WSJ’s Assessment

The editors of the Wall Street Journal assess those who’ve been tapped as Joe Biden’s economics team:

The overall message of Mr. Biden’s picks is of a progressive team that views government as the leading engine of economic growth. Our guess is that they’ll use the lingering damage from the pandemic to propose a major spending and tax increase in early 2021.

The irony is that on present trend Mr. Biden will inherit an economy that is recovering much faster than Keynesian economists predicted earlier this year. The Atlanta Federal Reserve has raised its estimate for fourth-quarter growth to 11%, and Wall Street economist Ed Hyman has raised his to 8%.

This isn’t 2009. Once the Covid vaccine is delivered broadly, the economy should soar. The job of the Obama economists will be to keep it going, not dampen growth with the same policy mix that produced the slowest recovery in decades the last time they held power.

I both agree and disagree with that. My views of the economy are largely informed by a remark made by one of my economics profs: “We know how to create shortages; we don’t know how to produce prosperity”. Keep in mind that back in those days of yore when I took economics Keynes was king, the Phillips Curve was Holy Writ, and the term “rent-seeking” hadn’t been coined yet. I think that the federal government in general’s ability and the president’s in particular to produce economic growth is extremely limited. While in theory a properly timed and properly structured stimulus can produce economic growth during a recession, in practice it’s more likely to introduce deadweight loss and promote rent-seeking, having rather little impact on growth. The Keynesian multiplier would be larger if we didn’t import as much as we do or, more precisely, under present circumstances the effects of the multiplier are less likely to be felt here.

I also think that increasing taxes will do a lot less to reverse income inequality than President Biden may believe. What increasing taxes does accomplish is to increase the premium on tax avoidance which is what I expect to happen.

I think the present circumstances present a rare opportunity for the federal government to act to undo the damage the prevailing neoliberal wisdom has done over the last 30 years and bolster sectors other than retail, health care, and hospitality—sectors that can produce better jobs for ordinary workers than retail, health care, and hospitality do—but it will take a steely-eyed determination and understanding of how businesses actually work to make the most of. Does this team have the right stuff? I have my doubts but people can rise to the occasion and I’m willing to give them a chance.