Team Biden wants a revolution
By Robert B. Zoellick
15 August 2023
The Washington Post
The
economic thinkers who generate the intellectual energy for the Biden
administration are on a mission: to slay their elders, figuratively
speaking, from the Clinton and Obama eras. The revolutionaries do not
just want to devise new policies; they are demanding an ideological
transformation to rewire the political mind of the Democratic Party.
Some
elders try to compromise with the upstarts, yielding some principles
and hoping the radicals will moderate with time. Others appear to have
given up on ideas, and coldly calculate how the new plans might buy
votes. They should be forewarned: Republican leaders waffled in a
similar way and lost their contest for ideas.
Advocates
of a new Democratic economics rally around a four-part manifesto:
ignoring fiscal discipline; dismissing the importance of prices and
costs; celebrating state direction; and slighting international economic
leadership.
First,
they want to replace budget restraint with huge spending financed
through a wizardry known as modern monetary theory. In doing so, they
are tearing down the legacy of former treasury secretary Robert Rubin,
who convinced President Bill Clinton in the 1990s that balanced budgets
would reassure bond markets and investors, leading to lower interest
rates and sustained growth. The Republican Congress of 1995 joined in
and together they produced something unimaginable today: budget
surpluses. President Barack Obama, confronting a costly Great Recession,
also accommodated constraints on spending.
Biden's
advisers spurn budgetary rigor. Disdaining Obama's sluggish recovery,
they instead prescribed a stimulus of about 10 percent of gross domestic
product, the first of a series of enormous spending bills and debt
forgiveness. The new theorists imagine that perpetually low interest
rates and relaxed monetary policy can consign fiscal discipline to the
past.
Second,
the Clinton-Obama generations paid close attention to price signals,
even when they were exasperated by the vagaries of markets. In contrast,
Biden's team pursues trade and antitrust policies while questioning the
importance of prices, costs and efficiencies. Increased prices for
consumers matter little to the administration compared with such goals
as challenging big companies, blocking foreign competition, helping
unions, doing away with fossil fuels and experimenting with new
regulations.
Third,
earlier Democratic economic architects understood that the private
sector powers the economy. Those administrations also wanted to
redistribute the gains in the economy — but they did not fall into the
trap of thinking that government creates the gains. Clinton's welfare
reform encouraged people to rejoin the workforce, and his policies
combined taxes on higher income with credits for the poor. Though Obama
was more skeptical of the private sector, he designed his signature
initiative — Obamacare — to work with private companies and enhance
markets. The new progressives wish that he had nationalized health care.
National
security adviser Jake Sullivan has argued that reliance on private
businesses and markets has resulted in major economic and social
failures. The Biden administration instead relies on state direction in
areas of the economy far beyond infrastructure, R&D and education.
Washington now chooses the vital sectors of the future economy, offering
subsidies in exchange for favored policies — including preferred
technologies, limitations on imports and exports, unionization and child
care.
Pipelines
are out. Solar and wind energy are in, but not with foreign components.
Education cannot rely on private firms. Companies must report on the
carbon usage of their suppliers as well as their own — and trial lawyers
are empowered to police the paperwork.
Finally,
the Clinton and Obama administrations embraced America's global
economic leadership. Biden's planners do not. Clinton bucked
protectionists to pass NAFTA and completed the global trade negotiations
that contributed to a decade of global growth. Obama, though initially
skeptical, eventually recognized the strategic and economic importance
of trans-Pacific trade.
In
contrast, Biden's trade representative, Katherine Tai, embraces
Trumpian isolationism. She denies the power of deals to open markets to
develop international standards for the digital economy and other
cutting-edge sectors; to add resilience to nations and supply chains;
and to encourage developing countries to improve environmental and labor
standards.
The
Biden theorists imagine a national economy that Washington designs
without foreign involvement. Their industrial policy uses tariffs, rules
of origin and "Buy American" requirements to block foreign competition.
They send a destructive message to our partners: Join the race to
subsidize. If you are a poorer developing country, too bad.
Inflation
and higher interest rates have hampered the new ideologues, but they
have plunged ahead. Only trouble awaits them. Their massive spending
bills will soon be tainted by tales of waste and corrupt crony
capitalism. Their international policies are adrift. Narrow economic
nationalism might be the one thing that Donald Trump and Biden agree on.
The
danger is that the new ideology — with its subsidies and protection —
does not have to work well to win adherents in the short term. Democrats
who have decried Republicans' suspension of traditional beliefs should
reflect on the comparison: They, too, could lose out to the faction with
dangerous ideas.
Robert
B. Zoellick served in four Republican administrations at the White
House, State and Treasury departments, and as the U.S. trade
representative.