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Biden treats economics better than Trump, but there are still risks.Nuriel Rubini

NSSix months after President Joe Biden took office, it’s time to consider how his administration’s economic doctrine compares to that of Donald Trump and the former Democratic and Republican administrations.

The paradox is that “Biden’s doctrine” is more in common with Trump’s policy than the current President’s previous policy of the Barack Obama administration. The neo-liberal doctrine that emerged under Trump is now in full shape under Biden, demonstrating a sharp departure from the neo-liberal beliefs that all presidents from Bill Clinton to Obama follow. I am.

Trump ran as a populist – dating a left-behind white-collar worker – but Governance Like plutocracy, it cuts corporate taxes and further weakens the workforce on capital. Nonetheless, his agenda contains some truly populist elements, especially when compared to the fundamentally pro-big business approach that Republicans have pursued for decades. Was there.

The Clinton, George W. Bush, and Obama administrations differed in their own way, but they had the same basic position on major economic policy issues. For example, they all advocated a trade liberalization agreement and supported a strong dollar. We thought it was a way to lower import prices and support the purchasing power of the working class in the face of growing income and wealth inequality.

Each of these former administrations also respected the independence of the Federal Reserve Board of Governors and upheld its commitment to price stability. Each pursued appropriate fiscal policy and appealed to economic stimulus measures (tax cuts and increased spending), mainly in response to the recession. Finally, the Clinton, Bush, and Obama administrations were all relatively cozy on Big Tech, big companies, and Wall Street. Each presided over deregulation in the goods and services sector, creating conditions for today’s oligopoly to focus on the enterprise, technology and financial sectors.

With trade liberalization and technological advances, these policies have boosted corporate profits and reduced the proportion of workers in total income, thereby exacerbating inequality. US consumers have benefited from the fact that profitable businesses can pass on some of the profits from deregulation (through low prices and low inflation), but that’s it.

The doctrines of Clinton, Bush, and Obama’s economics are all neoliberal in nature and reflect an implicit belief in trickle-down economics. But things began to move in the direction of newer populists and nationalists with Trump, and these changes were embodied under Biden.

Trump put more emphasis on his protectionism, but Biden is still pursuing an inward-looking trade policy with similar nationalists. He maintained the Trump administration’s tariffs on China and other countries, introduced stricter “buy America” ​​procurement policies and industrial policies to rebuild major manufacturing industries. Equally important is the continued broader US-China separation and competition for trade, technology, data, information, and dominance in future industries.

Similarly, Biden did not formally obey Trump by demanding a weaker dollar and defeating the Fed to cover the huge budget deficit caused by the Fed’s policies, but his administration did. It has also enacted measures that require closer cooperation from the Fed. In fact, the United States has moved into a state of de facto permanent debt monetization, if not de jure. This is a policy that began under Trump and Federal Reserve Board Chairman Jerome Powell.

Under this arrangement, if inflation rises moderately, the Fed should adopt a benign negligence policy. This is because the alternative, strict anti-inflation monetary policy, causes a market crash and a serious recession. This change in the Fed’s stance represents another radical change from the 1991-2016 era.

Moreover, given the large American twin deficits, the Biden administration has given up on pursuing a strong dollar policy. It doesn’t openly support a weak greenback like Trump, but it certainly doesn’t care about currency shifts that can restore US competitiveness and reduce the country’s surge in trade deficits.

To reverse income and wealth inequality, Biden supports large-scale direct transfers and lower taxes for workers, the unemployed, partially employed and left-behind. .. Again, this is a policy that began under Trump, with $ 2 trillion in coronavirus support, relief and economic security (care) legislation and a $ 900 billion stimulus passed in December 2020. There is a bill. Under Biden, the United States has passed an additional $ 19 trillion stimulus package and is currently considering an additional $ 4 trillion in spending on widely defined infrastructure.

Biden promotes progressive taxation more than Trump, but his administration’s ability to raise taxes is constrained. Therefore, as under Trump, large budget deficits will again be largely covered by debt that will force the Fed to monetize over time. Biden will also lead the public backlash against big companies and Big Tech that started under Trump. His administration has already taken steps to curb corporate power through antitrust enforcement, regulatory changes, and ultimately legislation. In each case, the goal is to redistribute some of the national income from capital and profits to labor and wages.

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Therefore, Biden has exited with a new populist economic agenda that is closer to Trump than the Obama administration. But this doctrinal change is not surprising. Excessive inequality makes both left and right politicians more populists. Alternatives cause unchecked inequality to cause social conflict or, in extreme cases, Civil war or revolution..

It was inevitable that the pendulum of US economic policy would change from neoliberalism to neoliberalism. However, this shift, although necessary, poses its own risk. Huge amounts of private and public debt mean that the Fed remains in debt traps. In addition, the economy will be vulnerable to globalization elimination, US-China decoupling, social aging, immigration restrictions, corporate sector restraint, cyberattacks, climate change, and the negative supply shock of the Covid-19 pandemic. ..

Loose fiscal and monetary policy may currently help increase the share of workers’ income. However, over time, the same factors can cause higher inflation or stagflation (if these sudden negative supply shocks occur).If policies to reduce inequality lead to an unsustainable increase in private and public debt, such steps can be set. Stagnation debt crisis I warned earlier this summer.

Nuriel Rubini was a professor of economics at New York University’s Stern School of Business.He has worked for the IMF in the United States Federal Reserve And the World Bank.

© © Project syndicate

Biden treats economics better than Trump, but there are still risks.Nuriel Rubini

Source link Biden treats economics better than Trump, but there are still risks.Nuriel Rubini

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