If Biden loses, it won’t be because of economy — it could be ‘The AI, Stupid’

COLUMN: With the US witnessing the greatest reshoring activity ever in its history, the economy could deliver another term for Biden, but AI could be a potential wildcard in the electoral landscape.

In the 1992 presidential campaign against incumbent President George Bush, then-Arkansas Governor Bill Clinton’s election strategist coined a memorable punchline: “It’s the economy, stupid.” Despite Bush’s significant popularity after ousting Saddam Hussein from Kuwait 20 months before the election, the struggling economy proved to be his downfall, paving the way for the eight-year Clinton presidency.

As the United States approaches another election, a crucial question emerges: How is the economy faring under President Biden as he seeks a second term?

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Federal Reserve Economic Data (FRED) from the Federal Reserve Bank Of St. Louis indicates that the economy is thriving. If Biden were to lose the election, it would likely not be due to economic factors. Fuel prices, which soared to $5 per gallon in July 2022 amidst the Ukraine war, have significantly dropped to $3.116 per gallon as of December 2023. Market expectations regarding the economy have not been this favorable in over two decades, with the Dow Jones crossing 38,000 on February 2, 2024, marking a historic milestone in American history.

From its peak of 9 percent in July 2022, inflation has significantly decreased to 3.5 percent. The unemployment rate, which stood at 6.3 percent when Biden assumed office, has dropped to 4 percent over the past three years of his presidency. Additionally, median usual weekly real earnings have seen an uptick, rising from $362 in the third quarter of 2022 to $371 in the last quarter of 2023, with the potential to reach pre-COVID levels of $390 in the near future.

Amidst a surge in global consumption of entertainment via platforms like Netflix, online shopping through Amazon, and internet usage facilitated by Google, the NASDAQ Composite Index is steadily approaching the 16,000 mark. However, these gains come at a global expense, as American markets reach unprecedented highs.

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According to the World Investment Report 2023, the United States has maintained its status as the primary recipient of Foreign Direct Investment (FDI) from the rest of the world since 2020, solidifying its position. In 2022, data from the Bureau of Economic Analysis indicates that FDI inflows amounted to $216.8 billion, resulting in a total stock of FDI in the United States reaching $5.25 trillion. Similarly, the United States stands as one of the most significant investors abroad, with FDI assets totaling $6.58 trillion.

A closer examination of the inflows reveals that a substantial portion has been allocated to expansion, particularly within the manufacturing sector, with notable contributions from the United Kingdom and Germany. Additionally, some investments are made in the United States to capitalize on incentives and subsidies. The country has adopted a new industrial policy, the compatibility of which with WTO rules is widely acknowledged. Profiting from the strength of the dollar, the United States has the advantage of sourcing inexpensive goods from around the world, resulting in minimal concern regarding offshoring activities conducted by leading US corporations abroad.

The CHIPS Act, introduced by the Biden administration, marks a significant departure from past policies with its array of subsidies and grants. Notably, not only Intel but also TSMC, Asia’s largest semiconductor fab manufacturer, has established a factory in the United States. TSMC’s presence in Arizona is emblematic of a broader trend, with semiconductor fabs proliferating from Oklahoma to New York. California’s Silicon Valley and Arizona’s Silicon Desert are buzzing with activity, and as a result, the United States is witnessing the greatest reshoring activity ever in its history.

READ: Vishal Sikka: AI can be a great enabler and enhancer of human potential, creativity and imagination (March 4, 2023)

This resurgence in domestic semiconductor production is poised to resonate with both white and African American low-middle classes, who have long felt marginalized by America’s economic growth trajectory. While skilled tech workers have thrived in the booming American economy, the aspirations of semiskilled individuals across racial and ethnic lines have often been overlooked. Many in the semiskilled workforce have witnessed their jobs outsourced to foreign countries, contributing to economic insecurity and disillusionment.

However, there is now a glimmer of hope on the horizon, albeit at the expense of factories in Asia. While the reshoring initiative may pose challenges to industrialization efforts in Asia, particularly in the semiconductor sector, it represents a promising development for job creation and economic revitalization in the United States. In essence, Biden’s initiatives are bringing jobs back home, offering a beacon of opportunity for American workers.

Read the American Bazaar’s continuing coverage of the 2024 presidential campaigns

Biden could still lose the election, but the economy is unlikely to shoulder the blame for it. In a world increasingly influenced by Artificial Intelligence (AI), the determinants of victory and defeat are shaped in the digital realm. Despite a robust economy and rising median wages, the real battleground lies in controlling the algorithms of AI platforms by both the president’s campaign and his opponents. As the world’s oldest democracies head to the polls, the saga is just beginning. (The same could be said about India, the largest democracy, where elections loom in two months.)

Ultimately, as ballots are tallied, we may awaken from our complacency and realize: “It’s the AI, stupid.”

(Krishnakumar S., a columnist for the American Bazaar, teaches economics at Sri Venkateswara College, University of Delhi.)