Last week, Ed teed up an important question about whether Biden is chasing too many complicated economic policies at the moment. My quick response was no — there is real synergy to what he’s doing — and I’d like to expand on that topic here.
Let me start by setting the context for what he’s doing. I think about markets, economies, and capitalism in general not as being handed down on stone tablets, but as systems that evolve and change to fit the needs of the time. 18th century mercantilism gave way to 19th century laissez faire philosophy, as nation building moved into a wave of globalisation. Keynesianism gave way to the Chicago school when we needed a bit less government and more animal spirits. Systems reach critical mass because they are purpose-built for the challenges of the day. Then, eventually, the pendulum swings too far in one direction, and we need a new set of policies, which eventually become its own system.
We are now at such a turning point. I’ve written many times about how the last half century was predicated on the idea that capital, goods and people would cross borders in search of the most profitable returns, and — crucially — end up where it was most productive for our economy and society as a whole. That philosophy, neoliberalism, gave us more growth at a global level than ever before. But the system created substantial amounts of inequality within nations.
It also created global imbalances between capital and labour, which gave us everything from the financial crisis (imbalances create speculation) to a cost of living crisis (imbalances create asset inflation that wage inflation can’t match) to a geopolitical crisis (production/consumption imbalances between the US and Asia are at the heart of this).
That reality frames everything Biden must do. You can’t look at his chessboard in incremental terms. This isn’t politics as usual when you might think about taking on, say, healthcare or real financial reform, as was the Obama paradigm. (Obama should have done the latter rather than the former at the time, in my opinion; because he failed on finance, he lost the trust of a lot of the party and the people, and the rest of his agenda was doomed — but that’s another Note!).
Rather, Biden has to start pulling lots of levers at all once to have a hope of moving the dial enough to get the US to a fundamentally different place in the next decade. America has to shift its mix of production and consumption in order to change its fiscal picture and raise wages (see my column here about why that must involve manufacturing subsidies). It needs to innovate by iterating, which means making things again in order to grow. It needs to make sure that the fastest growing industries, in the care sector, create good jobs.
Gina Raimondo’s plan to link the two by pushing business to provide on-site childcare is actually genius, because many businesses I speak with already want to do just that (how else will they get more female labour into the workplace, which is crucial to improving GDP growth and plugging the labour gap). They just want some incentives to do so, and using the CHIPs money to give them that is low-hanging fruit.
I could keep going with all the reasons why the White House’s multipronged policies make sense. All the things that made the old world possible — cheap labour, cheap capital and cheap energy — are going away, and fast. We must understand and map a new and more regional world, with multiple political economies. We must restructure supply chains, increase resiliency, and even prepare for a post-dollar world. We must move from financialised growth to the real thing. None of this is incremental. Biden is right to throw everything, including the kitchen sink, at the problem.
Ed, I was struck by your column on Jimmy Carter the other week, and all the ways in which we misunderstand that president. One that I might have added is the way in which Carter’s administration actually began some of the financial deregulation (of interest rates, for example, and the overturning of Regulation Q which started the process of financialisation) that Reagan gets credit for. What struck me was that in many periods of seismic change, the administration that ultimately gets credit for something is often not the one that began the changes.
So, my question to you is both futuristic and historic. Calling on the several decades of history that you’ve been looking at for your upcoming book, and looking into the crystal ball of the future, do you think the Biden era will be remembered as the beginning of a post-neoliberal era, à la the Reagan-Thatcher shift? Or will that title go to some younger, different president in the future?
Recommended reading
I was struck by Chris Giles’ recent column on why Britain’s London problem isn’t about how much economic and political air is sucked up by the capital, and what local cities can do to get a slice of the pie, but rather how the UK can help London get more business from international competitor cities.
I recently watched the David Bowie documentary Moonage Dream, which is one of the best depictions of the artistic spirit that I’ve ever seen (I’m a huge Bowie fan, though, so I am certainly biased).
I’m enjoying Mariana Mazzucato’s latest book, The Big Con, written with Rosie Collington, which looks at how the consulting industry has taken governments to the cleaners. It’s amazing to me that companies and public sector officials alike are so worried about making the wrong decision that they are willing to pay tons of money to people who know less to make it for them.
Edward Luce responds
Rana, just to clarify, I was not criticising Biden for “chasing too many complicated economic policies”: it was a specific critique of his over-burdening industrial policy with too many conditions. I continue to think that will subtract from his efforts. I don’t dispute Biden’s chief goals — to reduce US inequality, improve employee rights (mandatory parental leave etc) and kick-start the shift to a greener economy. Nor do I think these are complicated. But governance is about execution particularly when it involves detailed state intervention. The media needs to pay more attention to that.
Will history recall the Biden era as the end of neoliberalism? As you know I prefer the more precise term of anti-globalisation, which is happening in the US. But the backlash against free trade began under Trump, not Biden. Biden’s approach to globalisation is Trumpism with a human face. You quite rightly point out that a lot of the deregulation that we associate with Ronald Reagan actually began under Carter. His economic policy was, and remains, hard to classify. Unlike say Lyndon Johnson’s Great Society, FDR’s New Deal, or even Bill Clinton’s Third Way, we have no name for Carter’s economic approach. That is because it was confusing. He vetoed spending bills, deregulated large sectors of the economy, made heavy, and game-changing, investments in the new energy technology, and tried to drive special interests out of Washington. His legacy was mixed and hard to summarise. Reagan’s was simple by comparison.
I would give Biden relatively high marks for his performance so far. Since the midterms, we have moved past the time of legislating and into the phase of implementing. That’s the harder part and he has to be single-minded in his execution. The tensions between Washington’s talk of “friend-shoring” and the protectionism of its Inflation Reduction Act and the Buy American drive are making that goal far more difficult. We are also fast approaching the point where the US cannot talk with a straight face of upholding the “rules-based international order” when it keeps trashing those rules and disabling the World Trade Organization. As I say, this began under Trump. The biggest strike against Biden is that he is continuing what Trump started.
Your feedback
And now a word from our Swampians . . .
In response to “America — this is no way to run an industrial policy”:
“Biden is chasing hares, they are elusive and can outrun him.” — Reader shetland37
Source: Economy - ft.com
