As Joe Biden prepares to exit the White House, he leaves a complicated legacy. Principally as a result of a global energy shock and post-Covid supply chain disruptions, he has presided over the largest spike in inflation since the days of Ronald Reagan’s presidency, and his personal popularity ratings among the public have proved dire. His visible physical and mental deterioration in office contributed to a sense of relative national decline that accompanied a strange, post-lockdown era of civil unrest on US streets, frenzied intensification of the culture wars, the chaotic withdrawal from Afghanistan, and multiplying geopolitical tremors.
But the gap between the widespread perception of Biden’s economic incompetence and the reality of ultra-high growth rates, could scarcely have been wider. In polling, most US citizens report that they think the economy is in recession. In truth, it has performed better than any other large, advanced country’s in both absolute and per capita terms since 2020, and has begun to deliver wage growth starting to outstrip the inflationary spike, particularly in the lower-income deciles.
That is thanks, in no small part, to a set of policies that has been labelled Bidenomics. Its centrepiece is the Inflation Reduction Act (IRA), which commits hundreds of billions of dollars to subsidise social programmes, welfarist cash transfers, green energy, green tech and green manufacturing. There was no ceiling on US Treasury support for “de-risking” and “crowding in” private capital. Nor was there a limit on attracting corporate backing for the latter projects, focused on boosting climate-friendly industrial growth. In all, the libertarian Cato Institute think tank, a group heavily opposed to these kinds of big government interventions, estimates the cost of the IRA alone to be over $1trn across ten years.
That is all accompanied by extra capital investments on a scale that rivalled Franklin D Roosevelt’s New Deal, made through the Infrastructure and Jobs Act and the Chips and Science Act. Both ploughed money into highways, roads and the electricity grid, as well as battery and semiconductor factories, and supported big business R&D budgets through tax breaks and giveaways.
It is a model with which the Labour front bench has consciously aligned. The Chancellor Rachel Reeves’s Mais lecture earlier this year name-checked a “new productivist paradigm” developed by one of the key figures behind the Biden administration’s thinking, Dani Rodrik. It also referenced the US Treasury Secretary Janet Yellen’s “modern supply-side”, another node in the framework, which, in Yellen’s words, “prioritises labour supply, human capital, public infrastructure, R&D” and sustainability drives.
The whole agenda has emerged as a response to a set of interrelated policy problems: sluggish growth across developed economies post-2008; the imperatives of net zero; severe regional imbalances in wealth and general prosperity; the rise of an increasingly assertive China; the need for resilience against external shocks in a volatile, post-pandemic world; and the persistence of political populism, particularly in post-industrial geographies excluded from the benefits of globalisation.
Compared with the traditions of the 1990s Third Way in the Blairite and Clintonian Labour and Democratic parties, Bidenomics, or “securonomics” as it is articulated by Reeves, is more trade union friendly (see our symposium on the New Deal for Working People on page 26). It is also more sceptical of untrammelled markets and more wary of the free trade and low-tax, deregulatory drives of the last four decades.
If the transatlantic consensus during the putative “end of history” emerged as a kind of neoliberal globalism, then today’s model pushes a more insular, muscular state, focused on rebuilding domestic supply chains, reshoring manufacturing and reviving activist industrial policy for a forgotten class of more blue-collar, less metropolitan voters.
Or at least that’s the theory.
The problem for Labour is that it is attempting to deliver a bargain-basement version of Bidenomics. The recent Budget dramatically increased capital spending, financed through extra borrowing, which will open up investment in a much-depleted public realm and neglected capital stock. Day-to-day departmental budgets, however, will continue to be highly constrained. The £40bn in extra revenues generated by tax rises will largely go to keeping services ticking over at their current level. Much of the new capital expenditure announced last month will be soaked up by overdue repairs to the crumbling NHS estate, schools and roads, rather than a green reindustrialisation of the British equivalent of the Rust Belt we call the Red Wall.
For the fledgling implementation of industrial policy promised as a “British version of the IRA” by Ed Miliband, the numbers and institutional heft involved in measures such as the Industrial Strategy Council (the so-called mission boards), or GB Energy and the National Wealth Fund, remain relatively small. The latter two are capitalised with roughly £8bn, or just over a fortnight of healthcare spending, and they are tasked with “crowding in”, “de-risking”, or “catalysing” further private sector funds (see Chris Skidmore on page 29).
More radical, left-wing critics of Bidenism have pointed out that these kinds of incentives represent little more than taxpayer-funded bribes for hedge funds and transnational asset managers. Rather than disciplining capital with a new, greener, 21st-century social democracy, governments are leveraging their fiscal powers to simply create new win-win investment opportunities for financial elites.
Perhaps the most pertinent difference for a British Bidenomics would be that the US enjoys the exorbitant privilege of the dollar system that is not afforded to HM Treasury and its central bank. Having US national money as the global reserve currency ensures a steady flow of capital into US assets that finances the kind of large, permanent, unfunded deficits that our brief flirtation with Trussonomics demonstrated to be unsustainable in the UK.
Another key aspect of the US model is unlikely to translate here: the Trump-era tariff walls that Biden has maintained to protect domestic industries from foreign competition. These may be effective for the world’s largest economy and an energy exporter. For a medium-sized, post-industrial, service-led, open market off the coast of the European mainland – one that’s heavily import-reliant and susceptible to global market volatility and trade flows – moving towards a more autarkic, economic nationalism is a tough, if not impossible, task.
In an era of seeming permacrisis, extreme flux and structural failure, even eye-watering levels of investment in industry, services and public infrastructure isn’t enough to guarantee popularity or political survival. The Democrats have just lost to an insurgent, populist right set to undo much of its legislative agenda. Labour’s Bidenomic enthusiasts, take note.
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