DEBATE: Is Biden setting the US economy on the right track?

Alexander Bowen and Julian Jessop

May 4, 2021

Alexander Bowen, the founder of Tories for Climate Action, Director of Communications for the London Neoliberals, and student at SciencesPo Paris, argues YES

Whilst an economist must be a plumber, the president must be an architect. Accordingly, Biden hasn’t simply begun to repair America’s crumbling house, but has instead started to renovate it afresh. 

Well-aware of the maxim of location-location-location, the $2.7 trillion infrastructure investment (the word investment is key here given that is what it is) as part of the wider $4 trillion economic plan is directed into dealing with long-overdue public-investment projects, and importantly he’s recognised that infrastructure does not mean only WASP-infrastructure like bridges but includes the likes of the care and climate economies.

This administration will, if its plans pan out, be the best in America’s history for putting what matters, family, at the heart of the economy. He knows that the purpose of an economy is to serve people – not the other way round – and has been acting as such with plans to increase the child and earned income tax credit, free community college, and paid family leave to name but a few policies. Already Biden’s administration has slashed food poverty from the Trump high of 14 per cent to 8 per cent (still 8 per cent too high of course). In doing so he’s exploded the Republican myth that government is always the problem and has demonstrated that in modern America food-poverty was always a cruel political choice. 

Importantly, this social infrastructure investment won’t only put America on a more socially-just footing but will also substantially bring down their long-term deficit (paying for itself), freeing up money for additional reinvestment in healthcare and climate-change mitigation. Compared to Trump’s Tax Cuts and “Jobs” Act (which could most accurately be described as taking off the roof when the sun is shining) or Obama’s Recovery and Reinvestment Act, it’s a renovation that the kids can be proud of.

Julian Jessop, an independent economist and Economics Fellow at the IEA, argues NO

The reviews of the first 100 days of the Biden presidency are almost uniformly positive. The chaos of the Trump era had set a low bar, but the new administration is scoring high marks for competence and decency.

On economic policy, however, the praise for Biden is overdone. The administration has rushed through an additional $1.9 trillion stimulus package (the ‘American Rescue Plan’), and is preparing a huge program of infrastructure investment. This has prompted some big upward revisions to forecasts for the US economy.

So, what’s not to like?

First, it is not obvious that the US economy actually needs all this stimulus. Activity was already rebounding before the American Rescue Plan was introduced. By adding to the large amount of stimulus undertaken by Trump, the extra spending is now likely to fuel inflation at least as much as growth.

Second, the stimulus spending is poorly focused. Many US households have received cheques for $1,400, regardless of need. Hundreds of billions more have been earmarked for aid to state and local governments, for childcare, and for ‘elder care’, again with little sense of whether this money will be spent wisely.

Third, the longer-term plans rely heavily on state intervention, subsidies, and direct employment. This is perhaps clearest in the ‘Green’ agenda, which depends on the government deciding how best to respond to climate change, rather than using market mechanisms.

Fourth, there will be a massive bill to pay for all this. Biden is planning large increases in taxes on capital and on corporations, the burden of which will inevitably be passed on in the form of reduced investment, lower wages, and higher prices.

For now, it seems like the new President can do no wrong. But the US is heading down a path of tax-and-spend that is unlikely to end well.

Author

  • Alexander Bowen is the founder of Tories for Climate Action, Director of Communications for the London Neoliberals and student at SciencesPo Paris and Julian Jessop is an independent economist and Economics Fellow at the IEA.

Written by Alexander Bowen and Julian Jessop

Alexander Bowen is the founder of Tories for Climate Action, Director of Communications for the London Neoliberals and student at SciencesPo Paris and Julian Jessop is an independent economist and Economics Fellow at the IEA.

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