Newsletter - Biden's Climate Course as a Role Model?

Dear friends and colleagues, 

American voters still seem quite unimpressed by the economic progress their president is making. Joe Biden remains unpopular. Yet what his administration is currently practising could become an international role model and could shake up some of the supposed certainties that still dominate thinking about the right economic policy, especially in Germany. What this means, and whether it has what it takes to help counter the tendency of the frustrated to vote for populists, will be explored at our Berlin Summit at the end of May with leading international thinkers and practitioners. The working title is “Winning back the people“.

This involves both industrial policy, i.e. the targeted promotion of strategically important industries, and the best way to implement climate policy. In Germany, the orthodox motto is still that prices for climate-damaging goods must rise, period. What Joe Biden has been practising since the launch of his Inflation Reduction Act (IRA) is roughly the opposite: An attempt to move people and the economy towards climate-neutral behaviour through positive incentives, through massive subsidies instead of higher prices. It thus also marks a change of direction from market-liberal policy approaches to public aid. And the question now arises as to whether this is not ultimately the more successful strategy. In any case, one impressive report from the US about soaring spending on renewable energy has followed another for months.

More than a few impressive individual cases? Probably. And yet not so easy to answer, as overall data is still missing. The boom is currently underway. Tom Krebs is trying to find out what is behind it in a study that he is currently preparing for the summit in May – in dialogue with leading international researchers such as Michael Grubb from University College London and Jonas Meckling from Berkeley University. At the summit, the results will be presented in expert panels – and discussed with practitioners from the Federal Ministry of Economics, for example.

The answer is certainly important. The more Biden’s course of generous incentives proves to be a means of accelerating investments to tackle the climate crisis and create jobs at the same time, the more the dogma in Germany that the climate can only be saved through pain and high costs will be shaken. It is quite possible that not only the Americans are against this. And that they may end up voting for Joe Biden again.

In addition to Dani Rodrik, Adam Tooze and Laura Tyson, Branko Milanovic and Harold James have now also confirmed their attendance at the Berlin Summit, as has the Mayor of Spremberg, Christine Herntier. The economists will speak partly in smaller groups and partly in front of a larger audience – for example at a pre-opening on 27 May in the afternoon, as well as all day on 29 May just outside Berlin. If you would like to attend on 29 May – please send an email to events@newforum.org. The number of available spots is limited. More information coming soon.

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Until then, here’s something to rewatch: our Short Cut with Jérôme Creel and Peter Bofinger on the lessons from inflation – and a possibly urgent reallocation of responsibilities between governments and central banks. Lately, governments appear to have played a much more active role in the fight against inflation than expected under the orthodox rule that central banks are solely responsible. Re-live: here.

And one more thing to note: on 16 April at 4pm, Martin Hellwig will present his revised book on the banking crises in our next New Economy Short Cut. The registration link will follow shortly.

Have a nice weekend,

Thomas Fricke

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