The Economic Consequences of Mr Biden

When I agreed to write The Economic Consequences of the Pandemic for Yale UP, with a target date of May 2021 the idea was that it would be a polemic against austerity along the lines of Keynes’ The Economic Consequences of Mr Churchill, and the The Economic Consequences of the Peace [1] . In view of the rapid resurgence of austerity politics after the Global Financial Crisis, about which Henry and I wrote here, it seemed like a safe bet that this would be a hot topic in 2021. Even when Joe Biden won the election, and then the voters of Georgia gave the Dems a wafer-thin Senate majority, it still seemed likely, that we would see, at best, a half-baked “compromise” along the lines of the Republican counter-proposal to the American Recovery Program.

But here we are, a couple of months later. Not only has the ARP passed with the only significant cutback being the exclusion of the $15 minimum wage rise, but the Administration is already talking about an additional $3 trillion in infrastructure expenditure. If that happens, it will be after I’m due to finish my manuscript, but well before the book comes out.

All of this is great news, but it means I need to produce a different book to the one I had planned and have already written a fair bit of.

I could continue in the vein of the oppositional polemic I had planned, and talk about the inadequacies of Biden’s program, but I don’t see any benefit in that.

What I now see as the big danger is not austerian limits on spending, but shying away from the need to raise taxes on the well-off [2]. Roughly speaking that means those in the top 5 per cent of the income distribution, who account for around 25 per cent of all income, more than everyone below the median (estimates vary a lot, here’s one based on 2010 Census)

This needs to happen quite soon if it is to be in effect by the time employment returns to pre-pandemic levels. Before ARP, the Congressional Budget Office estimated that this wouldn’t happen until 2024. But with ARP and another round of stimulus, it’s reasonable to expect a recovery (at the aggregate level, though not for all places and sectors) by 2022. With that timing, the correct option is to include revenue measures as part of the infrastructure packages. That seems to be on the agenda, but will face serious resistance, as increased taxes always do.

The constraints of the pandemic, and the substantial public assistance provided to deal with have left many households flush with cash. That’s particularly true of high-income households who were able to work remotely, didn’t lose their jobs and benefited from rising asset prices. To raise substantial revenue, and avoid hitting capacity constraints, it’s necessary to tax away some of those gains, as well as reversing corporate tax cuts, the benefits of which ultimately flow to the same group.

Apart from the obvious resistance that always faces higher taxes, and the presumption of uniform opposition from the Republicans, the biggest obstacle may come from those influenced by what I’ve called the pop version of Modern Monetary Theory, which suggests that there is no benefit from taxing the well-off other than to make them not so well-off. Bearing in mind that we are talking about millions of people who regard themselves as middle-class

Correctly understood, the core of MMT (namely, the functional finance version of Keynesianism presented by Abba Lerner in the 1940s is entirely supportive of higher taxes once the expansion is well under way. The key to functional finance is that taxes should be used to ensure that aggregate demand is consistent with the productive capacity of the economy, neither too low nor too high. If we want a big increase in public expenditure, its necessary to prevent high-end private consumption and speculative investment from crowding out vital social needs.

fn1. The Economic Consequences of the Peace was not precisely about austerity, but about the same underlying thinking, that massive reparations could be extracted from Germany without worrying about the macroeconomic effects there and in the recipient countries.
fn2. I’m carefully avoiding the term “rich” here, which mostly seems to be applied to a tiny stratum typified by Bill Gates and Jeff Bezos.

14 thoughts on “The Economic Consequences of Mr Biden

  1. is it really necessary to tax the rich directly? as the economy approaches capacity constraints inflation ticks up, so the fed starts to raise interest rates, so 1) private spending C + I starts to fall to cancel out any unsustainable rise in G, and 2) asset prices start to fall as relative returns fall, which taxes the rich/wealthy indirectly as they hold most of the assets. and isn’t this easier/almost automatic, compared with the political difficulties with raising taxes?

  2. Digressing just a little, can anyone point me to an internet source for “The Economic Consequences of Mr Churchill”? When I looked casually in the past, I couldn’t find one.

    Back on topic, I’d suggest presenting historical parallels with others’ actions and situations at the start of their time in office, e.g. Whitlam, FDR et al, and then bringing out milestones and/or pitfalls that those indicate might lie ahead for Biden (“you vote for Andrew McIntosh and you get Ken Livingstone, just as Sir Horace Cutler warned”, and then change the names as appropriate while making it clear that parallels are not prophecy).

  3. Not only is it necessary to tax the rich (the top 5 per cent of the income distribution) but it is necessary to break up the ownership assets of the super-rich (billionaires) directly. In addition, the political economy (specifically the relative rewards from ownership versus work) needs to be re-engineered to prevent the rise of the rich in the future. It must become functionally and axiomatically impossible for riches and super-riches to be accrued, anytime, ever again. The busting up of monopolies, oligopolies, private and corporate fortunes, the abolition of long-term ownership of intellectual property and so on are all measures which must be taken. Tax havens must be abolished. All monies in tax havens must be instantly confiscated without warning, refund or recourse.

    These are just a few of the things we would do if we were serious. But of course, we aren’t serious yet and we will continue to do nothing… until things get desperate.

  4. Rich mostly seems to be reserved to “not me” and everyone who has a certain threshold above what I got throughout all social strata. Note this goes both ways. The obviously filthy rich do it just like the dirt poor. So you got people who consider other rich that are in the bottom 20%, as well as the absurd top 10%+ers who pretend they are working class.

    Another very annoying absurdity is the peer group envy effect, where people only compare with those slights better off in very similar occupational and social positions, completely ignoring everyone else. So you got social workers earning 4k Euro crying about teachers or administrative public servants making 4,5k Euro a month. Yet you never hear the same people complain about consultants making the same amount in a day. Sometimes one even get the impression they think those 500 Euro make the difference between bottom and top income quartile. In one particular vivid case i m just thinking now the person even inherited a bunch of real estate in Munich making her work income almost irrelevant….. but hey keep complaining, even in front of your clients who earn zero.

    Those are the moments you stop believing in any residual sanity of society. Well or those would be the ones if there were not the covid related moments that are so much worse.

  5. Project Gutenberg has all the texts and you can download them in Kindle format for free.

    I always told people underestimate Joe at your own peril. The presidency transforms people. FDR was regarded as a playboy when he was sworn in and LBJ was mostly known for his defence of segregation. The presidency transforms people. By contrast, Obama had such high expectations coming into office and he quashed these and a supermajority by titling at windmills. I hope Biden continues on his current trajectory. If he succeeds, he’ll not only rebuild America but save democracy.

  6. I only see five Keynes texts at Project Gutenberg:-

    – “Economic Consequences of the Peace”;

    – “Indian Currency and Finance”;

    – “Revision of the Treaty”;

    – “Supply and Demand” (on Keynes’s page despite citing a different author);

    – “Treatise on Probability”.

    … And none of those is “The Economic Consequences of Mr Churchill”. That’s pretty much the sort of thing that turned up in my earlier, cursory searches.

  7. Yes. i agree with the key point that there is no longer a single mistaken policy or dominant ideology to attack, so Plan A for the book doesn’t work.

    The need to tax the rich is true enough, but is there a book in it? Biden is going to do it anyway – Manchin’s voters want dams and jobs,.and hate Wall Street too.

    A Plan C suggestion. The pandemic has created political confusion. Successful policy has had little to do with ideological priors and everything to do with luck, common sense, courage and competence, which are randomly distributed across political temperaments. The landscape is now confused, and the Overton windows are much wider than they used to be. So why not write a manifesto? Show how the environmental and social challenges are linked, and green social democracy offers the best – perhaps the only – way forward.

    A variant of this is to address the manifesto to Greta’s young followers. Not Greta herself: her strength is her single-mindedness, against which denialism and trimming delayism break in vain and round which the despairing can rally, like the Bastard of Orleans and other followers of Joan of Arc. But just as Jeanne had no solution to the structural problems of late mediaeval monarchy. as a system of government, so the Friday climate movement can only succeed long-term if it forges an alliance with the older Left, with its core of unionists worried desperately about job insecurity. There are deep fault lines here: old-style socialists still dream of plenty and comfort for all (as in Iain Banks’ Culture SF utopia), while Greens typically call for an austere and frugal lifestyle. Addressing teenagers seriously, at a level of rigour that’s useful to older readers too, and without falling into oldsplaining, is technically difficult: I would assemble a focus group of young Brisbane activists. The work of Keynes that’s most useful here is the essay on “Economic possibilities for our grandchildren” – which they are.

  8. PS: THe Letters to Greta (working title only) should include a discussion of trustworthy sources of information. The teenagers get their info from social media. For the Friday protests, this works out all right – but the rioters on January 6 also got their delusions from social media. An oldsplaining defence of stuffy government statistical agencies, international organisations, textbooks, Wikipedia and peer-reviewed journal articles is sadly needed.

  9. P.M.Lawrence

    First cab off the rank in a Duck Duck Go search. Maybe you just got fixated on Project Gutenburg. No criticism from me. I’ve had more fixations and idees fixe than most people have had hot dinners.

    The “Keynes Persuasion” archive on economics network looks pretty interesting. I’d read it if I still thought there was any point. (Meaning that I’ve stopped believing that truth matters to most humans. That makes the pursuit of truth and logic a perhaps interesting hobby but not something that will induce the mass of humanity to do anything sensible.)

  10. 2nd try.

    More Consequences than I’d seen before. Churchill, RBA on Keynes in Australia, 2 x Clinton,  1 x Tump, rates.

    Excuse my ignorance, but as interest rates are at bottom (not for long?), is tax all that is left, yet as JQ says  “but shying away from the need to raise taxes on the well-off [2]”. Treasury has not got even 3% interest rates to play with so Government can’t play the Churchill card, can they?

    Just prior to Trump being elected, here  “Sosnoff and/or Atalanta Sosnoff Capital’s clients own General Motors.”, says; 

    “The corporate tax rate has gone down big time over the past 40 years. It’s enough.”

    See links below.

    5. The Economic Consequences of Mr. Churchill (1925)[1]

    (i) The Misleading of Mr. Churchill

    “The policy of improving the foreign-exchange value of sterling up to its pre-war value in gold from being about 10 per cent below it, means that, whenever we sell anything abroad, either the foreign buyer has to pay 10 per cent more in his moneyor we have to accept 10 per centless in our money. That is to say, we have to reduce our sterling prices, for coal or iron or shipping freights or whatever it may be, by 10 per cent in order to be on a competitive level, unless prices rise elsewhere. Thus the policy of improving the exchange by 10 per cent involves a reduction of 10 per cent in the sterling receipts of our export industries.

    “Now, if these industries found that their expenses for wages and for transport and for rates and for everything else were falling 10 per cent at the same time, they could afford to cut their prices and would be no worse off than before. But, of course, this does not happen. Since they use, and their employees consume, all kinds of articles produced at home, it is impossible for them to cut their prices 10 per cent, unless wages and expenses in home industries generally have fallen 10 per cent. Meanwhile the weaker export industries are reduced to a bankrupt condition. Failing a fall in the value of gold itself, nothing can retrieve their position except a general fall of all internal prices and wages. Thus Mr. Churchill’s policy of improving the exchange by 10 per cent was, sooner or later, a policy of reducing every one’s wages by 2s. in the £. He who wills the end wills the means. What now faces the Government is the ticklish task of carrying out their own dangerous and unnecessary decision.

    “The movement away from equilibrium began in October last (1924)

    RDP 2000-04:
    “Keynes and Australia 3. Keynes and the Depression in Australia

    “It was thus into an Australian economics profession reasonably familiar with the policy prescriptions Keynes championed that the General Theory came early in 1936. This is well evident in an article by E Ronald Walker of Sydney University in theEconomic Record in December 1933; Walker concluded by contrasting the policy prescriptions of Hayek and Keynes:[159]

    … ” Professor Hayek is strongly opposed to all measures calculated to expand consumers’ demand during depression, such as ‘reflation’, or public works paid for out of bank credit … Yet Mr Keynes’s remedy is to check savings and stimulate expenditure.

    “Walker, recently returned from Cambridge, where he had sat at the feet of the master (and written on Australia in the World Depression)[160], supported Keynes’s approach, and found Hayek’s theory – ‘not relevant to the problem of recovery from a slump’.[161]

    Full paper links: “Research Discussion Paper – RDP 2000-04

    “Keynes and Australia

    Donald J Markwell
    June 2000

    Good quotes re Keynes from Churchill archives:

    …” only [Churchill] is of comparable stature….But the greatness of the Prime Minister is something much easier to understand than the genius of Keynes.”
    —Lionel Robbins, Bretton Woods Monetary Conference, 1944

    …”  dismissing him as “bumptious, shallow-minded and reactionary.” She was more favourably impressed by 1908, when WSC “swallowed Sidney’s scheme for labour and unemployment.”3

    “The Wizard and the Pragmatist / Keynes and Churchill
    Finest Hour 153, Winter 2011-12
    Page 20

    …” The great economist and the politician could be disparaging about one another, but for the most of their lives they expressed mutual regard.”…


    “The Economic Consequences of Mr. Clinton

    “The belief that balancing the budget must take precedence over every other economic considerationhas captured the minds of President Bill Clinton and his advisers….”

    …” In 1925, a decade before his General Theory of Employment, Interest, and Money revolutionized thinking about economic policy, John Maynard Keynes wrote an essay titled “The Economic Consequences of Mr. Churchill.”

    Another aside.
    Just priior to Trump being elected, here  “Sosnoff and/or Atalanta Sosnoff Capital’s clients own General Motors.”, says for eg ” The corporate tax rate has gone down big time over the past 40 years. It’s enough.”

    Apr 22, 2016
    “Economic Consequences Of A Hillary Clinton Presidency

    Martin Sosnoff

    “The corporate tax rate has gone down big time over the past 40 years. It’s enough.

    “As for a balanced budget? The country already has gone too far. Janet Yellen has nothing to do but make speeches. We’re far too close to negative interest rates. GDP remains in a weak growth trajectory. Cost of managing our public debt is very low, historically. I’d expect to see some infrastructure spending for roads, bridges, rails and harbors. This spending contains a multiplier effect – good for production workers and economic growth.

    “The market is going to feel comfortable with Hillary Clinton and start to discount her election. It spells acceleration in economic growth and well being for all. Price-earnings ratios will hold up. ”

    “Sosnoff and/or Atalanta Sosnoff Capital’s clients own General Motors.”

    DECEMBER 2007

    The next president will have to deal with yet another crippling legacy of George W. Bush: the economy. A Nobel laureate, Joseph E. Stiglitz, sees a generation-long struggle to recoup

    “The economic consequences of Mr Trump
    24. Januar 2017
    Category: G20Tags: 
    Adam Triggs,

    “Mr Trump’s policies will put the G20 further behind in its efforts to promote fiscal sustainability. His policies are projected to add US$5.3 trillion to US debt over 10 years. While infrastructure investment is welcome, these policies will also appreciate the US dollar which, through a weakening of US exports, will worsen the global trade imbalances that the G20 has been trying to reduce since 2008.

    “A stronger US dollar also risks fuelling a protectionist response from the Trump administration.”…

    Interest Rates
    “Visualizing the 200 Year History of U.S. Interest Rates

  11. Comment w link re churchill & consequences stuck in moderation?

    JQ, back to the future – now where is my topology thesis! ? 

    In Henery & your “Consensus, Dissensus, and Economic Ideas: Economic Crisis and the Rise and Fall of Keynesianism” the last paragraph in abstract says;
    “… It also explains why aggrieved policy actors, who did not favor stimulus, could help disrupt the apparent consensus in the second phase of the crisis by promoting the views of dissident economists.”.

    If this method below “Network geometry and market instability”
    were used and overlaid with the potential future, ala Biden’s (& Scomo’s) stimulus & policies, may forewarn of:-
    – bubbles & crashes. 
    – Or ‘success’ (discuss)
    – Or show “aggrieved policy actors” … before they “disrupt the apparent consensus”
    – or just better policy and guardrails. 

    And enlighten effects of “the need to raise taxes on the well-off”.

    Even I understood with the aid of detailed figures. So politicans and the public will also understand with such graphic explanations. 

    Fig 1. Navigate clockise from top left (a).

    “These new insights may help us in future to better understand tipping points, systemic risk and resilience in financial networks, and enable us to develop monitoring tools required for the highly interconnected financial systems and perhaps forecast future financial crises and market slowdowns.”

    “Network geometry and market instability

    The complexity of financial markets arise from the strategic interactions among agents trading stocks, which manifest in the form of vibrant correlation patterns among stock prices. Over the past few decades, complex financial markets have often been represented as networks whose interacting pairs of nodes are stocks, connected by edges that signify the correlation strengths. However, we often have interactions that occur in groups of three or more nodes, and these cannot be described simply by pairwise interactions but we also need to take the relations between these interactions into account. Only recently, researchers have started devoting attention to the higher-order architecture of complex financial systems, that can significantly enhance our ability to estimate systemic risk as well as measure the robustness of financial systems in terms of market efficiency. Geometry-inspired network measures, such as the Ollivier–Ricci curvature and Forman–Ricci curvature, can be used to capture the network fragility and continuously monitor financial dynamics. Here, we explore the utility of such discrete Ricci curvatures in characterizing the structure of financial systems, and further, evaluate them as generic indicators of the market instability. For this purpose, we examine the daily returns from a set of stocks comprising the USA S&P-500 and the Japanese Nikkei-225 over a 32-year period, and monitor the changes in the edge-centric network curvatures. We find that the different geometric measures capture well the system-level features of the market and hence we can distinguish between the normal or ‘business-as-usual’ periods and all the major market crashes. This can be very useful in strategic designing of financial systems and regulating the markets in order to tackle financial instabilities.”

    …”Specific to financial networks, Sandhu et al. [50] have shown that Ollivier–Ricci curvature, which is of course an intrinsic curvature, presents a powerful tool in the detection of financial market crashes. In this work, we have considered three additional notions [43,55] of discrete Ricci curvature for the study of financial networks.

    “In the present paper, we examine the daily returns from a set of stocks comprising the USA S&P-500 and the Japanese Nikkei-225 over a 32-year period, and monitor the changes in the edge-centric geometric curvatures. “…

    “It is hard to identify bubble by only monitoring the market index as the returns do not show much volatility. Figure 2b shows the same for the period around the August 2011 stock markets fall at four distinct epochs of τ = 22 days ending on trading days tequal to 7 January 2011, 4 May 2011, 2 September 2011 and 3 February 2012, with threshold Cij(t) ≥ 0.75. Number of edges and communities in these four threshold networks are 197, 245, 16 004, 198 and 14, 16, 4, 15, respectively. During the crash, the threshold network shows sufficiently higher number of edges and extremely low number of communities. “…

    …”Here, we additionally show that discrete Ricci curvatures, especially FR curvature, are sensitive and can detect both crash (market volatility high) and bubble (market volatility low).”…

    Conclusion …
    …” Importantly, among four Ricci-type curvature measures, the Forman–Ricci curvature of edges (FRE) correlates highest with the traditional market indicators and acts as an excellent indicator for the system-level fear (volatility) and fragility (risk) for both the markets [USA S&P-500 and Japan Nikkei-225]. These new insights may help us in future to better understand tipping points, systemic risk and resilience in financial networks, and enable us to develop monitoring tools required for the highly interconnected financial systems and perhaps forecast future financial crises and market slowdowns. These can be further generalized to study other economic systems, and may thus enable us to understand the highly complex and interconnected economic-financial systems.”

    “Electronic supplementary material is available online at

    © 2021 The Authors.
    “Published by the Royal Society under the terms of the Creative Commons Attribution License, which permits unrestricted use, provided the original author and source are credited.”

    Forgive me if I am suggesting how to suck eggs.

  12. I’ll have a look at that, Ikonoklast. But I wasn’t obsessing on Gutenberg, it’s just that someone here suggested it in a way that made me think I might have overlooked it, so I tried just that one, one more time. But my earlier, casual searches were broader though shallower (since it isn’t actually a big deal for me, apart from the completeness I need to understand allusion to that material in the works of others).

  13. All becomes clear from your useful suggestion, Ikonoklast: I had been under the mistaken impression that the work was a free standing book in its own right, whereas it seems usually to have been presented (and stored on line) as one essay within a larger collection; whenever that collection turned up in a casual search, it was unclear that it actually contained what I wanted rather than a reference to it.

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