Biden Can Make a Difference

Mariano Torras Finance, Future, General, Macroeconomics, Politics, Public policy/Wellbeing Leave a Comment

April 3, 2021

As I’ve conceded elsewhere, I am not one to exaggerate whatever differences there might be between the U.S. Democratic and Republican parties. I have always viewed the Democrats as “Republican-lite,” since both parties have been beholden to corporate America for many decades. Even the thought of voting for the “lesser evil” last November disgusted me, as I noted in an earlier piece. Yet now I believe that Biden can make a difference.

The unprecedented challenges that we face, along with the recent craziness in U.S. politics, have forced me to reconsider. Aside from a few exceptionally courageous politicians, Congressional Democrats have not changed their stripes. They are still right-wing as always. What has changed is the Republican party’s distance from the ostensible “center.” Many Congressional Republicans are so far to the lunatic fringe right that there is once again an appreciable difference between the two parties, despite their both being right-wing.

My earlier relief at Biden’s election has morphed into genuine hope for meaningful and positive change. I know, it might just be post-Trump-trauma-naïveté disorder. But the $1.9 trillion stimulus, coupled with talk about a major infrastructure bill and higher taxes on corporations and the wealthy, seem real enough. At least compared to the past four years, and even considering the reality of pandemic life, things are looking positively dandy. 

Now, with all the grave uncertainty and foreboding in the realms of epidemiology, finance, climate, geopolitics, and AI – among other lurking dangers – planning for 18 months ahead might seem a bit silly. Yet unless the world comes to an end before then, there will be mid-term elections in November of 2022. It has been a long time since I would have cared. But care I now do. Here’s why.

Much of the public still fails to appreciate the massive and growing disconnect between our economy and financial markets. It matters today more than ever, because a majority of Americans have at least some stake in financial assets, particularly stocks. Ever since mutual funds became a major contributor to U.S. pension funds in the 1970s-80s, a growing share of U.S. households have had their (often modest) wealth dictated by the vagaries of our stock and bond markets.

It is a normal thing for a country’s populace to overly blame the head of state when the economy goes South. Equally common is it to grant him/her too much credit when the economy booms. But the financial markets are not the economy. Even if this was not obvious until recently, the experience of the past year makes it undeniable. While the economy remains stuck in a ditch, stock markets are setting new records.

It would appear that Biden is at least giving the appearance of trying to stimulate our moribund economy. And even if he were unsuccessful in terms of traditional macro indicators, his proposed policies can only help the struggling tens of millions. But sound and humane economics often runs counter to the objectives of banks and Wall street. And so, there is every chance that, to the extent the economy recovers, financial markets might be imperiled.

Couple this with the precarious position in which our Federal Reserve finds itself. Only because it went on a historically unprecedented buying spree last Spring is it that we avoided a catastrophic financial market collapse. Realizing the urgency of the situation, the Fed acted quickly, flooding markets with cash and buying any quantity of government or corporate debt out there. But its position is unsustainable. And once leading traders grow convinced that the game is up, things are likely to change direction in short order.

I am not one for predictions. They are not for the wise, and I believe it to be doubly true in today’s turbulent times. Yet I can’t help growing uneasy about November 2022. While not impossible, it seems inconceivable that there will not be a substantial market “correction” between now and then.

Why? Stein’s Law, named after Herbert Stein, 20th century American economist, says that “if something cannot go on forever, it will stop.” I very well remember the palpable sense in which both the dotcom and the 2007-08 market plunges were expected, even if one could never be sure when. One did not need hindsight to understand that such meteoric rises in stock values could not go on forever. And stop they did.

My concern is that something similar is in the offing. It is not a personal fear, as I do not own stock shares. But I worry that a collapse before November 2022 would erroneously be blamed on the Biden Administration. While it will be impossible to vote him out then, it would be a relatively easy matter to vote in a new Republican majority in the House or Senate or both. That would be disastrous.

The country has much work yet to do. We require nothing less than an epochal shift in policy priorities, as far away from neoliberalism as possible. It would therefore be a major tragedy if whatever modest progress we made over the next 18 months were abruptly aborted. 

The country and the world can surely not afford a return to the economics of the past 40 years. Yes, things were especially egregious under Trump. But neoliberal “trickle-up” policies were a bipartisan effort. While I am not blind to Biden’s moderate, “incrementalist” tendencies, I believe historic circumstances can pull him in the direction the country needs. 

It is why it is now more than ever critically important to gain a basic understanding of economics, especially how it distances itself from finance. People must be prevented from switching to “the other side” in the midterms in the likely event of financial chaos. Please, therefore, share this post with as many people as possible. I realize that here I merely skim the surface of the matter, so don’t hesitate to write me. In addition to corresponding, I’d be happy to share useful references and sources. Now is the time.

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