Good morning from New Economy Brief.
Joe Biden led US economic policy through a paradigm shift away from the neoliberal norms of the past few decades, pioneering green industrial strategy and new competition policy while taxing the rich and supporting trade unions. But now that he has stood down, with VP Kamala Harris now the official Democratic candidate for President, how much of Bidenomics will outlast its creator?
This week's New Economy Brief examines the economic policy proposals that emerged from last week's Democratic National Convention and maps out how a Harris victory in November could continue the turn away from neoliberalism.
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Bidenomics and the turn away from neoliberalism.
US economic policy under Joe Biden broke with previous administrations through its focus on what economist Dani Rodrik termed ‘productivism’, and US Treasury Secretary Janet Yellen called ‘modern supply-side economics’. We have covered elements of this extensively in our previous briefings, but in short: The Inflation Reduction Act (IRA), CHIPS and Science Act and other massive US investments in green industrial strategy catalysed a ‘green arms race’ across the Western world. Many governments are moving away from ‘Washington Consensus’ of free trade in favour of state-directed reindustrialisation. They have pledged billions in public investment to compete for private capital and grow their domestic low-carbon economies. The Biden administration also upended four decades of ‘hands off’ competition policy, setting out to curb monopoly power through stronger antitrust law. Biden’s final budget put ‘greedflation’ at the heart of his re-election campaign, outlining plans to tackle corporate price gouging. He also sought to unite climate activists and trade unionists through a new green jobs agenda, making state support for companies investing in sustainability carry obligations to recognise unions and uphold certain workplace standards, e.g. ending share buybacks and providing employees with affordable childcare.
What is Kamala Harris planning to do if she wins? Various communications from the Democrats in recent weeks suggest that Kamala Harris is planning to double down on the progressive aspects of Biden's economic platform. Perhaps this isn’t a surprise given the continuity of economic advisers between the two teams. (Blogger Noah Smith credits the Roosevelt Institute, Hewlett Foundation, Employ America and the Washington Center for Equitable Growth as some “principal protagonists” and thought-leaders in the US post-neoliberal era.)
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Principles of Kamalanomics: full employment and non-exploitative markets.
The Harris campaign’s agenda, released last week, shows they plan to use the power of the state to lower the cost of living for families through antitrust law and the prevention of corporate price gouging. The political case for prioritising this agenda is clear. The FT’s Martin Sandbu explains the cost of living is by far the most important factor for US voters. A huge majority say food prices have the biggest impact on their finances, and most blame large corporations for price increases. The Roosevelt Institute’s Felicia Wong argues that the Democrats’ political coalition is held together by an economic vision of building the middle class. This rests on two principles: providing full employment with strong union recognition and bargaining power; and healthy competitive markets where “corporations cannot hold and wield excessive power to suppress competition and set unfair prices and wages.”
Supporting the care economy. Though Biden chalked up political wins on green industrial strategy, his proposals to build the care economy were stripped from the IRA and Build Back Better plan during the filibuster-prone negotiation process. Wong says that Harris aims to revisit this agenda and sharpen the focus on the care economy, for instance by reducing medical debt as well as student debt, by making housing and childcare cheaper, and by providing as much support to teachers and carers and as construction workers. She is proposing families a $6,000 tax credit for children in the first year of their lives, and plans to permanently restore the $3,600 tax credit for children that was passed during the pandemic. She also wants to cap the price of insulin, reduce prescription costs, increase competition in the healthcare industry and cancel medical debt.
“Building the American dream” by lowering the cost of housing. In common with many governments around the world, house-building is high on Harris’ list of priorities. To make housing cheaper, she wants to build 3m new housing units by ‘partnering with industry’, offering tax breaks for builders that create homes for first-time buyers while giving those buyers up to $25,000 in grants towards their deposit. For renters, she wants to pass a Stop Predatory Investing Act to stop financial investors buying up homes and shut down rent-fixing websites that help corporate landlords drive up rent.
Preventing profiteering and price gouging in the food industry. Harris’ most eye-catching economic policy proposal by far is her plan to prevent ‘price gouging’ by food companies. The US food industry has become increasingly concentrated, with many CEOs publicly bragging about exploiting their market power to restrain production and drive up profits. Harris’s plan acknowledges this “extreme consolidation” and pledges to block “unfair mergers and acquisitions” among big food corporations, and to “support smaller businesses, like grocery stores, meat processors, farmers, and ranchers, so those industries can become more competitive.” Harris has promised a plan in the first 100 days to prevent food industry profiteering through a federal ban on price gouging on food and groceries, with stronger regulation to stop corporations “unfairly exploit[ing] consumers to run up excessive profits on food and groceries”. Businesses that break the rules would face stricter penalties from the Federal Trade Commission. The details of how this would work are still unclear, but it is a step towards the idea of price caps.
Funded through higher taxes on business and the rich. The Committee for a Responsible Federal Budget estimated that the measures unveiled last week would increase the budget deficit by $1.7tn over 10 years (largely to pay for the increased tax credits for children). The Harris campaign aims to fund this through higher taxes on businesses and wealthy Americans, while giving tax relief to the working and middle classes. She plans to raise corporation tax to 28% (from 21%), increase the top rate of tax on capital gains and dividends to 44.6%, and introduce a levy on 'unrealised gains' for those with over $100 million in assets.
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The new centre-left populism?
Whoever wins the US election, the direction will continue to be away from the declining neoliberal consensus. In contrast to the right-wing populism offered by Trump and advocates of the Project 2025 agenda, Harris’ Democrats are pursuing an electoral strategy that blames big business for creating a ‘rigged economy’ that makes the ‘American dream’ unaffordable, and want to position strong government as defending the middle class from corporate power. They enter this election cycle as one of the first major left-of-centre parties seeking reelection after being in power during the recent inflation crisis, which explains a great deal of the campaign’s policy platform and rhetoric.
Similarities with UK Labour. US politics is not UK politics, and the US economy isn’t the UK economy. Nevertheless it is interesting to compare the Democrat and Labour policy platforms, especially given that Chancellor Rachel Reeves has talked about being inspired by the modern supply-side economics agenda before. There are clear similarities in areas like green industrial strategy, planning reform, housebuilding and workers’ rights. There is also a consensus on tax in that both parties reject asking those in the middle and at the bottom to pay more.
Differences with UK Labour. But there are also important linguistic and policy differences, Some of these stem from one party having held power for four years and the other for barely four weeks. Rhetorically, as Round our Way’s Sofie Jenkinson notes, Harris’s Democrats are far more willing to identify ‘baddies’ whether they are businesses keeping prices artificially high or the rich who ‘aren’t paying their fair share’. And in policy terms the Democratic offer has an urgency and sense of retail politics that was largely absent from Labour’s manifesto, especially on the cost of living with its talk of cheaper groceries and cut price medicine. It is also notable how confidently the Harris campaign justifies borrowing for their policies due to the returns on investment for the taxpayer, both through boosting economic growth and broadening the tax base, especially compared to Labour’s mantra “if we can’t afford it, we won’t do it”.
The progressive case for restoring the natural environment. The UK is one of the most nature-depleted countries in the world, with just half of its biodiversity intact, according to a new report by the Institute for Public Policy Research (IPPR). Its authors argue that protecting nature and increasing biodiversity could drive progressive change across three vital areas – food security, fairness and creating a sense of national renewal – so it should be a central priority for the new government.
Unite calls for wealth tax. Unite is calling for an emergency 1% wealth tax on the assets of the super-rich to pay for 10% pay rises for public sector workers and fill more than 100,000 NHS vacancies. The union says taxing the assets of those worth more than £4 million would raise £25 billion a year.
Reforming pension tax relief. The Chancellor could raise £10 billion a year by cutting pension tax relief on higher earners, argues a new report by the Fabian Society. Proposals include creating a single flat rate of tax relief for individual and employer pension contributions for all tax bands, reducing the maximum tax-free lump sum to £100,000 or 25% of pension wealth (whichever is lower) and charging employee national insurance on private pension incomes above a certain level in exchange for cancelling the forthcoming cut to winter fuel payment.
Great expectations. New polling commissioned by the Autonomy Institute has found that the public is supportive of and has high hopes for the government’s New Deal for Working People (NDFWP). The research found that raising the minimum wage to a livable level is the top priority from the NDFWP package for 39% of respondents, and that 76% of the public trust the government to implement at least some of NDFWP policies. However, the Institute suggests that the NDFWP could do more to support gig economy workers, shorten the working week and improve sick pay.
Inclusive growth. Fixing unequal growth must be as much of a priority for the new government as fixing low growth, argues the IPPR’s interim executive director Harry Quilter-Pinner. He argues that “sustained and shared growth” can help to create a “more open, tolerant and democratic society” and avoid situations like the recent riots.
Reducing household bills. Public First’s Sam Alvis and Amy Norman explore what Labour can do to bring down energy bills, something that will be key to future electoral success. As well as building more renewable energy infrastructure, the authors suggest moving the cost of renewable energy schemes off consumer energy bills onto general taxation, arguing that certain schemes could be moved as early as this year.
