Bidenomics – Sheila Kennedy

Testing Economic Theory

A couple of weeks ago, after speaking to a group at North United Methodist Church, I was approached by a couple who handed me a book and accompanying materials on Modern Monetary Theory. I explained that economics is definitely not one of my strong suits–far, far from it– but they insisted that the book, a New York Times bestseller titled The Deficit Myth, written by economist Stephanie Kelton–was clear and accessible.

So I took the book, and I read it. All the way through. And I found it very persuasive.

Modern Monetary Theory (MMT) begins with an undeniable fact: government budgets in countries with sovereign control over their currencies are very different from household budgets. Not all countries have “sovereign control”–in the EU, for example, countries that have adopted the Euro cannot issue currency. They are “users” not issuers, and thus are constrained in much the same way as our household budgets are.

The United States, however, is not. Our government is not revenue-constrained in the same way as our households or our businesses. That doesn’t mean there are no constraints; it just means the constraints are different. As the book persuasively argued, budget hawks and public officials wringing their hands over the size of the budget deficit are still operating under economic paradigms that were appropriate when we were on the gold standard (and/or Bretton Woods), but the country today operates within a very different fiscal reality, one that requires that we change our previous assumptions.

MMT doesn’t dispense with fiscal responsibility; it redefines what responsible behavior looks like.

MMT advocates argue that the government can use its currency-issuing power to guarantee full employment, as it can fund necessary public sector jobs during economic downturns without worrying about running out of money. Governments can use fiscal policy more effectively to stimulate demand and support economic growth. MMT emphasizes the importance of managing real resources (labor, materials, technology) rather than focusing on budgetary ones.

The real constraint on government spending, according to MMT, is inflation.

If government creates too much money, it can fuel a speculative bubble; if it creates too little, it promotes stagnation. Taxation thus becomes an important tool–both for controlling aggregate spending and for altering the distribution of wealth and income–i.e., addressing and reducing the gap between the rich and the rest. (As the author notes, it’s important to determine when taxes should be raised or lowered, and especially which ones and on whom.)

I obviously cannot reduce the book’s lengthy and lucid explanations to a blog post. I strongly encourage you to read the book, or other explanations of MMT. I will note, however, that there are a growing number of economists, many cited in the text, who have adopted MMT because it is based upon an accurate description of the way our current economy functions.

Something that wasn’t in the text, but occurred to me as I was reading, was that both FDR’s New Deal and Joe Biden’s “Bidenomics” appear to have adopted some of the major tenets of MMT, by using government spending to boost wages and employment. I know that many people attribute FDR’s economic successes to wartime anomalies, but the data on Biden’s flourishing economy cannot be so easily dismissed.

As Heather Cox Richardson recently reported:

Data from the Bureau of Economic Analysis released today showed inflation continuing to come down. In November the Personal Consumption Expenditures (PCE) price index was 2.6% over the previous November, down from 2.9% in October. The Federal Reserve aims for 2%. Falling gas prices meant that overall, prices actually dropped in November for the first time since April 2020.

In a statement, President Joe Biden reminded Americans that “[a] year ago, most forecasters predicted it would require a spike in joblessness and a slowdown to get inflation down. I never believed that. I never gave up on the hard work, grit, and resilience of millions of Americans.” In addition to the falling inflation rate, he noted that “the unemployment rate has stayed below 4 percent for 22 months in a row, and wages, wealth, and the share of working-age Americans with jobs are higher now than they were before the pandemic began.” …

The administration is highlighting economic numbers not just because they are good—and they are: real gross domestic product (GDP) grew by an astonishing annual rate of 4.9% in the third quarter of 2023; under Trump it was 2.5% before the pandemic knocked the bottom out of everything—but also because they illustrate the administration’s return to an economic theory under which the U.S. government operated from 1933 to 1981.

Unfortunately, we have too many lawmakers and pundits who cling to outmoded paradigms even more fiercely in the face of empirical evidence to the contrary.

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The Economy And The Evidence

Nick Hanauer has long advocated for economic policies buttressed by something called “evidence.” I first encountered him when he was pointing out that putting disposable income into the hands of the working class via a higher minimum wage actually strengthens economic performance and supports job creation, because–duh–manufacturers don’t hire people to make widgets that few people have the means to buy.

Hanauer recently addressed “Bidenomics.”

When President Joe Biden first promised to “grow the economy from the bottom up and the middle out” through public investments, empowering workers, and promoting competition, critics scornfully derided his agenda as “Bidenomics.” And when the president defiantly embraced this epithet by making it the economic centerpiece of his reelection campaign, even some allies questioned the wisdom of stamping his name on an economic recovery that is as misunderstood as it is strong. Despite record-low unemployment, rising real wages, strong GDP growth, and a rapid fall in the inflation rate to below both global and historical averages, only 36 percent of Americans say they approve of Biden’s handling of the economy. Given such weak approval numbers, “Bidenomics” might at first appear to be an ill-advised slogan for a reelection campaign.

But to dismiss Bidenomics as mere sloganeering is to miss the point: The Biden Revolution is real, and running on Bidenomics is key, not just to winning reelection, but to winning the battle to establish a new consensus over how to manage and build our economy in the decades ahead.

As Hanauer explains, a large and thriving middle class is the primary engine of economic growth. That’s the core proposition of Bidenomics– that prosperity grows from the bottom up and the middle out. It challenges Reagan and the GOP’s belief in “trickle-down.”

All available evidence supports Hanauer and Biden.

A recent article in The Atlantic examined the reluctance to trust that evidence. The article asked why America abandoned the greatest economy in history, and the subhead suggested potential explanations: “Was the country’s turn toward free-market fundamentalism driven by race, class, or something else? Yes.”

From the 1940s through the ’70s, sometimes called the New Deal era, U.S. law and policy were engineered to ensure strong unions, high taxes on the rich, huge public investments, and an expanding social safety net. Inequality shrank as the economy boomed. But by the end of that period, the economy was faltering, and voters turned against the postwar consensus. Ronald Reagan took office promising to restore growth by paring back government, slashing taxes on the rich and corporations, and gutting business regulations and antitrust enforcement. The idea, famously, was that a rising tide would lift all boats. Instead, inequality soared while living standards stagnated and life expectancy fell behind that of peer countries. No other advanced economy pivoted quite as sharply to free-market economics as the United States, and none experienced as sharp a reversal in income, mobility, and public-health trends as America did. Today, a child born in Norway or the United Kingdom has a far better chance of outearning their parents than one born in the U.S.

The rest of the article considers three theories for why America abandoned New Deal economics: white backlash to civil-rights legislation, the Democratic Party’s “cultural elitism,” and/or global crises beyond any political party’s control. It concluded that all of them played a role.

Whatever the reason, Americans seem to have a very hard time accepting the fact that “Bidenomics”–which harks back to New Deal principles–has produced an economy better than anyone predicted.

Yet the economy is ending the year in a remarkably better position than almost anyone on Wall Street or in mainstream economics had predicted, having bested just about all expectations time and again. Inflation has dropped to 3.1 percent, from a peak of 9.1. The unemployment rate is at a hot 3.7 percent, and the economy grew at a healthy clip in the most recent quarter. The Fed is probably finished hiking interest rates and is eyeing cuts next year. Financial markets are at or near all-time highs, and the S&P 500 could hit a new record this week, too.

The GOP demanded reductions in government spending. The White House disagreed, arguing that funding programs on infrastructure, domestic semiconductor production and clean energy would help inflation by expanding the economy’s productive capacity. The White House was right.

I’m currently reading a book on Modern Monetary Theory, which makes a point that Biden clearly understands: national budgets are nothing like household budgets, and failure to understand the difference leads to bad policy.

More on that book–and that theory– later….

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Exceeding My Expectations

I recently ran across a cartoon showing a couple of shipwreck survivors heading toward two small islands– one with palm trees, the other with an erupting volcano. One of the castaways asked the other “which one should we choose?”

The 2024 Presidential election in a nutshell. Even someone who found that first island unappealing would have to be nuts to choose the one spewing volcanic ash. (I still can’t get my head around the millions of presumably uninformed or deranged Americans who cast ballots for volcanic ash in 2020…)

But here’s the thing: lots of people plan to vote Biden because they recognize that a vote for Trump is a vote for certain disaster. That reasoning–while sound–simply ignores the fact that Biden has been a transformative, progressive President. I loved Barack Obama, but fair is fair: Biden has accomplished far more.

I’ve previously shared my middle son’s observation that Biden is the first person he’s voted for who vastly exceeded his expectations.

I’d attribute the mismatch between performance and public perception to lackluster oratory, except that people voted for Trump, whose pronouncements are word salads showcasing his third-grade vocabulary.

A few pundits have begun to address the persistent lack of recognition of Biden’s considerable governing skills. The Guardian’s Jonathan Freedland was one. As he began,

The tragedy of Joe Biden is that people see his age, his frailty and his ailing poll numbers and they miss the bigger story. Which is that his has been a truly consequential presidency, even a transformational one. In less than three years, he has built a record that should unify US progressives, including those on the radical left, and devised an economic model to inspire social democratic parties the world over, including here in Britain.

As Freedland writes, making the case for “Bidenism” isn’t hard.

Top of the list is, characteristically, something that sounds boring but is of enormous significance: the Inflation Reduction Act, passed last year. That seemingly technocratic piece of legislation actually achieves two epochal goals. First, it hastens the day the US makes the break from fossil fuels – by making clean energy not only the morally superior option for both industry and consumers, but the financially superior one too.

It does that through a massive raft of tax breaks, subsidies and incentives all designed to encourage the production of wind turbines, solar panels, ever improving battery technology, geothermal plants and the like, along with tax credits aimed at making electric cars irresistible even to those middle-American consumers more concerned about their wallets than the burning planet.

Those who understand the threat posed by climate change–everyone from environmental activists to Goldman Sachs–has hailed the act as a “gamechanger.”

But the second goal of the legislation is almost as significant. Biden insisted that this surge in green manufacturing would happen inside the US, thereby reviving industrial towns and cities in decline since the 1980s. It is US factories that are getting the subsidies to build all this clean tech – alongside an earlier, huge package of infrastructure spending – restoring jobs to workers who had long been written off.

Bidenomics resurrects Democratic principles discarded by Bill Clinton: an activist state making serious public investments in manufacturing;”muscular regulation” of corporations; and encouragement of unionized labour.

Freedland reminds us that securing passage of this transformative legislation was remarkable, given a Senate then split 50-50 between the parties.

A new book by Franklin Foer, The Last Politician, describes how Biden, whose hands were already full with the Covid pandemic and the aftermath of the January 6 insurrection, was not content simply to be a caretaker manager, troubleshooting crises. Instead, “he set out to transform the country.”

The result is that Biden has “redirected the paradigm” of US economic life in a way that will affect Americans “for a generation”. While Obama and Clinton were “deferential to markets”, says Foer, Biden has reversed “the neoliberal consensus” in place since the Ronald Reagan era.

Biden insists–correctly–that “capitalism without competition isn’t capitalism. It’s exploitation,” and as a result, his administration is resurrecting anti-trust enforcement. Foer writes that, “As a matter of substance, he is the most transformational president since Reagan.”

Internationally, Biden is credited with bringing stability after the chaos and dictator-coddling of the Trump years and, especially, for building and maintaining a western alliance in support of Ukraine as it defends itself against Russian imperialism. Others admire his handling of China: robust, without crossing the line where a cold war turns hot.

Freedland says Biden campaigned in “reassuring prose,” but has governed in “radical poetry.”

Age isn’t all negative. Coupled with intellect and experience, it allows time for the development of skills. It allows people like Joe Biden to exceed our expectations.

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Performance

There are two meanings of the word “performance,” and America’s two political parties have each embraced one of them.

One definition is “to perform a task”–in this case, to govern. Like President Biden, most contemporary Democrats have concentrated on that definition. I have previously posted about the effectiveness–the performance– of what Republicans dismissively label “Bidenomics,” and others are beginning to report on those positive outcomes as well.

Robert Hubbell quoted the New York Times for news that direct investment in manufacturing had doubled between 2014 and 2021. Also, “per the report, foreign direct investment “in the computer and electronics sector rose from $17 million in 2021 to $54 billion in 2022.”

Jennifer Rubin noted that the President has begun running ads touting the effects of his economic policies.

Respondents keep telling pollsters they are pessimistic about the economy and think we are in a recession, perhaps a reflection of the incessantly negative media coverage. However, as the mainstream media catches up with economic reality (admitting we likely will avoid a recession) and as public and private investment running in the hundreds of billions of dollars works its way through the economy, Biden stands ready to explain how his agenda — “Bidenomics” — brought us from fears of a pandemic recession to recovery. With unemployment and inflation in decline and wages rising, the public finally might be more amenable to hearing an uplifting message.

Performance=doing the job.

Then there’s the other meaning of “performance”– “to act for an audience.” That’s the definition chosen by virtually every Republican candidate for public office. The audience they are performing for is the MAGA cult that has replaced what used to be a political party.

Performance in that latter sense ignores the hard work of policymaking , instead appealing to the grievances of the intended audience–and dismissing the policy preferences of the wider American polity.

I didn’t watch the first GOP debate, but I’ve read about the candidates’ embrace of positions held by a distinct minority of Americans. As Robert Hubbell summed it up, in addition to pledging support for Trump if he is the eventual nominee, even if convicted,

the candidates espoused other outrageous positions: climate change is a hoax, support for a national abortion ban, blaming teacher unions and single mothers for the problems in education, proposing invading Mexico with US special forces, and cutting aid to Ukraine. None of the candidates provided an actual proposal for America’s future, other than Ramaswamy’s line, “Drill, frack, burn coal, embrace nuclear.”

I’m bemused by voters who support candidates having no obvious experience with– or understanding of– government, as though the skill of managing the enormous complexities of that task can just be picked up on the job. If we needed any proof of the wrongheadedness of that belief, the ongoing performance (in both senses of the word) of the GOP’s looney-tunes culture warriors should provide it.

Perhaps instead of “debates,” we should hold public examinations of candidates for public office. We could focus on whether they understand what the duties of those offices are–and aren’t. (Here in Indianapolis, the Republican candidate for mayor seems to think he’s running for sheriff–his ads give no indication that he understands there are other dimensions of the job.)

Take a look at the positions embraced by that pathetic crew of presidential candidates–positions that disclose their utter ignorance of the proper role of government and the daunting complexity of many issues presidents face. Their lack of intellectual integrity is appalling enough, but their willingness to ignore international law and medical science, disrespect teachers, and deny the reality of climate change disqualifies every one of them for any public office.

As Rubin reminds us, it’s a fearful worldview.

We have become so used to Republicans railing about elites, critical race theory, transgender kids, immigrants, IRS stormtroopers, the FBI and more that we become acclimated to a terribly dark, frightful view of America.

That “dark, frightful view” runs from local politics (our Republican mayoral candidate’s ads describe my city–which is actually pretty vibrant–as a dystopian hellhole) to federal candidates assuring the MAGA cult that they can return America to an imagined “yesteryear,” when–glory!!– men were men and women were barefoot and pregnant.

Hubbell reminds us that GOP performance has an upside: most Americans reject the party’s few positions (on abortion and climate change, by twenty to thirty percentage points). These positions ought to render them unelectable in a general election.

Democrats should convert every negative, destructive, mean-spirited notion espoused on the debate stage into a positive, productive, forward-looking message about Democratic accomplishments over the last three years.

The key, as always, is turnout: the GOP cannot win a national election–if the rest of us vote.

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I Know Facts Don’t Matter…

Talk about “sucking all the oxygen out of the room…” The four indictments of Trump have consumed most of the media, masking what would otherwise be a greater emphasis on administration actions and policies, and overwhelming what ought to be applauded as the enormous success of “Bidenomics.”

The Inflation Reduction Act (IRA) is one year old; it is central to “Bidenomics.” A recent Treasury Department analysis found that it has incentivized unusually strong business investment–investment Axios recently called a “tailwind for economic growth.”

Together with the bipartisan Infrastructure Law and the CHIPS and Science Act, the IRA has especially spurred investments in manufacturing and clean energy. According to Treasury officials, evidence shows that private investment has held up, even in the face of increases in interest rates. And the report also noted that most counties where IRA-related investments have been announced are areas where college graduation rate, employment and wages are lower. In other words, Republican, largely rural areas.

As Heather Cox Richardson noted in a recent daily Letter,

The IRA was the eventual form President Joe Biden’s initial “Build Back Better” plans took. It offered to lower Americans’ energy costs with a 30% tax credit for energy-efficient windows, heat pumps, or newer models of appliances; capped the cost of drugs at $2,000 per year for people on Medicare; and made healthcare premiums fall for certain Americans by expanding the Affordable Care Act.

By raising taxes on the very wealthy and on corporations and bringing the Internal Revenue Service back up to full strength so that it can crack down on tax cheating, as well as saving the government money by permitting it to negotiate drug prices with pharmaceutical companies, the IRA was expected to raise $738 billion. That, plus about $891 billion from other sources, enabled the law to make the largest investment ever in addressing climate change while still bringing down the federal government’s annual deficit.

“This is a BFD,” former President Barack Obama tweeted a year ago.

It is a “BFD,” and it is extremely frustrating that reporting on its effects has been smothered by a combination of “it bleeds so it leads” reporting and the massive amounts of propaganda “flooding the zone” ala Bannon.

The law has driven so much investment in U.S. manufacturing that the CEO of U.S. Steel recently suggested renaming it the “Manufacturing Renaissance Act.” Manufacturers have been returning previously off-shored production to the U.S., bringing supply chains back to the U.S. And as Richardson emphasized,

These changes have meant new, well-paid manufacturing jobs that have been concentrated in Republican-dominated states and in historically disadvantaged communities.

The IRA has also been enormously consequential to the fight to tame climate change.

Scientists Alicia Zhao and Haewon McJeon, who recently published an article in Science, today wrote that the IRA “brings the US significantly closer to meeting its 2030 climate target [of cutting greenhouse gas emissions to 50–52% below 2005 levels], taking expected emissions from 25–31% below 2005 levels down to 33–40% below.”

Republican presidential candidates have—predictably–refused to credit the act with these results; Richardson quoted former South Carolina governor Nikki Haley, who called the IRA “a communist manifesto,” although, with their usual hypocrisy, “Republicans have been eager to take credit for IRA investments in their districts without mentioning either that they voted against the IRA or that they are still trying to repeal it.”

The Environmental Defense Fund recently issued a statement rebutting several of the Republican misrepresentations–okay, lies–about the IRA. The organization noted the difficulty of getting factual information out:

The truth takes about six times as long to reach 1,500 people as false stories do. Six. Times. Longer.

And this is from a study that is a few years old, before the global pandemic and the 2020 U.S. election — events that caused an explosion of lies online by Bad Actors.

A simple google search brings up dozens of reports from highly credible and nonpartisan sources, confirming the truly massive economic and environmental benefits triggered by the IRA, and the fact that those benefits are being felt in parts of the country that have previously been left behind.

Those reports won’t reach the millions of Americans glued to Faux News and its clones, or the other millions who have turned off the news because they no longer know what or who to believe–a situation that explains Biden’s low approval numbers.

My middle son said it best. In a conversation a while back, he said “Biden is the first President I’ve voted for who vastly exceeded my expectations.”

To quote Barack Obama, Biden’s Presidential performance has been a BFD. Too bad so few Americans understand that.

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