Bidenomics: a giant leap for a president, a baby step for a nation
America is finally changing its mind about manufacturing. For the past several decades, Democratic and Republican administrations competed to see who could get more Americans out of dirty "old economy" factory jobs and into clean, fun "new economy" knowledge jobs. The whole operation turned out to be a damaging miscalculation. Tens of millions of workers lost high-paying manufacturing jobs—which were perfectly clean and fun, as far as jobs go. Only the lucky ones found minimum wage replacement jobs—usually the dirtiest and least-fun imaginable. Despite these disappointing results, every American president since Jimmy Carter doubled down on deindustrialization. Biden's economic plans are the first in two generations to push in the direction of making America make things again—with schemes that are hoped will increase investment in manufacturing. We're moving in the right direction, but these are baby steps. We need to keep changing America's mind about manufacturing and about how nations make a living.
Abstract economic ideas only make sense with the aid of analogies to everyday life. That's why we talk about the economy as an engine, a marketplace, a tide that lifts all boats, or an organism that can be healthy or get sick. There's no other way for humans to interact intellectually with something as big and amorphous as a national economy.
That's why I am now going to ask you to imagine America, from Jimmy Cater on, as a competitive body builder who falls for a wacky theory that meditation is better than lifting weights for building muscle. For years, as our body builder's muscles atrophy, she sticks to her new belief and assumes that she'll see progress once she improves her meditation technique. But after years practice, her muscles continue to waste away.
I'm not the first person to use a body as an analogy for an economy. Brad DeLong and Stephen Cohen's brilliant Concrete Economics drags this analogy out for pages. For decades, they argue, American policy makers deliberately cut muscle (industry) and even bone (infrastructure) while adding fat (financialization of the economy fueled by debt-driven consumption of services and imported goods).
I'm going to torture this analogy even more than they did. Imagine that after years of wasting away, and falling into depression after losing many competitions, the body builder decided to get back to exercising.
Next, imagine that she announced to all of her friends that the way she was going to get back to body building was to commit to jumping rope for a few minutes a day.
That's what Biden is doing.
The Biden administration has released or previewed its economic plans to "build back better." While there's been a lot of talk about manufacturing, it turns out that Biden's economic plans are almost entirely focused on investment in infrastructure—for example, roads and bridges—with a little money thrown in for research and development. Nevertheless, this is supposed to help build back America's high-wage manufacturing base. The theory is that if the government invests in better roads then the private sector will invest in more trucks to drive across those roads, and then market signals will direct truck manufacturers to invest in new factories to meet demand, and then the economy will have more jobs, etc.… Trickle down investment.
The problem is: That's the equivalent of our body builder jumping rope a few minutes a day instead of hitting the heavy weights. It's just not enough. The real mechanics of how the economy works sadly mean that better roads don't lead to millions of new auto manufacturing jobs—let alone new jobs in aerospace, electronics, chemicals, renewable energy, semiconductors, and more. Maybe better roads and other infrastructure improvements will have some knock on effects, but they will barely be detectible if at all.
For a moment, during his campaign, it looked like Biden might be planning something bigger, such as direct investment into industry—the kind of investment that America pioneered back in the days of Hamilton and that all rich-and-getting-richer countries practice today. Ok, it took a lot of faith and imagination to believe that, but he did make an ad with an electric Corvette! That was enough to get me dreaming that he was going to call up the leaders of all the automakers operating in the U.S. and say, "Hey do you guys need financing to make electric cars for the whole planet? I happen to have a bank with a literally unlimited credit line that would love to give you big zero-interest loans."
But no. He's just talking about building out some electric charging stations, which are supposed to create a stronger incentive for people to buy electric cars, which is supposed to cause automakers to invest in new factories, which is supposed to cause Wall Street to want to finance those factories. Again, trickle down investment. Meet the new economic thinking. Just like the old economic thinking.
Unfortunately, Wall Street is not interested in financing production in the U.S. unless the CEOs will go on Joe Rogan, smoke pot, and trash Tweet their stock prices to the moon! Even then, the federal government must still put in the start up capital before Wall Street will touch it. (In case you haven't heard this story: Elon Musk started Tesla with a low-interest loan of $500,000,000 from the U.S. government when Wall Street couldn’t be bothered.)
Investing in infrastructure is a good thing. Just like jumping rope. Nothing wrong with it. But our body builder wants to get back to having big muscles that win competitions, and we want to get back to having big industries that can employ one hundred million American workers in high-paying jobs.
If you were a good friend of our emaciated body builder, it makes sense to want to encourage a return to any physical activity, no matter what it is or how small. That's the right instinct. And that's why we're all cheering Biden's plans right now. But what do you do when you realize that she never intends to do anything other than jumping rope for a few minutes a day? What do you do when you realize that, even though Biden's investment plans are bigger and better than anything in two generations, they are not going to make a serious dent on poverty, low-wages, or economic insecurity?
Biden's cash payments—another big part of his economic plans—are going to help a lot of people out. And there definitely is nothing wrong with that. In fact, it's awesome. But only a strong, productive economy can afford to sustain that kind of cash assistance for very long. (I'll return to this topic in more depth in a future post.)
So what do we do? Well, back to our body builder: I think her friends would quickly sort into two categories: Those who know how to build muscle and those who don't. Those who have never learned how to build muscle would probably cheer on the rope jumping without any caveats that something more was needed—because, after all, any exercise is better than nothing, right?
But the friends who are themselves bodybuilders, and who are out there winning competitions, know that rope jumping isn't going to build back serious muscle. She needs to start lifting weights, heavier and heavier weights, and eat enough of the right kinds of calories to support muscle growth. If she listens to those friends, she'll be on her way.
The problem we're facing right now in America, with Biden's plans, is that when it comes to building a strong economy, very few people in America know how that is done, and therefore we are nearly all in the category of those who are blindly cheering Biden's jump rope industrial policies.
That begs some questions: How do we build back American's manufacturing base for a strong economy—and not just manufacturing but other high-value industries? Why can we only imagine trickle down indirect investment? Why can’t we use our public financial institutions such as the Federal Reserve Bank to make direct investments? What is it that America has forgotten? And is it still in our power to do it? The answers are so simple, but we've been alienated from these ways of thinking for so long, that it will take a whole blog post to do them justice. And I've already written a whole blog post. So you’ll have to tune in later this week for the answers!