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Biden’s Great Economic Rebalancing



United States new president Joe Biden in public meeting | Biden’s Great Economic Rebalancing | Featured

The President is looking to correct a capitalist economy that has gone askew, and reclaim a lost vision of shared prosperity.

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Biden’s Great Economic Rebalancing

According to some commentators, President Joe Biden is turning out to be a quiet revolutionary. After he laid out his sweeping agenda to a joint session of Congress last week, reports described it as an epoch-shifting effort to reset the terms of American political economy, much as Ronald Reagan did in the nineteen-eighties (albeit in the opposite direction).

Delivering the Republican rebuttal, Senator Tim Scott, of South Carolina, dismissed Biden’s ideas as a “liberal wish list of big-government waste.”

For his part, Biden claimed that his American Jobs Plan, which calls for increased federal spending on transportation, green energy, and scientific research and development, would create “millions of good-paying jobs, jobs Americans can raise a family on.”

Biden’s American Families Plan, he said, would provide affordable child care to low-to-middle income families, and also up to twelve weeks of paid medical leave, two years of free community college, and expanded child tax credits that would put seventy-two hundred dollars per year “directly into the pockets” of families with two children.

The estimated price tag for Biden’s two policy initiatives is $4.1 trillion—$2.3 trillion for the American Jobs Plan and $1.8 trillion for the American Families Plan.

To help cover this cost, the federal government would levy substantially higher taxes on corporations and the highest earners, including raising the federal tax rate on capital gains, which is currently at twenty per cent, to as high as 43.4 per cent—a level not seen since the nineteen-twenties.

(“Socialism,” Chris Christie spluttered.) This and other measures that Biden is proposing, such as building a national network of electric-vehicle chargers and distributing child tax credits as monthly cash payments for poor families, are truly novel and potentially transformative.

But the notion of Amtrak Joe as a policy revolutionary is still a stretch—to my mind, at least. In many ways, his approach is a reactive one.

It’s been evident for years that something is seriously out of whack in the American economy, a problem highlighted by the election of the populist charlatan Donald Trump and exacerbated by the fallout from the coronavirus pandemic.

Biden isn’t channeling his inner—and long-hidden—socialist. Like F.D.R. in the nineteen-thirties, he’s looking to rebalance and preserve a capitalist economy that has been going askew for decades, reclaiming a vision of shared prosperity that has got lost.

In 1995, more than a quarter-century ago, I published a piece in The New Yorker that ran under the headline “Who Killed the Middle Class?”

It was hardly a pathbreaking question. Even then, wage stagnation, rising inequality, and a fixation on cutting taxes and balancing the budget deficit were well-established trends.

Among the sources I relied on was “The State of Working America,” a data-rich annual report that was, and still is, published by the Economic Policy Institute, a progressive think tank in Washington, D.C.

The economist Jared Bernstein, one of the authors of the report, went on to work for Biden in the Obama Administration and has now joined the Biden Administration, as a member of the White House Council of Economic Advisers.

On Friday afternoon, I spoke with Bernstein and asked him about the Administration’s economic agenda, the reactions it has engendered, and whether Biden is a revolutionary or a rebalancer.

“The President, in his speech, said that America is on the move again,” Bernstein said. “That resonates with me more than big revolutionary talk—in the sense of keeping our heads down and trying to craft, legislate, and implement a policy agenda that meets the moment.

The President has been very clear that that agenda isn’t small—it doesn’t nibble at the edges. In many respects, it is fundamental, and the depths of the investments are historic.”

But Bernstein preferred to characterize this as rebalancing rather than a revolution, especially in areas “where things have grown unacceptably unequal, racial equity has been deeply insufficient, and where critical investments in public goods and human capital have gone wanting for decades.”

The most obvious example is America’s physical infrastructure, which has suffered from chronic underinvestment. In 2017, according to the Congressional Budget Office, federal, state, and local governments spent about 2.3 per cent of gross domestic product on highways, mass transit, aviation, and water infrastructure.

That was the lowest level in decades. And, in the past ten years, overall spending on infrastructure by federal, state, and local governments actually declined by $9.9 billion in inflation-adjusted terms, according to the Brookings Institution.

Federal spending has also fallen short in supporting scientific research and innovation. Biden is proposing to devote another hundred and eighty billion dollars to this area.

If Congress enacted this request in full, Bernstein pointed out, it would merely take us back to the late nineteen-sixties in terms of spending relative to the size of the economy.

“There was a period in this country when private-sector productivity growth was very much fuelled by public investments in innovative discoveries,” he said. “We need to bring that back.”

On the tax side, Biden is looking to reverse many policy changes that have, over the years, benefitted the very wealthy, including, most recently, the Trump tax cuts of 2017.

After that legislation slashed the corporate tax rate from thirty-five per cent to twenty-one per cent, cut marginal income-tax rates, and changed the tax treatment of unincorporated businesses owned by rich individuals, federal receipts totaled just sixteen per cent of G.D.P. in 2019—a very low figure historically for an economy that was operating at, or close to, full employment.

“The Trump tax cut broke the essential linkage between overall economic growth and revenue flows to the Treasury,” Bernstein said. “We are trying to rebuild that linkage.”

Biden is also going back to the future in his efforts to strengthen labor unions, which have seen their membership rolls fall sharply.

Fifty years ago, when the gains from economic growth were more widely shared, close to thirty per cent of the labor force was unionized. In 2020, the figure was just over six per cent, according to the Bureau of Labor Statistics.

Labor “unions built the middle class,” Biden said in his speech, and he called on Congress to pass legislation making it easier for them to organize in the workplace.

It bears reëmphasizing that, in some parts of his agenda, Biden goes well beyond history. His plan to combat climate change falls into this category.

So do his proposals for universal child-support payments, guaranteed paid leave, affordable daycare, and elder care, free community college, and his efforts to tackle long-standing racial inequities.

In assessing the overall cost, it’s important to look past the headline figure—a seemingly staggering four trillion dollars—which applies to the entire cost over ten years.

On an annual basis, implementing both Biden’s jobs plan and his family plan would cost about four hundred and ten billion dollars. That’s equivalent to roughly 1.9 per cent of G.D.P., which currently stands at $22.05 trillion, according to the Commerce Department.

Permanently increasing annual federal spending by less than two per cent of G.D.P. would represent a break with recent economic history, to be sure, but it would hardly be unprecedented. Chances are that Congress will trim Biden’s ambitions, anyway.

Where his agenda isn’t devoted to righting past wrongs, it is largely concerned with filling in glaring gaps that have never been addressed.

“On the whole, Mr. Biden’s safety-net proposals are sensible,” The Economist, hardly a bastion of left-wing radicalism, commented. “America is one of the few developed countries that lack paid family or medical leave.

Preschool is only haphazardly accessible. Increasingly, many decent-paying jobs require some sort of college degree.” Ignoring these facts, some conservatives have accused Biden of trying to transform the U.S. into a European cradle-to-grave welfare state—a charge that Bernstein quickly dismissed.

“We are trying to figure out how we can help lower-income and middle-income Americans get good jobs, realize their potential, and participate in a resilient recovery that isn’t decimated because we have failed to account for the risk of climate change and failed to protect people from the risks of living in a complex global economy,” he said. “We can have a couple of great quarters—we could even have a couple of great years.

But if inequality is still raging, if racial equity is not being addressed, if clean energy and clean water are not being addressed, then we are not doing the work that the President has set out for us.”

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