I often learn more from people with whom I share common views than I do from people with whom I completely agree or disagree, so I learned a lot from reading Matt Yglesias’ Substack. He has a more favorable view of the Biden administration than I do. In particular, he supports efforts to quickly pass major legislation, including stimulus checks and subsidies for infrastructure, clean energy, technology, etc.
But Iglesias said the Biden administration Off course 2022:
I published an article on August 25, 2022, advising Biden to stop heresy and congressional negotiations and listen to boring neoclassical economists. In my opinion, that didn’t mean denying what he had done in his first 18 months in office. It simply meant acknowledging that most of the pre-2021 policy agenda was crafted for a recession-like situation that no longer applies. He had made big legislative changes and landed some good hits, but now it was time to go on the defensive.
But in reality, no conversion took place.
Yglesias is far smarter than most of the policy advisers Biden has relied on over the past few years, many of whom had a poor understanding of neoclassical economics, or so-called supply-side economics, which led to a series of policy initiatives that made inflation worse.
We don’t expect a Democratic administration to weaken the Davis-Bacon Rule as a measure to combat inflation, but doing so would advance some of Biden’s stated policy goals. But did he need to do that? Rewrite these rules to be more strict How does this compare to the presidencies of President Obama and Bill Clinton? Similarly, every president likes to promote the “Buy American” mantra because it’s popular. Biden’s lawyers wrote some really strict rules. than his predecessor Adopted stricter energy efficiency regulations That will drive up prices. Increased tariffs on Canadian lumber. They are Tariffs on solar panels from Southeast Asia to riseRepealing the Jones Act is a big task, but Biden Tightened Jones Act rulesMuch of this could be seen as special privileges for union interests and, while not necessarily ideal, is at least part of a rational political strategy. But beyond that, I think what we see in some regulators is a completely sincere and not entirely cynical view of the world that higher nominal wages are the path to national prosperity. Implementing stricter rules for au pairs or Enact stricter rules for agricultural guest workers There is no clear interest group angle, these are simply small movements that are driving up the cost of child care and food.
To be clear, the Fed determines inflation in the long run. But if the Fed positions its policy tools to generate 6% NGDP growth, the implementation of new cost-raising regulatory measures will temporarily shift nominal spending from production to prices. Yglesias believes this policy mistake could ultimately cost Biden the election.
The Trump campaign has also advocated policies that could raise costs, such as a 10% tariff on all imports and deporting undocumented workers. Trump also opposes YIMBY policies that would allow apartment construction in the suburbs. But voters tend to focus on the incumbent president’s track record, not the campaign promises of a challenger. Trump also benefits from the fact that inflation was relatively low during his time in office.
I am less of a Keynesian than Iglesias, so I am much more skeptical of Biden’s early policy initiatives. But I understand the Keynesian model, so it is easy to see why Iglesias is increasingly frustrated with Biden’s approach to policymaking. Keynes believed that free markets could work reasonably well as long as there was sufficient aggregate demand. By 2022, the economy was recovering from the COVID recession and inflation was a major problem. In such a world, the rules of classical economics apply: industrial policy has real opportunity costs. It’s time to focus on efficiency. In November, we will see if Biden has to pay the price for ignoring the advice of one of the Democratic Party’s more insightful experts.
P.S.: In my opinion the classic rules always apply. everytime It’s a good time to focus on efficiency. So I think the Biden administration was off track long before 2022. Essays by Ezra Klein From April 2021:
Biden doesn’t have much trust in economists, but that’s not the case for everyone else. Obama’s constant pet peeve was that politicians don’t understand economics. Biden’s constant pet peeve is that economists don’t understand politics.
Several economists, both inside and outside the Biden administration, told me that economists and financiers have much less influence under this administration than in past ones.
Obama was re-elected against a mainstream Republican; Biden is trailing in the polls against one of the most unpopular politicians in American history.
