Barring anything extraordinary, Joe Biden will take the oath as the 46th President of the United States in January. He comes to the highest office in the land at an extremely difficult and dangerous time. Obviously COVID-19 has taken lives and livelihoods.
Official GDP figures for the third quarter showed the size of the economy was still almost 4% below its previous peak, despite a 7.4% recovery from the spring lockdown , while the Economist calculates that GDP in 2020 is over 4% less than the previous year, but not as badly affected as Europe, Canada and Japan
According to the Congressional Budget Office, the budget deficit for the fiscal year 2020 is an ?eye watering? 3.3 trillion dollars, one in seven American workers has lost full time jobs, while lost businesses are countless
Against this backdrop, and drawing from various plans, election manifestos, and commentary, the first 100 days will be about pump priming, reacting to the insidious effects of the virus. Biden?s economic team, with the possible exception of the more orthodox neo-liberal Janet Yellen, seems to reflect the push for more and more Government intervention. Moreover, this Government support will be directed at the much quoted ?Main street?, rather than ?Wall Street?. Intervention, and with a focus on reducing economic inequality, appear to be hallmarks of the new administration. The new team?s approach is likely to be a combination of short term emergency responses to the virus, and a medium-longer term nation building effort.
Standout measures in the immediate are unemployment insurance, welfare payments, work sharing, aid for small businesses including Government guarantee for bank loans, support for businesses which commit to keeping workers employed, revenue support for State administrations, forgiving of student loans (and free tuition in public universities and colleges below income thresholds), cost free treatments for those with COVID-19 and full paid sick leave and increases in the minimum wages. A cornerstone of the Biden first 100 days will be the emphasis on masks and other protective equipment. While there is some debate about the efficacy of face coverings, the new administration, according to its election manifesto, will compel businesses to make protective personal equipment and medical supplies, under a little know wartime provision.
In the medium-longer term, Biden has a massive commitment to infrastructural renewal. Estimates are $1.3 trillion on infrastructure over the next decade including $50 billion in the first year on transport, and rural broadband, and beyond this on clean energy through the Green New Deal and electric cars.
Economists have long argued for infrastructure given its positive impact on long term GDP. Thus, the approach is to align the environment, infrastructure and manufacturing. In his election manifesto, the President elect proposed a $700 billion plan for manufacturing and technology, including public procurement, investment in research and development, lightweight materials, 5G and artificial intelligence.
At a cost of 2 trillion dollars in the first term, will be various measures to promote renewable energy, sustainable building and housing upgrades, sustainable land preservation and smart infrastructure. Also key will be rejoining the Paris agreement, and zero net emissions by no later than 2050 and a carbon pollution-free power sector by 2035.
In all there is much to commend about the Biden plan. Compared to the current administration, it reflects a more explicit and purposeful approach to dealing with COVID-19 in a reactive and pro-active sense, including particular recognition of small business recovery.
However, there are a number of concerns and some flashing warning signals. First is the massive debt and deficit. While borrowing and debt servicing costs may be cheap now that is not necessarily always the case and a lot depends on a number of factors including future economic growth. it is estimated that debt will be some 200% of GDP by 2050.
Second, the policy of ?buy American?, while being useful symbolically, may not be easy or desirable. With global and interdependent value chains, key elements e.g intermediate goods, are made everywhere in the world, and reflect underlying competiveness and capabilities. It is fraught with danger for the world to turn inward at this critical juncture, and could in any case be in violation of trade rules. To some extent local value chain development is important where feasible, in relation to say emergencies such as protective equipment, but that is not the case for all industries. More generally, it will be important to have sunset clauses and evaluations of new or changed programs.
Third, while the Biden administration is likely to be more subtle and nuanced on trade matters compared to Trump, it is unlikely that trade frictions with China are going to be resolved. Tariff and other subtle protective barriers are likely to continue to be in force in the Biden policy tool kit, and retaliation remains a distinct possibility, affecting consumers and businesses.
Fourth is the possibility, of propping up existing (possibly declining) sectors Globalization, technological change and COVID-19 have unleashed dramatic forces of structural adjustment with some sectors being in long term decline, while new sectors, business and organizational models are emerging. Support for skills, training and mobility of employees and capital from declining to growing sectors would be more appropriate.
Fifth, although there is a much stronger commitment to the environment, Biden?s 2050 net zero emissions commitment falls short of the Paris agreements of zero emissions by 2030. In addition, from an environmental perspective, there are concerns about continued fracking, and the absence of a price on carbon.
Finally, and perhaps most importantly for Biden is dealing with a potentially hostile Senate, if the eventual numbers don?t go his way. It is highly debatable whether Republicans will pass the entirety of Biden?s package. Apart from usual political gamesmanship, Republicans could well oppose a number of aspects such as the growth in debt and deficit, rise in the top rates of tax for corporations, individuals and taxes on the profits of foreign subsidiaries, as well as social security payroll tax for high income earners and a raft of other measures. In addition, Republicans are likely to fuss over any greater regulatory imposts associated with enhanced Government intervention.
Should there be problems with the Senate, then this may require either removal of key measures or scaling back of others. One could envisage, for example, the winding back of the tax measures or the reduction in scale of spending on industry, infrastructure and ?clean and green? measures.
In our view, it is more likely that the longer term nation-building efforts will be at least in part be sacrificed, rather than the immediate emergency type measures. The problem for Biden is two- fold: the integrated nature of the entire policy package which could be hard to de-link; and the possibility of being politically hamstrung right from the start.
Dr Anand Kulkarni
Dr Anand Kulkarni
Associate Director, Planning, Performance and Risk
Victoria University
The views expressed here are the author?s entirely and not necessarily those of Qrius
