The End of the Bidenomics Saga and Brits in Retro Mode
PUBLISHED22. NOVEMBER 2022
READING TIME3 MIN
If it had needed one or two more proofs of how much governments are currently stuck between the old paradigm of the market-liberal era and something new that cannot yet be precisely defined: The Americans and the British are currently providing some illustrative material.
In the U.S., Joe Biden ended up losing his majority in the House of Representatives at the mid-terms – which means he can hardly push the saga of Bidenomics any further (see our previous newsletter). That he was able to defend the Senate, and Trump and the Republicans performed so much weaker than polls suggested, however, may reveal something remarkable. After all, the surprising success could hardly have been due to Joe Biden, who is highly unpopular according to polls; nor could it have been due to the debates over abortion rights, as Martin Sandbu pointed out in the Financial Times these days. And inflation in itself could only have had a negative effect on the governing Democrats. Martin’s response: “it’s the economy, stupid.” Perhaps many Americans do appreciate how Biden and the Democrats have tried to offset some of the damage from the market-liberal era – from rising inequality and crude globalization-induced fractures. This would at least explain why Democrats did so well despite Biden, the ruling party’s typically poor results in the mid-terms and inflation. A second chance for Bidenomics?
Measured against that, the British aren’t looking quite so good right now – at least their ruling Tories aren’t. After being sanctioned by the financial markets for trying to create growth by cutting taxes for the rich, as in the days of Thatcher, the new government is doing the opposite: more or less hopeless austerity, higher taxes and lower spending. In the experience of the Greeks and others, this is even worse – because it threatens to exacerbate the recession, which in turn necessitates new debt to make up for gaps in the budget caused by the recession.
As Thiemo Fetzer found in a widely acclaimed study some time ago, austerity in the U.K. in the early 2010s played a key role in the fact that people in the regions most affected by it later voted for Brexit in conspicuously high numbers – in other words, for the drama whose consequences for the economy and budget have been felt by governments for years: in the form of lower investment, lack of growth and, precisely, higher government debt. The human learning curve is not always linear.
The EU Commission recently proposed how such fiscal matters should be regulated in the EU in the future – in a draft for the reform of EU fiscal rules. Whether the EU-Europeans have learned more from the austerity disasters of the euro crisis – and whether the new proposals will help – will be discussed on December 2 in our next New Economy Short Cut online – with Jeromin Zettelmeyer, the new head of the Brussels think tank Bruegel, and Achim Truger, who will present the latest proposals of the Council of Economic Experts. Start: on December 2 at 4 pm. Registration here.