When the Biden-Harris administration was pushing its Build Back Better plan in 2021, 17 winners of the Nobel Memorial Prize in Economic Sciences signed a letter supporting the program, arguing that it would “ease longer-term inflationary pressures.” More recently, a slightly larger group including most of the same Nobel economists signed a letter saying Kamala Harris’s agenda was “vastly superior to the counterproductive agenda of President Trump.” A broader group of Nobel laureates in various disciplines, celebrating the value of science in shaping public policy, embraced Ms. Harris. Not to be outdone, the journal Nature endorsed her because “the world needs a US president who respects evidence.”
For Mr. Trump, there is ample evidence that his tax cuts and deregulatory efforts had salutary effects. In their recent paper reviewing the academic research on those policies, economists Michael Faulkender and Aaron Hedlund concluded that “pro growth tax reform works.”
While the Nobels have yet to conduct a quantitative analysis of the Biden-Harris agenda, there is plenty of fodder for scientific inquiry. To advance equality, environmental protection and other social goals, Mr. Biden and Ms. Harris in 2020 proposed an ambitious lineup, particularly in taxes, health insurance, regulation and energy policy. They mostly got their way in all these areas but taxes.
Four years ago, consistent with the scientific method, we published a study with Tim Fitzgerald and Cody Kallen comparing the economic effects of Mr. Biden’s agenda with Mr. Trump’s. Knowing that campaign promises don’t necessarily turn into policy, we analyzed several policy scenarios. The scenario closest to the policy changes made over the past four years we called “capital taxation constant” because it focused on expanded health-insurance benefits, a range of green energy policies and a return of the other regulatory policies to what they were under Barack Obama. We assumed Mr. Biden and Ms. Harris would roll back half of Mr. Trump’s trade policy and keep the other half.
The redistribution elements, including redistribution to favored interest groups, would primarily discourage work, we found. The green energy and other productivity-reducing regulations would reduce real wages. Altogether, we expected the U.S. economy to be put on a path with 5% less inflation-adjusted per capita income from work by 2025 relative to the Trump-policy baseline. Half of this would come from a failure of employment and work hours to keep up with the population of people 16 or older. The other half would come from reduced real hourly wages.
The nearby chart shows what actually happened to inflation-adjusted real employee compensation per person 16 or older. It is an index taking the value of 100 for the first quarter of 2017. Although we don’t know for sure what would have happened if Mr. Trump had begun a second term in 2021, our chart shows a linear trend from the first quarter of 2017 through the fourth quarter of 2019. The trend is a good model of what happened after the second full quarter of the pandemic into late 2021.
Then inflation hit and employee compensation—and national income more broadly, which isn’t shown in the chart—couldn’t keep up. That’s when we began to see the deleterious effects of Mr. Biden’s policies. By the second quarter of 2024 (the most recent national accounts), real per capita income from work remained 4.6% below the trend. That’s remarkably close to the 5% we predicted.
Also as we predicted, the 4.6% shortfall is due to both low employment and low real wages. But the real-wage part accounts for three-fourths of the shortfall, whereas we expected it to be half.
Proponents of the position that Ms. Harris’s economy would outperform Mr. Trump’s should show their work. If other macroeconomists quibble with aspects of our approach, we welcome scientific debate about it. Such debates are more consistent with the values that animate scientific discovery than ham-handed declarations, regardless of how many Nobel laureates sign on.
As of now, looking back at our modeling and the evidence, we don’t see anything we would have done differently. That much we have in common with Ms. Harris.
Mr. Hassett is a distinguished fellow in economics at the Hoover Institution. Mr. Mulligan is a professor of economics at the University of Chicago and senior fellow with the Committee to Unleash Prosperity. They served, respectively, as chairman (2017-19) and chief economist (2018-19) of the White House Council of Economic Advisers.
