I’ll be the first to admit that I ‘m shocked at Biden, like so many others, I assumed he’d continue with politics as is (aka continuation of Obama). I really didn't expect him to do what he did. But a much more important question is what will happen when Republicans consolidate their hold on the House/Senate and State Houses. The so called minority/majority governance model (aka South Africa) In the short term I expect they will simply block everything the Democrats propose.
Longer term is the next presidential election. Will the GOP candidate be a Trump wannabe or even Trump himself or someone who models himself on Brazilian president Jari Bolsonaro. Right on culture wars, left on economic issues.
The big unknown is how far state Republicans will go to block the Dems from winning the next presidential election. Scorched earth is what comes to mind.
Keep up the good work really enjoying the newsletter!
The comment, "perception that progress for the average American had stalled" after the personal income graph clearly shows a steady up trend may highlight the real issue of the difference between perception vs. reality.
Your conclusion "Thus it was clear that the Reagan policy program of tax cuts, deregulation, and welfare cuts wasn’t working" is also a perception, but doesn't appear to be supported with facts. Almost any measure shows regulations have never dropped. The closest they came to a drop was staying flat:
While there are regulations that are absolutely essential for our health and safety, there are too many others that seemed like a good idea at the time but have either outlived their usefulness or have had unintended consequences. It's been too long since there has been a focused effort on stripping out regulations to make government and our country more efficient. Even though Trump made a big show of cutting regulations, he still supported growing government in his other pet areas.
IMO a big reason why growth has slowed is due to a major regulation that has cut off funds from the small businesses that are responsible for most of the job growth, Dodd-Frank. As a small business owner I know this significantly reduced my opportunities and I know many others who agree. That's just one example of a regulation gone bad. I'm sure others can add many more to the list.
So here's what I don't understand. The system as we know it has been developed and directed by continuous increases to the size and scope of government. Now, public opinion seems to have decided that that system doesn't function as it should and needs to be overhauled. Bidenomics says we now need more government involvement to make it all better. Doesn't it seem the opposite is more likely what we need?
“taking a bit of money from the Elon Musks of the world” just isn’t going to do it. Let’s say we take *all* the income from the top 1%, or about $2.6T. That gives us about $7,800 per person to redistribute. But we already take about 1/3, so there’s only enough income there to give everyone $5200 per year. Realistically, you can’t take all their income, so let’s say we move the effective rates to 50% from 30% (I’m talking total tax rate here, not marginal). That gives us about $1600 per person per year, still just taking from the 1%. Now, the top 50% don’t need the money, so give $3200/yr/person to the bottom 50%. So a single parent with two kids gets $9600/yr in redistribution. That’s a not-inconsequential amount of money, but it doesn’t even begin to cover childcare for many areas.
So two important things to take away:
1) the reality is it’s the top ~20% that will be paying for this kind of spending, and there will be political consequences when they realize that, and
2) the cost problem *must* be addressed in order to have equitable lifestyles. We can’t just pay workers to move piles of dirt around (or do more paperwork, or more accurately, do all the useless and wasteful things you do at work and would certainly prefer not to have to do) and expect that to result in a better country. All that work funded by more taxes or debt needs to result in something *useful*.
An excellent summary of what is emerging as Bidenomics. The author correctly raises the alarm about ruinous costs. How and why these costs have become so high? How to get them in control and make them comparable and competitive with other developed countries? How to structure the new programs and how to invest public funds (tax dollars) in the infrastructure and care economy? We must come up with new ideas and far better implementation rooted in a competitive and transparent market without unnecessary regulation and corruption to contain the cost of healthcare and elderly care, and improve the quality of child care, early childhood education and standards of K-12 education. Doing these things will be critical to the success of the massive transformation sought. To get the necessary bang for the buck, these sectors have to opened to fair and rules based foreign competition and not shielded from it.
I can see excessive deference to unions being one of the other major concerns worth highlighting about how Bidenomics could go wrong, for several reasons:
1. we know he's an old-line union guy, so is likely biased toward deferring to them
2. unionism arguably plays a significant part in the cost disease problem you correctly say is a major risk, e.g. via Davis-Bacon
3. public sector unions may be in pretty bad political odor for the next couple of years based on their easily visible, outrage-provoking behavior in the past year (police unions shielding abusive cops, teachers' unions stonewalling on school reopening), and Republicans are unlikely to miss the chance to use that as a wedge issue and an excuse to denigrate unions generally.
Once upon a time I would of been against Student Loan cancellation, but I decided to lean in. Had daughter take out max loans this school year. Will do the same for next.
We don’t need it, she has pell grants and GI Bill, so we invested it.
Figure we could clear 12-15K if things go right.
Investment return hopefully beats interest and fees.
Also, I support big infrastructure spending, though I assume lots will be wasted and the rest we will overpay, since as Noah as pointed out, our costs are higher than other countries.
Excellent. Plus your paragraph rounds very well with the following:
"And that distribution of income via domestic industries is supplemented by active government redistribution of income — taking a bit of money from the Elon Musks of the world and using it to make sure the mass of people have a claim to food and houses and schools and medical care."
And in fact assisting the creation, nutrition and "care" of the craddle from where those investors get born, grow, study, train and live. In sum, focusing on the aggregate and dedicate investment that require the latest and best of long term research on well being, on creativity, on cohesion, on communication on values that are needed at least to fill the variety and richness that propels those Idea centers, industries and the complementary endeavors that through interaction made the national and international growth and welfare in the broadest terms.
This is an excellent viewpoint/summary and I hope it is true. At this stage, I wonder if anyone knows what Biden’s grand strategy really is. But I hope his people read this and say “yeah, yeah that’s it.”
The vision you are advancing feels in some ways very much like the SOEs that dominate so much of China's economy. They have large workforces, are provided high government subsidies, and not really allowed to fail even though they are significantly less productive.
This doesn't seem like a path we should attempt to emulate.
Good post! I'd like to see a follow-up post on "ruinous costs". My impression is that the primary drivers of those costs are generally things that the left supports (such as burdensome environmental reviews). One reason why infrastructure sucks in the US is because democrats tend to care more about infrastructure, but it's hard for them to deliver because they won't try to end-run these kinds of regulations -- so blue states initiate infrastructure projects, but they inevitably become costly boondoggles (California HSR, SF's Van Ness bus lanes, NYC subway expansions, Boston's Big Dig, etc.) which piss away amazing amounts of money and accomplish very little. On the other hand, republicans are happy to end-run any regulations in their way (one recent example: Operation Warp Speed), so they actually can get things done, but they tend not to care about infrastructure. So infrastructure never improves.
There is a fairly straightforward argument that post-1980 policies incentivized paying MORE of net income out as dividends and stock buybacks, and hence actually caused the decline in business investment. With lower taxes, more money actually lands in shareholders' pockets. If you have extremely high taxes on dividend income, and you want to make shareholders richer, you don't pay dividends. You find ways to _actually grow the company_. This argument appears rather concisely in one of MattY's all-time best posts from his time at Slate: https://slate.com/business/2012/07/xerox-parc-and-bell-labs-brought-to-you-by-high-taxes.html
This idea of the dual-track economy with a highly productive innovation sector at the top and a massive service sector at the bottom reminds me of the worst stereotypes of the Gilded Age, as well as current day Manhattan (finance bro) and San Francisco/Bay Area (tech bro).
More concretely, sounds a lot like California/Bay Area with a lot more income redistribution. But I’m not confident that there will be enough income redistribution, and I worry about it creating backlash, like techlash in San Francisco and Occupy Wall Street in NYC, which I largely blame on income inequality.
I think even liberal minded tech bros will discover opposition to the taxation necessary to sustain the Nordic scale income redistribution necessary to keep income inequality low. Chamath is an imperfect example of this—his short lived candidacy for Governor had anti tax and anti redistributive elements. (Admittedly his platform had redistributive elements as well, but no real plan for funding them.)
Where you greet with enthusiasm "policy entrepreneurs," I am deeply concerned. I see wholesale politicization of economics going on. Ionescu's research is a great example because she makes clear, e.g., on Twitter, that she has strong priors about the right answer from the outset. Similarly, the minimum wage research you point to is centered among people at famously leftwing econ departments like UMass-Amherst and people like Michael Reich who publish in the Journal of Radical Economics. You know what people like these folks are going to find.
"The pipeline here was 1) policy entrepreneurship —> 2) empirical studies —> better theory. Not the other way around."
It always works like this. Better theory always follows from the experiment, whether the theory is flight (we have better theories AFTER the Wright Brothers than we did before - BECAUSE of the Wright Brothers) or INSERT_EXAMPLE_HERE
You never start from theory. Theory always follows data. Always. We see bird fly before we come up with a theory of flight. Better theories of flight can only come after further data.
Over the past years we used to enjoy good capital flow even though we import more than we export. We are still having positive capital flow. We were worried over Trade deficits and went on a tariff war. What did we do with all those inflow of capital? Foreigners buy or bonds and they invest. We are enjoying low rates very cheap rates and we should have used those cheap rates to build our infrastructure because sooner or later those rates could go up making it more costly to borrow to build. We were not wise we were going back to the era of mercantilism to deal with trade deficits.
I’ll be the first to admit that I ‘m shocked at Biden, like so many others, I assumed he’d continue with politics as is (aka continuation of Obama). I really didn't expect him to do what he did. But a much more important question is what will happen when Republicans consolidate their hold on the House/Senate and State Houses. The so called minority/majority governance model (aka South Africa) In the short term I expect they will simply block everything the Democrats propose.
Longer term is the next presidential election. Will the GOP candidate be a Trump wannabe or even Trump himself or someone who models himself on Brazilian president Jari Bolsonaro. Right on culture wars, left on economic issues.
The big unknown is how far state Republicans will go to block the Dems from winning the next presidential election. Scorched earth is what comes to mind.
Keep up the good work really enjoying the newsletter!
The comment, "perception that progress for the average American had stalled" after the personal income graph clearly shows a steady up trend may highlight the real issue of the difference between perception vs. reality.
Your conclusion "Thus it was clear that the Reagan policy program of tax cuts, deregulation, and welfare cuts wasn’t working" is also a perception, but doesn't appear to be supported with facts. Almost any measure shows regulations have never dropped. The closest they came to a drop was staying flat:
https://regulatorystudies.columbian.gwu.edu/reg-stats
While there are regulations that are absolutely essential for our health and safety, there are too many others that seemed like a good idea at the time but have either outlived their usefulness or have had unintended consequences. It's been too long since there has been a focused effort on stripping out regulations to make government and our country more efficient. Even though Trump made a big show of cutting regulations, he still supported growing government in his other pet areas.
IMO a big reason why growth has slowed is due to a major regulation that has cut off funds from the small businesses that are responsible for most of the job growth, Dodd-Frank. As a small business owner I know this significantly reduced my opportunities and I know many others who agree. That's just one example of a regulation gone bad. I'm sure others can add many more to the list.
So here's what I don't understand. The system as we know it has been developed and directed by continuous increases to the size and scope of government. Now, public opinion seems to have decided that that system doesn't function as it should and needs to be overhauled. Bidenomics says we now need more government involvement to make it all better. Doesn't it seem the opposite is more likely what we need?
“taking a bit of money from the Elon Musks of the world” just isn’t going to do it. Let’s say we take *all* the income from the top 1%, or about $2.6T. That gives us about $7,800 per person to redistribute. But we already take about 1/3, so there’s only enough income there to give everyone $5200 per year. Realistically, you can’t take all their income, so let’s say we move the effective rates to 50% from 30% (I’m talking total tax rate here, not marginal). That gives us about $1600 per person per year, still just taking from the 1%. Now, the top 50% don’t need the money, so give $3200/yr/person to the bottom 50%. So a single parent with two kids gets $9600/yr in redistribution. That’s a not-inconsequential amount of money, but it doesn’t even begin to cover childcare for many areas.
So two important things to take away:
1) the reality is it’s the top ~20% that will be paying for this kind of spending, and there will be political consequences when they realize that, and
2) the cost problem *must* be addressed in order to have equitable lifestyles. We can’t just pay workers to move piles of dirt around (or do more paperwork, or more accurately, do all the useless and wasteful things you do at work and would certainly prefer not to have to do) and expect that to result in a better country. All that work funded by more taxes or debt needs to result in something *useful*.
An excellent summary of what is emerging as Bidenomics. The author correctly raises the alarm about ruinous costs. How and why these costs have become so high? How to get them in control and make them comparable and competitive with other developed countries? How to structure the new programs and how to invest public funds (tax dollars) in the infrastructure and care economy? We must come up with new ideas and far better implementation rooted in a competitive and transparent market without unnecessary regulation and corruption to contain the cost of healthcare and elderly care, and improve the quality of child care, early childhood education and standards of K-12 education. Doing these things will be critical to the success of the massive transformation sought. To get the necessary bang for the buck, these sectors have to opened to fair and rules based foreign competition and not shielded from it.
I can see excessive deference to unions being one of the other major concerns worth highlighting about how Bidenomics could go wrong, for several reasons:
1. we know he's an old-line union guy, so is likely biased toward deferring to them
2. unionism arguably plays a significant part in the cost disease problem you correctly say is a major risk, e.g. via Davis-Bacon
3. public sector unions may be in pretty bad political odor for the next couple of years based on their easily visible, outrage-provoking behavior in the past year (police unions shielding abusive cops, teachers' unions stonewalling on school reopening), and Republicans are unlikely to miss the chance to use that as a wedge issue and an excuse to denigrate unions generally.
Once upon a time I would of been against Student Loan cancellation, but I decided to lean in. Had daughter take out max loans this school year. Will do the same for next.
We don’t need it, she has pell grants and GI Bill, so we invested it.
Figure we could clear 12-15K if things go right.
Investment return hopefully beats interest and fees.
Also, I support big infrastructure spending, though I assume lots will be wasted and the rest we will overpay, since as Noah as pointed out, our costs are higher than other countries.
Excellent. Plus your paragraph rounds very well with the following:
"And that distribution of income via domestic industries is supplemented by active government redistribution of income — taking a bit of money from the Elon Musks of the world and using it to make sure the mass of people have a claim to food and houses and schools and medical care."
And in fact assisting the creation, nutrition and "care" of the craddle from where those investors get born, grow, study, train and live. In sum, focusing on the aggregate and dedicate investment that require the latest and best of long term research on well being, on creativity, on cohesion, on communication on values that are needed at least to fill the variety and richness that propels those Idea centers, industries and the complementary endeavors that through interaction made the national and international growth and welfare in the broadest terms.
This is an excellent viewpoint/summary and I hope it is true. At this stage, I wonder if anyone knows what Biden’s grand strategy really is. But I hope his people read this and say “yeah, yeah that’s it.”
The vision you are advancing feels in some ways very much like the SOEs that dominate so much of China's economy. They have large workforces, are provided high government subsidies, and not really allowed to fail even though they are significantly less productive.
This doesn't seem like a path we should attempt to emulate.
Good post! I'd like to see a follow-up post on "ruinous costs". My impression is that the primary drivers of those costs are generally things that the left supports (such as burdensome environmental reviews). One reason why infrastructure sucks in the US is because democrats tend to care more about infrastructure, but it's hard for them to deliver because they won't try to end-run these kinds of regulations -- so blue states initiate infrastructure projects, but they inevitably become costly boondoggles (California HSR, SF's Van Ness bus lanes, NYC subway expansions, Boston's Big Dig, etc.) which piss away amazing amounts of money and accomplish very little. On the other hand, republicans are happy to end-run any regulations in their way (one recent example: Operation Warp Speed), so they actually can get things done, but they tend not to care about infrastructure. So infrastructure never improves.
There is a fairly straightforward argument that post-1980 policies incentivized paying MORE of net income out as dividends and stock buybacks, and hence actually caused the decline in business investment. With lower taxes, more money actually lands in shareholders' pockets. If you have extremely high taxes on dividend income, and you want to make shareholders richer, you don't pay dividends. You find ways to _actually grow the company_. This argument appears rather concisely in one of MattY's all-time best posts from his time at Slate: https://slate.com/business/2012/07/xerox-parc-and-bell-labs-brought-to-you-by-high-taxes.html
This idea of the dual-track economy with a highly productive innovation sector at the top and a massive service sector at the bottom reminds me of the worst stereotypes of the Gilded Age, as well as current day Manhattan (finance bro) and San Francisco/Bay Area (tech bro).
More concretely, sounds a lot like California/Bay Area with a lot more income redistribution. But I’m not confident that there will be enough income redistribution, and I worry about it creating backlash, like techlash in San Francisco and Occupy Wall Street in NYC, which I largely blame on income inequality.
I think even liberal minded tech bros will discover opposition to the taxation necessary to sustain the Nordic scale income redistribution necessary to keep income inequality low. Chamath is an imperfect example of this—his short lived candidacy for Governor had anti tax and anti redistributive elements. (Admittedly his platform had redistributive elements as well, but no real plan for funding them.)
Where you greet with enthusiasm "policy entrepreneurs," I am deeply concerned. I see wholesale politicization of economics going on. Ionescu's research is a great example because she makes clear, e.g., on Twitter, that she has strong priors about the right answer from the outset. Similarly, the minimum wage research you point to is centered among people at famously leftwing econ departments like UMass-Amherst and people like Michael Reich who publish in the Journal of Radical Economics. You know what people like these folks are going to find.
"The pipeline here was 1) policy entrepreneurship —> 2) empirical studies —> better theory. Not the other way around."
It always works like this. Better theory always follows from the experiment, whether the theory is flight (we have better theories AFTER the Wright Brothers than we did before - BECAUSE of the Wright Brothers) or INSERT_EXAMPLE_HERE
You never start from theory. Theory always follows data. Always. We see bird fly before we come up with a theory of flight. Better theories of flight can only come after further data.
Over the past years we used to enjoy good capital flow even though we import more than we export. We are still having positive capital flow. We were worried over Trade deficits and went on a tariff war. What did we do with all those inflow of capital? Foreigners buy or bonds and they invest. We are enjoying low rates very cheap rates and we should have used those cheap rates to build our infrastructure because sooner or later those rates could go up making it more costly to borrow to build. We were not wise we were going back to the era of mercantilism to deal with trade deficits.
Bidenomics, the driver of inflation.