka neoconservatives) who might pad Democratic margins in swing-state suburbs.
If progressives want to avoid the recriminations of 2016, that kind of positioning should be roundly condemned as political malpractice. There are legions of disaffected potential voters, not of all whom can be converted to Harris’s pitch via Taylor Swift’s endorsement. Alas, the Democrats’ increasingly business-friendly tenor is unlikely to relent between now and November. No doubt cheered by the modest seal of approval from Goldman Sachs, the Harris campaign is apt to push a simple economic contrast in the days ahead: continued growth versus a new era of volatility.
It’s possible that more troubling data may yet get through to Harris’s advisers in time to change tack. A report from the Labor Department in late August downwardly revised employment growth between March 2023 and March 2024—to the tune of 800,000 jobs. While adjustments to such data are routine, the scale was unusual. There are other signs that the manufacturing slump may be reverberating into the broader economy. Though headline-grabbing layoffs have been mostly concentrated in tech and media, hiring has started to cool more generally. Assessed soberly, a labor market which never actually reached its full employment potential due to a substandard participation rate is already beginning to slacken. That spells trouble not just for working families’ ability to keep up with bills, but for all the supply-side capital expenditures that need to be met to shield the economy from another global inflationary shock.
These trends should be more than enough to puncture the liberal establishment’s bubble. In the meantime, a much-expected rate cut by the Fed could help arrest the downturn, though at this stage it is unlikely to redound strongly to the Democrats’ electoral benefit—much as conservatives might grouse otherwise. Still, the path toward a post-neoliberal future needs far more than a slightly dovish turn in monetary policy. At present, the country seems to be entering a fraught period in which the economy’s bifurcation between moderate-to-high-growth regions and left-behind ones only worsens. Such an outcome should alarm all who want to improve, not jettison, the country’s current industrial strategy.