This article is an on-site version of Martin Sandbu’s Free Lunch newsletter. Sign up here to get the newsletter sent straight to your inbox every Thursday
The week before Joe Biden’s inauguration, I wrote in my column that the new US president would have to “use the first few months of his presidency for a big push — not just on immediate rescue operations but on structural policies that have staying power and fundamentally restructure the economy”. By all accounts, that was his plan — the 46th president is well known to admire the 32nd, Franklin D Roosevelt, who did just that.
Ten months on, what can be said? Has Biden succeeded in a big push? I think that in two senses, he has not. In a third, he has.
The intention for a big push was clear from the start, when the Biden administration set out three plans: the American Rescue Plan, the American Jobs Plan and the American Families Plan. Each was of massive scale, and the philosophy behind them was a break with past thinking. As his team explained in clear terms, the idea behind all the big spending programmes was in fact supply-side economics: spending that would boost the productive capacity of the economy, but by using the government rather than by getting it out of the way.
The two senses in which these nevertheless do not amount to a big push are the following. First, Biden has had to make the plans a lot less ambitious in order to get them passed by Congress. While the first, the $1.9tn emergency pandemic stimulus plan to rescue the economy, had the smoothest passage, the jobs and families plans were, if not quite changed beyond recognition, at least somewhat disfigured by their run-in with Capitol Hill.
The original $2tn Jobs Plan shrank to a $1.2tn infrastructure bill, only about half of it actual new spending. Some, but not all, bits of the $1.8tn Families Plan, and some of the climate incentives that fell out of the Jobs Plan, have been repackaged in the nearly $2tn Build Back Better bill that has now passed the House of Representatives — see the excellent New York Times Upshot illustration of what is in it. And there are well-known issues that may require modification for the bill to pass the Senate.
Second, size is not all that matters: Donald Trump’s tax cuts were big too. Even if Biden’s plans had gone through in full, they only partially met my criterion to “have staying power and fundamentally restructure the economy”. Many of the spending programmes are one-offs, which is not necessarily bad but by definition they do not stay indefinitely. Some that could be permanent are made temporary on purpose to flatter the weird deficit scoring used on the Hill. But as David Dayen puts it: “Whether these programs endure will make the difference between a transformative turn toward social welfare and a flash in the pan.”
In contrast, Biden has failed to fulfil his campaign promise to raise the minimum wage to $15, which would indeed have been nigh-on irreversible and spurred a deep structural transformation of US labour markets. Instead, that transformation is being driven by labour shortages, and may therefore be as ephemeral as they are. The best example of a Biden policy that does meet my criterion is making the child tax credit refundable (so that even those who pay no or little tax get it), which essentially creates a European-style child benefit, or a universal basic income for families with children.
And yet. Compared with what most US presidents get done in their first 10 months, Bidenomics is a big deal. The two packages that have been passed are very large, as is the third, which looks likely to pass soon.
The emergency spending contributed to the biggest fiscal stimulus in the developed world. We can see the result in the phoenix-like recovery of US economic output from the pandemic, and the fact that people’s incomes and consumption have held up so well. (We can also see it in inflation, which as I explained last week we should be intensely relaxed about.) For all their flaws, the infrastructure and build back better programmes will increase, by several per cent of national income, spending that should turn the US economy in a healthier, greener and more productive direction.
Above all, these packages are big enough to make voters notice a real difference on the ground. It will be up to Biden and his party to claim their electoral reward for it. But at least there will soon be something real and sizeable for them to try to claim a reward for.
Last week I wrote of the early hints that the big consumption shift from services to goods, which is a big driver of inflation, may be ending. This week came another sign that a reversal back to services is under way. The OECD reported that global goods trade plateaued in the third quarter, while services picked up speed.
And yet another sign that inflation is transitory: Claire Jones reports that shipping costs are falling.