One hundred years ago, the Republican Party nominee Warren Harding won the US presidential election with his promise of returning to normalcy. What America needed, he claimed, was “not heroics, but healing; not nostrums, but normalcy; not revolution, but restoration; not agitation, but adjustment; not surgery, but serenity; not the dramatic, but the dispassionate.” And after four years of President Trump one might think that many Americans indeed yearned for a healing of the American soul, a promise which the longtime Capitol Hill politician Joe Biden symbolizes like no other. Yet, Donald Trump was not the one that opened the wound that runs through Americas soul, but merely the one that poked into it and showed us were it was hurting. Decades of rising income and wealth inequality, deindustrialization, an opioid crisis, a predatory and crony finance sector, and a persistent racial divide have opened a Great Canyon that will be hard to close. This canyon will be all the more difficult to close in the face of COVID-19 and the looming climate crisis. The many economic problems that need to be addressed then do not call for a return to normalcy, but for something like a Green New Deal that many progressives hope for. All eyes were therefore on this week’s presentation of Joe Biden’s economic team and if the personnel decisions indicate a paradigm shift.
As star of the economic team, Janet Yellen will take up the job as Treasury secretary. The former Fed chair is a renowned labor and macroeconomist with a long publication list on the causes of unemployment and the importance of fair wages. During her term as Fed chair, she resisted calls to lift rates earlier in order to let the labor market tighten further. This turned out to be a wise decision and probably got her the treasury job. What remains to be seen is how she will approach the trade conflicts with nations around the world, first and foremost with China, that Donald Trump engaged in and which Joe Biden will most likely not roll back completely.
With Adewale Adeyemo as Deputy Secretary of the Treasury, Janet Yellen will have a proper Washington insider as her number two. Wally Adeyemo served as an economist under the Obama administration on various posts and is considered a proponent of free trade.
The Council of Economic Advisors (CEA) will be headed by Princeton Professor Cecilia Rouse whose research has focused on the educational inequality and labor market discrimination. Having previously served in the CEA under President Obama, she is said to have a particular focus on the long-term unemployed. In her opening speech Rouse said: “I found myself drawn to study the labor market in all of its dimensions — the reasons that jobs disappear, the impact of education on people’s job prospects, the ways we can tear down barriers to job growth and make it easier for people to find long-lasting economic security.”
Two other picks of Joe Biden to the CEA are worth noting. Jared Bernstein has a long track record of advocating stronger workers’ rights and more bargaining power for labor. An outspoken critic of NAFTA, he could become a counterweight to the more trade liberal Treasury duo. Heather Boushey, an economist who has done much work on inequality, can be added to the list of left-leaning economists who will help strengthen Joe Biden’s effort to close the gap between the haves and the have-nots.
Brian Deese who will head the National Economic Council might be the much-needed advocate for a debt relief to US households. Much of the left wing of the Democratic party and the public, however, will moan about the fact that Deese accompanies Wally Adeyemo in switching to the Biden administration from the notorious asset manager Black Rock.
But the main force in Biden’s economic team who might prevent a complete paradigm shift in economic policy, may be Neera Tanden who will be heading the Office of Management and Budget. Even though the economist from the Center for American Progress said in February that rising income inequality was the consequence of “decades of conservative attacks on workers’ right to organize” and that labor unions “are a powerful vehicle to move workers into the middle class and keep them there”, past comments have outed her as a fiscal hawk and some progressives fear that she might aim at reducing the government deficit sooner rather than later.
Overall, Joe Biden’s picks for his economic team signals that a priority will be to raise real wages and reduce inequality. Many progressives hope that these economists will deliver and bring about a strengthening of labor bargaining power akin to the policies of Franklin D. Roosevelt’s New Deal in the 1930s. But whether this paradigm shift will be backed by the US congress remains to be seen. In terms of trade policy, one can expect a shift away from Trumpian bilateralism, but a return to the pre-2008 multilateral free trade world is unlikely. We might well expect a new formation of trade blocs, as we did in the 1930s.
For more input on the prospects of the Biden administration, don’t miss our next New Economy Short Cut on December 14 with Jamie Galbraith! Register — here!