The American Economy Today

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By BRUNO BIASETTO*

Biden's 100 days show that he was able to correctly read the events that have plagued the US economy since 2008

Since the 2008 crisis, the American economy has had a performance that can be considered very positive. Unemployment has been below 5% most of the time, with the exception of the first half of 2020. The American economy in the pre-pandemic years has an average growth of 3%, the highest among developed countries, according to data from the US Bureau of Economic Analysis (BEA), from 2021. The country still has a strong technology and services sector, in addition to its traditional presence in the financial world.

Behind this strength, however, there are great challenges that await the Biden government. In the first 100 days of government, Joe Biden had a great emphasis on economic issues. American economic development directly affects security, diplomacy and health issues. The first signs of the Biden government are very interesting and point to a disruptive strategy being put into practice. The emphasis on infrastructure and green technology contained in the ambitious $1,9 trillion economic stimulus plan is promising.

Thus, in order to understand how this complex planning will work, this article will be divided into two sections. In the first part, the problems left open by the Barack Obama and Donald Trump administrations will be addressed. On Monday, Biden's economic planning will be analyzed.

A Widening Gap: US Economy in the Obama and Trump Years

The housing bubble crisis of 2008 put the credibility of the American economy in check. The fact that the collapse of capitalism was avoided made public opinion and the academic world forget the importance of this crisis and how its consequences still affect the global economy. The main consequence of the 2008 crisis was the increase in income inequality in the United States, neither Obama nor Trump managed to deal with this problem.

The direct impact of this was the growth of overdose deaths, the strengthening of populism and the definitive destruction of the economic life of former industrial centers (Stanford, 2021). Since the 1980s, the American economy has presented two very different realities. On the one hand, the new economy linked to the technology and finance sectors is developing impressively. In contrast, the traditional inner cities have become dramatically impoverished since 2008. Millions of workers have found themselves without possibilities for a new job, as the new economy does not need the kind of knowledge they have accumulated over a lifetime. The economic recovery seen during the Obama administration was marked by the increase in inequality between these two groups.

The new economy generated prosperity and a tree in the service sector in cities such as San Francisco and New York. Meanwhile, workers in decaying industrial regions in Michigan and Wisconsin were trading former high-paying manufacturing jobs for lower-paying jobs in a largely impoverished service sector. It is important to emphasize that, in the United States, support for unemployed workers is lower than in other developed countries (Morabito, 2020). In addition, training and reinsertion programs to the world of work received little attention from the authorities.

Trump was very able to read this scenario and take advantage of the revolt of these workers with the decrease in their standard of living, while Obama and the Democrats concentrated on the success of the new economy. Precisely for this reason, Trump claimed that Obama had failed in the economy, despite his good management in handling the 2008 crisis. Obama delivered a country with full employment, purchasing power and low inflation.

Trump appealed, however, to the workers who lost everything after 2008. This strategy played an important role in the republican's victory in 2016, combined with other conjunctural factors of that electoral cycle. Upon assuming the Presidency in 2017, Trump promised the return of industries to the US. He claimed that this would be possible through a trade war with China. Trump's promise was something that did not find echo in reality, since the commercial pressure exerted on China and other Asian countries would not be strong enough to reverse the logic of globalization.

Factories followed in Asia, and Trump had to shift focus. By implementing a tax cut in a period of full economic expansion, Trump has further accelerated the pace of American economic growth. The tax cut, the eighth largest in American history, had the benefit of raising the wages of the most suffering sections of the population, because of the increase in economic activity generated by this measure. Most of the tax benefits were given, however, to the richest 1% of the population, in addition to increasing the American public debt (Gale, 2020). In short, Trump chose to accelerate economic growth during his term at the expense of consequences for the future.

The bridge: the construction of the American economy in the post-pandemic

Joe Biden does not have the charisma of a Kennedy or Reagan, but the current American president is a great observer and a skillful manager of people. His understated style and experience are welcome changes from what was seen in his previous tenure. As far as the economy is concerned, Biden is more in the center and can be considered a moderate liberal. The current president knows that he was elected with the support of the urban middle class and the party's socialists. In this way, Biden needs to combine his liberal instincts with the demands of the Democratic base and the needs of the country.

In his first 100 days in office, Biden surprised most analysts. His actions in the economic field were bolder than any measure implemented by Obama, or by Trump. Biden knew how to make a proper reading of what involves the American economic context and how it affects the country's politics. Post-pandemic reconstruction is a unique opportunity to implement ambitious programs that are capable of reinserting workers disowned by the new economy into the labor market. The size of the economy's $1,9 trillion stimulus package reflects Biden's ambition. The current president understands that the previous aid packages, Obama's (2009) and Trump's (2020), only addressed cyclical problems. In 2009, Obama wanted to tackle structural issues in US policy, but the $700 billion package was insufficient to address these demands, and there was not enough support in Congress to do so.

In 2021, there is an awareness among democrats that the country is experiencing a unique moment for the implementation of broader economic measures, with the State as the flagship of this process (Edelberg, 2021). The main virtue of Biden's planning lies in the fact that he recognizes that the reinsertion of the least productive regions of the American economy will take place through a strong public-private partnership. Biden brings the State as a partner of the private sector in large projects. This combination of forces was vital at key moments in the economic history of the United States: from the construction of the Erie Canal, in 1825, to the partnership between NASA and Tesla to build Space X.

The success of the federal government in conducting the research process and distribution of vaccines to fight covid-19, another public-private partnership, brought back the idea that the State has an important role in this time of crisis. Biden's economic stimulus demonstrates how social demands and the economy go together in the post-pandemic. Around 25% of the stimulus is checks for up to US$2.000 for the population, as well as the extension of unemployment insurance. In addition, another 25% of the package will be allocated to infrastructure projects. Biden is also crafting a separate infrastructure-only package focused on building roads, ports and airports. Contrary to appearances, the United States has a very old-fashioned road network and air structure, especially when compared to other developed countries (McBride, 2021).

And, as important as the projects themselves, is the focus on projects that foster ecologically sustainable technologies. The preservation of the environment is not a hindrance to the economy, it is the engine of development in the 2014st century. To oversee the development of his program for the economy, Biden has Janet Yellen at the helm of the Treasury Secretary. Yellen is prepared for the position, having been president of the American Central Bank (FED, its acronym in English) between 2018 and XNUMX, in addition to having had an outstanding academic career.

There is, however, a concern among several economists that an injection of resources of this size into the economy could generate a rise in inflation (Summers, 2021). This is a justified concern, since it is difficult to predict what the real impact of this measure on the inflationary cycle will be. Another aspect to be pondered is the fiscal issue, since the US public debt has been rising sharply since 2001. As long as interest rates remain low, as they are now, this will not be a problem. However, higher future interest rates as a consequence of a probable inflationary surge may directly affect this calculation.

Ultimately, Biden's effort to be bold is worth the risk inherent in his measures. Only with an ambitious economic program can the severe differences between regional economies be reduced. The success of this plan is vital for the so-called Rust Belt and its workers to be reintegrated into the new global economy. Biden's 100 days show that he was able to correctly read the events that have plagued the American economy since 2008. It remains to be seen whether the ideas will work as planned.

*Bruno Biasetto is a postdoctoral researcher at the Center for Latin American and Caribbean Studies at York University (Canada). author of the age of trump (Edipucrs).

Originally published on Studies and analysis of the situation no. 17, June 2021, of US Political Observatory.

 

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