Biden and the waning of the ‘neoliberal’ era
“It’s going to create the strongest, most resilient, innovative economy in the world. It’s not a plan that tinkers around the edges,” Biden said of his proposed legislation on Wednesday. “It’s a once-in-a-generation investment in America unlike anything we’ve seen or done since we built the interstate highway system.”
To be sure, Biden faces an uphill battle in Congress, with Republicans and even moderate Democrats wary of the ballooning U.S. deficit and the possibility of growing inflationary pressures. But the sweep of his ambition is striking and could, argued left-leaning commentator Robert Kuttner, mark a transformation of the Democrats from decades of being “a Wall Street neoliberal party.”
“Historians and politicians are already comparing the ambition with [Franklin D.] Roosevelt’s New Deal or Lyndon Johnson’s Great Society program,” Guardian columnist Will Hutton wrote enviously from across the pond. “In British terms, it’s as though an incoming Labour government pledged to spend £500bn over the next decade with a focus on left-behind Britain in all its manifestations — real commitments to leveling up, racial equity, net zero and becoming a scientific superpower.”
“Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table,” noted a Financial Times editorial last year, which in and of itself was quite a statement given how much the well-heeled readership base of the publication likely benefited from that previous policy direction. “Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure.”
To help offset the deep cost of his infrastructure and jobs plans, Biden has proposed significant tax hikes on corporations and the wealthy. Though this will face political resistance from corporate lobbyists, it’s an easier pitch now than it would have been when Biden became vice president. The pandemic has illustrated the need for even the most laissez-faire of governments to bolster the social safety net and abandon older fears over deficits and ingrained biases toward austerity.
“Simply put, America’s economy over the past four decades has been far crueler and more unequal than either superrich capitalists or affluent suburbanites need it to be,” wrote New York magazine’s Eric Levitz. “In truth, even a Western European-style welfare state (and the associated tax rates) is not contrary to the enlightened material interests of the upper middle class; only the ultra-wealthy can be confident that they will never have need for social insurance.”
This is rhetoric echoed by the International Monetary Fund, an institution long seen as the embodiment of neoliberalism. Ahead of its annual meetings this week, it issued a report calling for advanced economies to use more aggressive taxation to help redress the costs of the pandemic. That includes greater taxes on corporate profits, inheritance, property and other measures that Republicans in Washington have routinely insisted would be damaging for the national interest. Treasury Secretary Janet Yellen is expected to set the tone for the meetings with a speech calling for a global minimum corporate tax rate, which could disincentivize companies relocating offshore.
“Many countries could rely more on property and inheritance taxes,” wrote a trio of IMF economists, arguing that narrowing inequality within societies was important for social cohesion. “Countries could also raise tax progressivity as some governments have room to increase top marginal personal income tax rates, whereas others could focus on eliminating loopholes in capital income taxation.”
Biden’s seeming abandonment of the legacy of neoliberalism may also extend to trade policy. It’s unclear to what extent the new administration may actually depart from the more protectionist course set by its nationalist predecessor. When asked during a congressional hearing whether the goal of a trade agreement between two countries should be the elimination of tariffs and trade barriers, Katherine Tai, the Biden-appointed U.S. trade representative, demurred.
“Maybe if you’d asked me this question five or 10 years ago, I would have been inclined to say yes,” Tai said. But she said the experience of the last few years, including the emergency of the pandemic and the animus of the Trump administration’s trade wars, led her to believe “that our trade policies need to be nuanced, and need to take into account all the lessons that we have learned, many of them very painful, from our most recent history.”
“Everybody who was involved in business or government in the 1980s or 1990s has seen some of the promise of globalization come through, but a lot of the harm has been unexpectedly broader, sharper, deeper,” Sen. Christopher A. Coons (D-Del.) told the New York Times earlier this year. “[Biden] believes we need to change direction on trade.”
For now, Biden stands at the helm of a U.S. economy that is leading the Western world out of the pandemic. “Amid steady progress with coronavirus vaccinations, the U.S. economy is gathering so much steam that its gains will not stay at home,” wrote my colleague David Lynch. “Demand for goods and services this year is expected to spill well beyond U.S. borders, making the United States the largest single contributor to global growth for the first time since 2005, according to Oxford Economics.”
Thanks in large part to the stimulus bill, the United States will help add almost 1.5 percent to the global economy’s growth rate this year, according to the Organization for Economic Cooperation and Development. By the end of next year, global output is projected to be around $3 trillion larger than it would have been absent new U.S. spending.
“The fact that there is a significant stimulus in the U.S. will boost global GDP, will boost exports from the euro area,” European Central Bank chief economist Philip Lane told CNBC last week, adding that Biden’s new spending “will be a significant engine for the world economy.”
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