AAbout six months into Joe Biden’s presidency, it’s time to examine how his administration’s economic doctrine compares to that of Donald Trump and the previous Democratic and Republican administrations.
The paradox is that the “Biden Doctrine” has more in common with Trump’s policies than with those of the Barack Obama administration, in which the current president once served. The neo-populist doctrine that emerged under Trump is now fully taking shape under Biden, marking a clean break with the neoliberal creed followed by all presidents from Bill Clinton to Obama.
Trump presented himself as a populist – sympathetic to the left-behind white blue-collar workers – but governed more like a plutocrat, cutting corporate taxes and further weakening the power of labor over capital. Nonetheless, there were some genuinely populist elements in his platform, especially compared to the drastically pro-big business approach Republicans have pursued for decades.
While the Clinton, George W Bush, and Obama administrations each differed in their own way, their basic stance on key economic policy issues was the same. For example, they all advocated trade liberalization agreements and favored a strong dollar, seeing it as a way to reduce import prices and support the purchasing power of the working classes in the face of increasing income inequality and of wealth.
Each of these previous administrations also respected the independence of the US Federal Reserve and supported its commitment to price stability. Each has pursued a moderate fiscal policy, resorting to stimulus measures (tax cuts and increased spending) mainly in response to economic downturns. Finally, the Clinton, Bush, and Obama administrations were all relatively comfortable with big tech, big business, and Wall Street. Each has presided over the deregulation of the goods and services sectors, creating the conditions for a current concentration of oligopolistic power in the corporate, technological and financial sectors.
Together with trade liberalization and technological advances, these policies have boosted corporate profits and reduced the share of labor in total income, thus exacerbating inequalities. American consumers took advantage of the fact that high-profit companies could pass on some of the gains from deregulation (thanks to lower prices and low inflation), but that was about it.
The economic doctrines of Clinton, Bush, and Obama were all fundamentally neoliberal, reflecting an implicit belief in the spillover economy. But things started to move in a more neo-populist and nationalist direction with Trump, and those changes crystallized under Biden.
While Trump was tougher on his protectionism, Biden nonetheless pursues similar, inward-looking nationalist trade policies. He maintained the Trump administration’s tariffs on China and other countries and introduced stricter “buy American” procurement policies, as well as industrial policies to relocate major manufacturing sectors. Equally important, the broader Sino-US decoupling and the race for dominance in the commerce, technology, data, information, and industries of the future continued.
Likewise, although Biden has not formally followed Trump in demanding a weaker dollar and intimidating the Fed to finance the large budget deficits created by his policies, his administration has also adopted measures that require closer cooperation from the federal government. Fed. Indeed, the United States has moved to a de facto, if not de jure, state of permanent debt monetization – a policy that began under Trump and Fed Chairman Jerome Powell.
According to this arrangement, if inflation were to rise moderately, the Fed would have to adopt a policy of benign neglect, as the alternative – strict anti-inflationary monetary policy – would trigger a stock market crash and severe recession. This change in the Fed’s position represents another sudden departure from the period 1991-2016.
Moreover, given America’s large twin deficits, the Biden administration has given up on pursuing a strong dollar policy. While he is not in favor of a weaker greenback as openly as Trump, it certainly wouldn’t bother a currency change that could restore the competitiveness of the United States and reduce the country’s growing trade deficit.
To reverse income and wealth inequalities, Biden favors large direct transfers and lower taxes for workers, the unemployed, partially employed and left behind. Again, this is a policy that started under Trump, with the $ 2 billion Coronavirus Aid, Relief and Economic Security (Cares) Act and the $ 900 billion stimulus bill that has passed in December 2020. Under Biden, the United States passed another $ 1.9 billion stimulus package. and is now considering $ 4 billion in additional spending on infrastructure, broadly defined.
While Biden lobbies for more progressive taxation than Trump, his administration’s ability to raise taxes is limited. So, as under Trump, large budget deficits will again be funded primarily by debt that the Fed will be forced to monetize over time. Biden will also channel a public backlash against the big business and big tech that started under Trump. His administration has already taken steps to limit the power of corporations through the enforcement of antitrust laws, regulatory changes and, possibly, legislation. In each case, the aim is to redistribute part of the national income from capital and profits to labor and wages.
Biden thus came out of the door with a neo-populist economic agenda closer to Trump’s than to that of the Obama administration. But this doctrinal change is not surprising. Whenever inequality becomes excessive, politicians – on the right and on the left – become more populist. The alternative is to let unchecked inequalities become a source of social unrest or, in extreme cases, civil war or revolution.
It was inevitable that the pendulum of American economic policy would swing from neoliberal to neo-populist. But this change, while necessary, will bring its own risks. Massive private and public debts mean the Fed will remain in a debt trap. In addition, the economy will be vulnerable to negative supply shocks due to de-globalization, US-Chinese decoupling, aging society, migration restrictions, limitation of the corporate sector, cyber attacks, climate change and to the Covid-19 pandemic.
Accommodative fiscal and monetary policies could help increase the labor income share for now. But, over time, the same factors could trigger higher inflation or even stagflation (if these large negative supply shocks materialize). If policies aimed at reducing inequality lead to unsustainable increases in private and public debt, the stage could be set for the kind of stagflationary debt crisis I warned about earlier this summer.
Nouriel Roubini was professor of economics at the Stern School of Business at New York University. He has worked for the IMF, the US Federal Reserve and the World Bank.
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