The Birth of Bidenomics?
Joe Biden is no Ronald Reagan.
Seldom has a gibe so perfectly captured a transformation in America’s governing philosophy as Reagan’s sally: “The nine most terrifying words in the English language are, ‘I’m from the government, and I’m here to help.’”
Gone was the activist governance which had defined our politics since FDR’s New Deal. Reagan’s “free market” paradigm combined tax cuts and deregulation with Milton Friedman’s assertion that a corporation’s sole responsibility was to maximize shareholder profits. Less government, advocates held, engendered economic growth which benefited all.
Soon, Reaganisms entered Democratic rhetoric. “The era of big government is over,” Bill Clinton declared, before cautioning that “we cannot go back to the time when our citizens were left to fend for themselves.”
Increasingly, however, they were.
Income and wealth disparities widened; a predatory financial services industry operated unchecked. Thus the Great Recession of 2007-09—the fruits of risky subprime mortgages rooted in excessive borrowing.
Inevitably, the housing bubble collapsed. Banks absorbed catastrophic losses; homeowners defaulted; wealth disparities widened further. Between 2007 and 2009 unemployment doubled, while GDP declined by about 4 percent.
To combat this, Barack Obama authored a $787 billion stimulus program. But its scale was limited by the GOP’s insistence, over the advice of mainstream economists, that more spending would turbocharge inflation and swell the deficit. The halting recovery stranded millions of Americans—the result, many experts believe, of stimulus insufficient to the catastrophe at hand.
But Republican ideology had become theology: Believe, and it shall be so.
The Trump tax cuts of 2017 were packaged as a boon to the macroeconomy and taxpayers writ large—one that would, mirabile dictu, pay for itself. In reality, the Tax Policy Center estimates, two-thirds of the tax savings benefited the top 20 percent. Economic growth stalled; tax revenues plummeted—increasing the deficit, the Congressional Budget Office estimates, by $1.9 trillion over ten years.
By New Year’s 2020, the stamp of Reaganomics was inescapable. “The 1980s,” the Pew Research Center observed, “marked the beginning of a long and steady rise in income inequality”—which, between 1980 and 2016, had increased by roughly 20 percent. In 2018, the highest-earning 20 percent of families garnered 52 percent of all income; U.S. income inequality led all G7 nations; and the gap between whites and minorities was widening—as was that between the middle and upper income brackets.
Similarly, Pew found, “the wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016. “As Warren Buffet noted, supply-side economics had oversupplied the overdogs: “There’s class warfare, all right . . . but it’s my class, the rich class, that’s making war, and we’re winning.”
Then came COVID-19—whereupon, yet again, our government helpfully refrained from helping ordinary Americans. This homicide by neglect yielded 500,000 dead and rising—dwarfing our losses in two world wars, Vietnam, the Middle East or, on any given day, 9/11. Unsurprisingly, blacks and Hispanics are dying at higher rates than whites, reflecting the toll among those who suffer disparities in income, wealth, health care, and education.
The economic consequences are exceeded only by the Great Depression. Precipitous drops in employment and GDP, Brookings reported in September, disproportionately affected women, nonwhites, low-wage earners, the less educated, and poorer families with kids. Small businesses vanish; food insecurity rises; arrearages proliferate.
COVID-19, it transpires, does not have its own class system—it simply exacerbates ours. Trump’s indifference, polling shows, is why we hired Biden.
Americans want what he promised: active and effective governance. He is hastening the distribution of vaccines, and pushing a $1.9 trillion stimulus program to revive the economy.
His plan includes money to accelerate vaccination; increase testing; fortify healthcare; help schools reopen; rescue struggling businesses; fund cash-strapped states and cities; keep people in their homes, supplement unemployment benefits; hire public health workers; distribute $1,400 checks to embattled Americans; and transform the child tax credit into direct monthly payments. Urges Biden, “Now is the time to go big.”
Congressional Republicans oppose his plan, renewing their Obama-era plaints about stoking deficits and inflation while proposing their own stimulus bill one-third the size of Biden’s. Biden’s putative profligacy, they argue, ignores our improving economic prospects.
But the great majority of Americans support him. So do many GOP governors and mayors faced with the reality of massive layoffs of public employees, cuts in essential services, and the suffering of constituents too near to ignore. Reality not only bites—it’s swallowing forty years of Republican ideology whole.
On Tuesday, Fed Chairman Jerome Powell warned lawmakers that “the economic recovery remains uneven and far from complete, and the path ahead is highly uncertain”—while minimizing the risks of inflation. Moreover, our unemployment statistics ignore people who have stopped looking for work, as many Americans rendered jobless by the pandemic have; if they are included in the total, the unemployment rate rises to a dispiriting 10 percent or higher.
Given all this, Biden refuses to cut his plan. To circumvent GOP opposition, he is using the budget reconciliation process which requires a mere majority in the Senate—meaning every Democrat plus Vice President Kamala Harris.
This has impelled Biden to finesse progressive demands that the bill include a $15 per hour minimum wage and $50,000 of student debt forgiveness—both opposed by party moderates. Thanks to a Thursday night ruling from the Senate parliamentarian, the minimum wage has now been removed from consideration as part of the stimulus package—as Biden expected it would be. But he has indicated openness to raising the minimum wage through other legislation, perhaps phasing it in. He has also proposed capping debt forgiveness at $10,000.
These compromises should propitiate moderates, and no sane progressive would jettison a stimulus bill which bears their imprint. Most likely, Biden will sign his proposal into law by mid-March—a major legislative victory which sets the template for his presidency.
But this is a mere down payment on his ultimate ambition: supplanting Reagan’s paradigm with his own.
His team envisions spending up to $3 trillion on a program which, as spokeswoman Jen Psaki described it, “will make historic investments in infrastructure—in the auto industry, in transit, in the power sector—creating millions of good union jobs [while] addressing the climate crisis head on.” His goal evokes the New Deal: creating a more resilient and inclusive economy through federal intervention financed by higher taxes on the wealthy.
Such a sweeping agenda will alienate Republicans and unnerve moderate Democrats. But, among other things, it is aimed at a problem which upended bipartisan support for free trade, and provoked Trump’s ill-considered tariff wars: the loss of American jobs through globalization—including to China.
In a penetrating article for the New York Times, Noam Scheiber describes its genesis: Biden’s desire to create stable jobs which would not require blue-collar workers to relocate their families or undertake extensive retraining. One focus is government investment in electric vehicles whose components could be manufactured in America—providing employment, addressing the climate crisis, and strengthening green energy innovation.
Such “industrial policy”—government intervention to fortify selected industries—has long been debated by economists and derided by conservatives. One effort during the Obama years, the failed solar panel company Solyndra, became a notorious example of federal fecklessness.
But, Scheiber notes, recent studies of governmental support for Chinese industries suggests enduring successes. If our archrival can strengthen its domestic manufacturers at our expense, the argument goes, why can’t we?
Between 2001 and 2007, Scheiber writes, America lost 3 million manufacturing jobs—most likely the result of our free trade policies toward China. Some prominent Republicans—Tom Cotton, Marco Rubio, and Mitt Romney—have become particularly vocal about China’s predatory practices and economic sway. Even Treasury Secretary Janet Yellen, for years a dedicated free trader, acknowledges the need to protect American workers from the downside of globalism.
This may create some space for bipartisan agreement. The potential for job creation underwritten by government is considerable: making electric parts; building or upgrading manufacturing facilities; creating and installing chargers. Economic nationalism is no longer brain-dead protectionism, but a potential strategy for spreading prosperity.
Certainly, it’s past time to rebuild our infrastructure, strengthen our broadband capacity, and protect our energy grid from calamity. To do otherwise means abandoning a first world economy.
No doubt Biden won’t get all he wants; likely he will have to advance his goals through piecemeal legislation, or through the budget reconciliation process, which carries other risks. But in challenging times, average Americans are far more concerned with their families and their futures than the nostrums of limited government.
As David Leonhardt has noted, since 1933 GDP under Democratic presidents has grown at nearly twice the rate as under Republican. Observes Leonhardt: “Democrats have been more willing to heed economic and historical lessons about what policies actually strengthen the economy, while Republicans have often clung to theories that they want to believe—like the supposedly magical power of tax cuts and deregulation.”
In sum, the Reagan paradigm has outlived its time. The question becomes how best to replace it, and Joe Biden appreciates its urgency. For if history teaches us anything, it’s this: Over time no society does well when most of its people do not, and no democracy can remain stable and secure without shared opportunity and prosperity.