4 APRIL—The boldness with which the Biden administration acted on its $1.9 trillion Covid–19 relief package gave many progressives hope that the Democrats’ break with the old Clinton/Obama governing paradigms had been decisively consolidated. But the promise of Biden’s large-scale infrastructure program, announced last week, seems to mark a reversion to old phobias on the deficit front, along with the rather unpleasant reality—well-disguised and unremarked in our press—that this is primarily about passing on goodies to the Democrats’ donor constituencies, thereby tilting the American political economy even more in their favor.
We had better brace ourselves for a collection of economic initiatives that are nothing like as advertised and promise to do vastly more harm than good. This is what Biden has built his political career upon, of course, and it would be preposterous to expect anything different now he draws it (thank goodness) to a close. The working man from Scranton has just proposed an economic blueprint that will build back better only for those already disproportionately advantaged. For the rest, let them eat virtue-signaling—which Biden’s people have slathered on with trowels.
Apart from some modestly reasonable infrastructure subsidies, the American Jobs Plan is not a plan about infrastructure or manufacturing. It is an excuse to tax Americans or borrow huge sums to subsidize specific Democratic donor and voter constituencies. To wit:
Intellectual property rentiers in the tech sector, who will receive subsidies for R&D but will face no real penalties for offshoring the production of their inventions;
Urban real estate owners;
Two-income urban professionals who rely on day care and elder care;
Service-sector unions, who will benefit from massive subsidies for day care and elder care.
If the Biden administration has a defining preoccupation, it is far and away to do with shoring up—we can no longer say “maintaining”—America’s “global leadership,” the preferred phrase in Washington to avoid the awkward “imperial hegemony.” This new plan appears at bottom to be a subset of the primary geopolitical question Biden’s national security people grapple with—which in a single word is China. We ought not miss this for it has much to do with what is in the new plan and what is not.
Here is Biden in Pittsburgh as he unveiled his new creation:
In fact, it’s the largest American jobs investment since World War II. It will create millions of jobs, good-paying jobs. It will grow the economy, make us more competitive around the world, promote our national security interests, and put us in a position to win the global competition with China in the upcoming years.
It’s going to boost America’s innovative edge in markets where global leadership is up for grabs—markets like battery technology, biotechnology, computer chips, clean energy, the competition with China in particular.
The reality, readers, is that it will do none of these things. Nothing here about reshoring the “good paying jobs” Biden’s Democratic predecessors allowed Corporate America to destroy. In terms of establishing significant initiatives in state-driven R&D, Beijing has at least a decades-long head start on the U.S. Biden’s proposals do not address America’s key structural disadvantage here.
Conclusion: Biden is not serious even on the question he and his people profess to take most seriously.
Let us briefly consider the economic orthodoxy backdropping to Biden’s program before going on to dissect its parts. Recall that the proposed bill is to find its way on Capitol Hill via a budget reconciliation process to avoid the limitations of the filibuster (which would require 10 highly unlikely-to-obtain GOP votes).
Reconciliation was established as part of the Congressional Budget Act of 1974, driven by lawmakers concerned about the growing federal deficit. Using this framework means playing the game of finding tax offsets to balance the increased spending provisions. “Household budgeting” of this sort, primitive and inapplicable as it is, naturally plays into some of the phobias about deficit spending that are part of the old muscle memory among some Democrats, such as Speaker Nancy Pelosi, and their allies in the media, who like to regard themselves virtuously as the party of “fiscal responsibility.”Here is the Washington Post outlining some of the Biden administration’s thinking on the new proposals:
Some members of the economic team second-guessed themselves, concerned that the plan could jeopardize the nation’s long-term financial stability. The officials worried that the large gap between spending and revenue would widen the deficit by such a large degree that it could risk triggering a spike in interest rates, which could in turn cause federal debt payments to skyrocket.
It’s unclear from the WaPo passage whether these unnamed officials worry that the resultant increase in federal spending will trigger inflation (the concern of former Treasury Secretary Larry Summers, among others), thereby forcing the Federal Reserve to raise rates to head off such inflationary pressures, or whether they are concerned that such spending will trigger a “crowding out” effect, on the argument that too much government borrowing here will “crowd out” private investment by virtue of higher rates. Either way, their concerns are misplaced. Keynes, let us recall, discredited the crowding-out thesis nearly 80 years ago.
As far as inflationary fears go, American middle-income households went into this crisis with—as was the case in 2008—high levels of credit card, student, housing, and automotive debt. To the extent that their personal savings have been elevated by the pandemic relief measures introduced over the past year, much of those savings are still being directed toward paying down debt (or held back as precautionary savings with the expectation that many expenditures that have been deferred, such as rent or mortgage payments, will become a reality again soon).
Debt repayment is hardly inflationary. And we once we get over the temporary sugar rush of short-term price escalation due to people seeking services they have been deprived of for more than a year, it is likely that any incipient inflationary pressures will quiet down again as the realities of the private debt overhang reassert themselves.
With regard to the “crowding out” thesis, the experience of the last decade has demonstrated the opposite causality: To get a bit wonky, big government deficits result in a big injection of funds—i.e., “reserves”—into the banking system. When the banking system is flush with reserves, the price of those reserves—in the U.S., the federal funds rate—is driven to zero in the absence of countervailing measures (such as bond sales, which reduce the supply of reserves and help the Fed guide rates higher). There is also the fact that an infrastructure bill enhances the economy’s productive potential, and therefore “crowds in” private sector demand.
Economic theory aside, the net fiscal impact of this bill is much smaller than the headline figures outlined in the press would suggest. Even with the proposed tax increases, the net new spend is roughly $1 trillion. That sounds like a “BFD,” to quote the president. But there’s a bigger problem: A lot of the fiscal expenditure proposed in the new bill amounts to bells and whistles that service particular Democratic Party constituencies while doing little to rebuild American infrastructure, let alone offer a coherent national industrial policy response to the economic challenges posed by countries such as China. As Asia Times columnist David Goldman observes:
Labeled an infrastructure package, it offers just $447 billion for transportation infrastructure over eight years. That’s less than a quarter of the most widely accepted estimates for the U.S. infrastructure deficit.
Goldman also notes that the $180 billion allocated for “R&D in tech of the future” is spread over eight years (thus roughly $22.5 billion a year), along with $300 billion for some manufacturing subsidies.
Here’s a sobering reality for you, and a good measure of the Biden administration’s seriousness: Contrast the American Jobs Plan numbers with what China’s National People’s Congress decided was necessary last year: It mandated funding of $560 billion per year for new R&D spending in new technologies. David Goldman concludes:
To restore federal R&D to the level that prevailed when the United States created the digital economy, it would have to spend each year the $180 billion that Biden proposes to ladle out over eight years.
Reading between the lines, this bill is not much as an infrastructure bill, or even a “build back better” national industrial policy. Rather, it is a giveaway to various constituencies of the Democratic Party—donor-base tech rentiers, urban homeowner and landlord interests, and the voter base of the Service Employees International Union. R&D is subsidized, but, as noted above, there is no plan for reshoring manufacturing other than a few tax tweaks, which are a joke, a typical neoliberal wheeze. And while it is nice to see funding provided for unionized day-care and elder-care workers, (whose unions will recycle federal money into campaign contributions to the Democrats), there is nothing for family care-givers (who comprise a much larger proportion of the population).
To the extent there is anything like a plan for reshoring, it penalizes tax shifting to a degree. That’s good and will hopefully be further enhanced by the administration’s apparent willingness to join forces with the European Union in a global digital tax accord. But that largely addresses the tax-avoidance strategies of Big Tech, while the real problem faced by American (indeed, many Western) workers is global labor arbitrage. That can realistically addressed only with more direct measures such as requirements covering procurement (the “Buy American” provisions of the American Relief Act were a start), tariffs, quotas, or local content provisions. These are all largely off the table in this legislation.
The most anomalous features of Biden’s plan are those related to housing. Somehow, it is imagined that housing affordability will be sorted by hiring lots of people to “retrofit” existing homes and buildings. What on earth are they talking about? Retrofitting homes to make them greener via insulation or replacing gas with electric does not increase occupancy rates. The plan’s authors seem to be using “retrofit” to mean converting single-family homes into multi-family apartments.
That is related to a “density ideology,” which assumes that working families want to be crammed into apartments in dense cities instead of getting help to buy single-family homes in suburbs and exurbs. We saw how well that worked during the pandemic.
Leaving health considerations aside, there is no evidence that the working class would rather live in relatively small apartments in downtown urban areas rather than in houses in the suburbs. Densification is ultimately all about using government funds to jack up urban real estate prices for rich Democratic landlords who, like the Astor family long ago, can make fortunes via workers’ tenements on urban land they own.
To promote the interests of urban tenement owners and urban property owners in general, Biden wants to pay cities to rezone so landlords can throw up workers’ housing next door to single-family homes in inner suburbs. Which workers will live in the new tenements? Not manufacturing or logistics workers, whose jobs are in the peripheries of urban centers. Presumably the low-wage, largely immigrant day-care workers caring for children and the elderly, who will be subsidized via massive day-care expansion, or food-truck vendors, toenail painters, and dog walkers catering to progressive, urban oligarchs and their progressive, urban managers.
But we’re ‘woke.’
This is a very sweet deal if you’re an affluent, urban, professional Democrat in New York, San Francisco, or Austin. The Biden administration will increase the reserve army of low-wage immigrant day care and elder care workers via immigration policy which has drifted away from many of the traditional Democratic Party concerns about economic displacement expressed some 15 years ago in the Barbara Jordan Commission on immigration reform. The goal now is to subsidize the day-care and elder-care industries to enable you, the affluent professional, to keep paying low wages to other people to raise your kids and care for your parents and cram these low-income, subsidized day care and elder-care serfs into tenements within bus or subway distance (but not next door to rich Democrats; their tight zoning laws, which exacerbate the problem of homelessness, will remain in place).
All the while, Biden’s plan will drive up the property values of the urban Democratic elites who own homes, condos, or rental properties. Stripped of its flourishes, it comes to constituent services for Democratic professionals and rich donors. If you own a rental property and rent it to your maid, it’s a twofer! The government subsidizes you as an employer and as an urban landlord.
Politically the plan is maladroit. It continues a longstanding trend in Democratic policymaking in which the gains will go to the mostly white and Asian Democratic professional managerial elites, even though Biden and his supporters constantly harp on how it will help Black, Hispanic, and “underserved” communities. The reality is the opposite, especially for many Hispanics living in high cost states like California, where housing is becoming increasingly unaffordable for low income communities. Robert Apodaca, a longtime Latino activist and the executive director of United Latinos Vote, has argued that many of these policies “disproportionately burden those who you claim to support the most.” This kind of ideological blindness helps to explain the 2020 expansion of Republican voting among Hispanics and why Dems remain concerned that this trend is not simply a blip.
If Biden’s people were smart, they would use universalist, non-racialist rhetoric to appeal to swing voters. But the authors are presumably mostly white Democrats compelled to demonstrate their racialist wokeness in every other sentence. They can’t help themselves.
In fairness to the Democrats, most of them no longer know or care what kind of affordable housing working people might like because “the left,” such as there any longer is one in the U.S., gave up thinking about the realities of urbanization a long time ago, just as they gave up on the idea of garden cities and new towns in the periphery where many of jobs are likely to be located as Covid–19 transforms the way we work and the future of urban communities.
Ironically, for all its racial virtue signaling, if the Democrats wanted to help blacks and Hispanics, they would cut wage-suppressing unskilled immigration to create a tight labor market at the bottom. They would also make it easier for low-income families to buy single-family homes in suburbs and exurbs, creating an even tighter downtown labor market. But the Democrats serve the affluent professionals and managers who live downtown or in inner suburbs and employ maids and nannies and nursing-home workers, not the low-wage service workers themselves, who are assigned to multifamily housing and endless competition with new waves of immigrants for jobs changing the diapers of the children and parents of elite Democrats.
In short, the American Jobs Act is a dog’s breakfast of neoliberalism and “woke” placebo reforms that avoid a lot of hard choices that might offend the party’s main constituencies. The historic, broadly based New Deal majoritarian coalition is no more. Today the Democratic Party exists to expand employment opportunities for college-educated, socially “woke” professionals, while adding new wings to the welfare state that are tailored to the personal needs of the professional managerial class.
What this plan doesn’t do is offer a realistic framework to upgrade America’s decaying infrastructure, revitalize U.S. manufacturing, and create the kinds of high-quality jobs that Biden promised to provide during his campaign.