President Donald Trump wasn't wrong about everything. That sort of statement can get a writer into trouble, so needs explanation. And – this shouldn't need saying – just because someone says some sensible things doesn't excuse the horrors they inflict on the world on an almost daily basis.
One of Joe Biden's first and most consequential acts as president will be to ask Congress to approve a fiscal package of breathtaking, but not unprecedented, size. It could amount to a $1.9 trillion spending increase. That's on top of stimulus already enacted in 2020.
Initially, that first fiscal boost back in March-April had a headline figure of $2 trillion. I have seen estimates of both the spending increases and tax cuts implemented back then that suggest they will add up to at least 50 per cent more than the initial headline figure. We are talking close to 10 per cent, maybe 15 per cent, of GDP. Nothing in the history of peacetime US economic policy has ever come close. To repeat: this was just the first stimulus package.
Putting these numbers into an international context is not easy – a problem about announced numbers differing wildly from the eventual outcome. The Irish Government announced a €7 billion package in July worth about 3.2 per cent of (modified) GNP. Further measures announced in the autumn added to that fiscal boost with, hopefully, more to come. Germany's first fiscal package amounted to just over 8 per cent of GDP and France enacted 5 per cent. Every country has "gone large" but the US is way out in front. Fiscal orthodoxy, rightly, ain't what it used to be.
Biden's fiscal spree is a big top-up of another package agreed only last month that amounted to another $900 billion. One row over that deal was between Congress and Trump over the size of the cheques written directly to most Americans. The first deal sent out $1,200 to nearly every citizen. December's measures ended up with an additional cheque of $600. Trump wanted $2,000. Biden agrees and wants a further $1,400. Europe should take note.
Biden’s first and most consequential acts as president will be to agree with Donald Trump. At least over one thing. And Biden says he wants yet another package, in the near future, to boost the economy once the health crisis is under control.
‘American carnage’
Trump began his presidency talking about “American carnage”. Grotesque language got in the way of a serious point. For more than 20 years, new presidents have begun their term of office expressing similar sentiments, albeit in a more appropriate way. The US has become a winner-takes-all-economy with inequality rising and life expectancy falling.
Globalisation and technological change produces lots of winners but also losers. And nothing was done for the losers. Presidents Bush, Clinton and Obama, like Trump, began their presidencies noting how America had become a more divided place and pledged to do something about it. None of them did: they left office with the US more divided than before. Inequality inexorably rose and the American dream died: too many people now expect their children to be worse off than themselves. Big companies and the "elites" creamed off the benefits of economic growth, leaving too little on the table for the majority. Nobel-prizewinning economists coined the term "deaths of despair" to describe the consequences of the opioid crisis in particular and economic decay in general.
Trump talked about the "swamp", the idea that money has corrupted US politics and that most denizens of Washington end up with Stockholm syndrome. They do nothing about an ever more rigged economy. Politicians such as the late John McCain agreed, about the money at least: McCain was the honourable exception who actually tried to do something about cash in US politics. He failed.
Populist tricks
Trump was wrong to question the motives of people who tried and failed to enact reforms but was correct in his identification of the problem. It is an old populist trick to wrap big lies around kernels of truth. It is an old populist trick to promise a solution and then merely enrich yourself, your family and cronies. The populist knows that the way to get people to continue to vote for you is to keep them angry, not to make things better.
Trump was broadly correct about China (but wrong in how he acted on the instincts). Biden agrees with standing up to China. The new president will tone down the rhetoric and some of the more egregious elements of the trade war, but don't hold your breath waiting for a big Sino-American rapprochement. Trump was also right about not getting involved in unwinnable foreign wars.
Biden wants to bet big on the benefits of a red-hot US economy. His fiscal proposals are encouraging: someone has tried to answer the cui bono question. A big increase in the minimum wage is particularly welcome. Trump’s tax cuts just handed money to already rich corporations and individuals. The stock market’s reaction to the Biden proposals speaks volumes: the share prices of the winner-takes-all companies (basically the tech giants) have suffered; out-of-favour companies, old-fashioned cyclical businesses, have suddenly found favour. An important question: will Biden decapitate big tech?
Biden has a mountain to climb if he is to succeed where previous presidents failed. His rediscovery of Keynesianism (on steroids) is a good start. But only that.
