Bidenomics: Doomed to success
By Jörg Bibow
[This article published on 5/18/2021 is translated from the German on the Internet, Bidenomics: Zum Erfolg verdammt – MAKROSKOP.de.]
Joe Biden's demand-side policy reform is an experiment that must succeed. Otherwise, America faces dire times as the country has an acute fascism problem. Bidenomics is a race against time.
U.S. President Joe Biden has already scored two major successes in the first one hundred days of his presidency: a logistically very successful mass vaccination campaign is increasingly bringing the Corona pandemic under control, while the American Rescue Plan (ARP) is administering some .9 trillion in fiscal support to the economy. As a result, America's economic recovery regained strong momentum over the course of Q1.
As if this immediate-impact drive by Joe Biden was not impressive enough, the 78-year-old president with 50 years of political experience - who is accused of advanced senility and lack of mental strength by the Republican side - has additionally presented the U.S. Congress with two other progressive economic programs of considerable scope. These would represent fundamental reform and renewal for the U.S. economy and would also provide significant fiscal support for U.S. growth over the next 10 years.
The first, presented back in March, is a .7 trillion program called the American Jobs Plan (AJP) that focuses on infrastructure renewal and energy transformation in the face of climate change. The second in the .8 trillion program presented in late April, titled the American Families Plan (AFP), focuses on families and expanding the U.S. welfare state, which is underdeveloped by international standards.
Infrastructure investment would reach levels of the early 1970s
The AJP includes four core areas of planned government spending. First, it envisions major infrastructure investments in transportation of more than 0 billion. Some 5 billion is reserved in it for bridge and road upgrades, as well as billion for public transit and billion for long-distance rail. In addition, there is 4 billion for the expansion of infrastructure for the use of e-cars, i.e. charging stations. Airports, waterways and ports are also to be renewed. The aim is to improve resilience and reduce inequality in access to and use of transportation infrastructure.
Second, about 0 billion each in the AJP is for renewing electricity and drinking water supplies and expanding high-speed internet. In addition, there is over 0 billion to promote affordable housing and increase the energy efficiency of buildings, and billion for school construction and renovation.
The third area includes funding for: Research and Development (180 billion), Manufacturing and Small Business Revitalization (300 billion), and Workforce Training (100 billion).
The fourth area in AJP is for the "caretaking economy," providing care for the elderly and disabled at home and in institutions (400 billion).
Areas three and four make it clear that the AJP is not limited to a narrow interpretation of infrastructure - which is a key criticism of Republicans, who at most would be willing to support a much smaller program focused on transportation.
Republicans also fundamentally object to the fact that a major focus of AJP is renewable energy, environmental initiatives and e-cars. Instead of making fossil fuels more expensive through taxes (CO2 tax) or restricting them through regulation, Biden's plan includes tax credits of about 400 billion over the next four years for funded projects, in addition to the 2.3 trillion in government spending above.
In turn, the AJP calls for tax increases on businesses to bring in an additional 2.1 trillion in tax revenue over the next 10 years. The corporate tax rate, which was reduced under Trump, is to be increased again. Other tax changes are intended to limit the scope for companies to avoid or evade taxes, especially through international activities. And any tax breaks for fossil fuels are to be repealed.
Overall, these measures would put America back in line with international climate change efforts. As a climate change denier and in blank dismissal of science altogether, Donald Trump had led America to the sidelines internationally in this regard as well. Rejoining America to the Paris Climate Agreement was among Joe Biden's first acts after taking office on January 20, 2021, and he recently made a commitment to reduce America's net CO2 emissions by 50-52% below 2005 levels by 2030.
Implementing this commitment would achieve emissions reductions at a pace similar to that targeted by European countries. However, America's per capita CO2 emissions are about twice as high as Germany's today - and they would still be so in 2030 at the same rate of reduction.
The program's expansionary fiscal contribution via spending and tax credits over the next eight years would average just over one percent of GDP. The restrictive effect via tax increases should be much lower. Overall, infrastructure investment would increase to about 4.5 percent of GDP annually, returning to its highest level since the early 1970s. Donald Trump believed he could compete with China for world supremacy by means of tax cuts for the super-rich and elimination of health insurance coverage for the poor. The supposedly senile current old man in the White House is not that simple-minded.
Biden wants to make welfare state more generous and comprehensive
The AFP submitted to the U.S. Congress in late April provides for additional government spending on child care, education, and paid leave. In addition, there are tax credits and payments similar to the German child benefit (here, measures are anchored for the longer term that were first included temporarily in the February ARP). Joe Biden thus wants to make America's welfare state more generous and comprehensive. The existing deficits have also become quite obvious in the Corona pandemic. Of course, low- and middle-income families, in particular, have been especially affected by these coverage deficits, in addition to usually poorer health care.
According to Joe Biden's proposals, which are currently being negotiated in Congress, that should change. And there is no enthusiasm for this from the Republican side either, especially since this plan also provides for tax increases of around 0 billion in return, all of which are concentrated on high-income earners.
Joe Biden had promised in the election campaign not to burden families with incomes of up to 0,000 with tax increases. Tax increases would primarily affect dividends and capital gains. In addition, tax enforcement and oversight by the Internal Revenue Service would also be greatly improved to collect an additional 0 billion in tax revenue. Again, this is a stark departure from Donald Trump's strategy of bleeding the IRS dry and thereby undermining its ability to exercise control. Overall, this program should also support economic development and job growth in the coming years.
Thanks to their current majority in both chambers of Congress, Democrats can largely push through these plans even without Republican support in the so-called "reconciliation process" (and also repeal many things that were put in place during Trump's time). However, there is resistance among some conservative Democrats as well, and so it remains to be seen what the final outcome will be.
"Make America Great Again" through real action.
In any case, from what we have seen so far, we can deduce that Biden's economic policy has three or four mainstays. The first mainstay is more aggressive income redistribution through the tax and transfer system. Crass inequality - the result and main feature of four decades of neoliberalism à la the "trickle down" fairy tale - is thus finally to be countered. The second pillar consists of increased government spending to combat climate change and renew public infrastructure - in other words, "Make America Great Again" through real measures instead of lies and fairy tales.
For in addition to the common citizen, America's infrastructure has been increasingly neglected in the era of neoliberalism, and the necessary energy transition has been slowed. When it came to climate change, the reactionary Trump administration had literally gone into reverse. Donald Trump seemed to want to transform the federal Environmental Protection Agency into some sort of science-denying environmental destruction agency.
Pillars three and four concern demand-side policy reform along the lines of more active Keynesianism. Biden's fiscal policy prefers to take a "too big" risk here, so as not to repeat under any circumstances the experience of the Obama presidency with a too-small fiscal program to combat the 2008-9 financial crisis, followed by a recovery that was far too sluggish. The Federal Reserve had already come forward last year with an overhaul of its monetary policy strategy toward "average inflation targeting" to finally find a way out of the "lowflation" world of the past decade and not stand in the way of targeted employment gains.
Experiment against time
Demand-side policy reform mean an experiment that had better succeed, because America (and the world) were otherwise in for dire times. Martin Wolf aptly put it in his piece "The struggle for the survival of US democracy" in the Financial Times:
"The danger is great, since the Republicans are no longer a normal democratic party. They are increasingly an anti-democratic cult with a would-be despot as their leader."
It is indeed increasingly difficult not to regard the Republican Party as a fascist organization. Not only does it show no ambition to develop a program capable of winning a majority, as one would expect from a political party in democratic competition. Rather, its goals manifestly serve only about 0.5 percent of the population who sponsor the Republican Party and its representatives - whereby I simplistically assume here that perhaps half of America's rich and super-rich may actually be decent people who care nothing about the demise of American democracy.
The Republicans' efforts are focused on stealing a majority together by other means, where really all ethical barriers have fallen. In essence, they are trying, on the one hand, to systematically and purposefully disinform enough people and, on the other hand, to keep enough of those who cannot be converted to the "alternative truth" in this way from voting in the future; while also undermining the independence of elections. Fox "News," QAnon, and other ultra-right channels of "alternative facts" serve the first strategy; reforms of election laws, such as are currently taking place en masse in many Republican-ruled states, serve the second.
The recent ouster of Liz Cheney, an arch-conservative, from her position within the Republican Party has once again underscored Donald Trump's continuing power over the party. Cheney has countered Donald Trump's "Big Lie" that he actually won the election, only to have it stolen from him by alleged mass voter fraud. Support for the "Big Lie" has become the litmus test for Republicans. And a large majority of Republicans were successfully convinced of the lie by means of the above strategy.
Martin Wolf sums it up:
"The fact that Trump is lying is not news. What is news is that, even shorn of public office, Trump defines the truth for his party. There is a word for a political organization in which the prime duty of members is absolute loyalty to a leader who defines what is true and right: Führerprinzip ("leadership principle"). The Republicans' wholesale embrace of Trump's Big Lie is a perfect instance of it."
In other words, America has an acute fascism problem. Joe Biden is doomed to succeed. He must convince enough of Trump's rather less educated supporters of a better future in a fair and democratic America through successful progressive economic policies.
Joerg Bibow has taught since 2006 at Skidmore College, a prestigious liberal arts college in upstate New York, specializing in international finance, international trade, and European integration. He is associated with the Levy Economics Institute and is a member of the Bretton Woods Committee in Washington, DC.