Biden's Economic Team Knows Compromise Is Overrated
(Bloomberg Opinion) -- President-elect Joe Biden has now picked most of his economic team, including Janet Yellen for Treasury Secretary and Cecilia Rouse to head the Council of Economic Advisers. All three are veterans of President Barack Obama's administration, and there's one big lesson they should have learned from their previous service: Preemptive compromise will get you nowhere.
Winston Churchill once said that we should “never let a good crisis go to waste.” Like Obama, Biden and his advisers will confront an economic crisis from Day One: a lingering recession, elevated unemployment and a dysfunctional health care system.
But unlike Obama in 2009, Biden probably won't have a Congress under unified Democratic control -- unless the party can pull off twin victories in Georgia's Jan. 5 Senate runoff elections. Some will argue that this means Biden will have to be even more conciliatory than Obama was. Instead, Biden and his advisers likely will have taken away the opposite lesson from the early 2010s. Namely, that it makes sense to start with sweeping proposals that capture the heart of the nation.
Obama managed to achieve only modest stimulus despite a recession of a type and magnitude not witnessed since the 1930s, and even with a Democrat-controlled Congress. He failed to bail out homeowners in a meaningful way, and created a health-care plan that expanded coverage but failed to control costs and fell short of universal care. Some blamed Republican intransigence and conservative Democrats, while others accused the Obama administration of timidity and over-optimism about the potential for compromise.
To avoid repeating that mistake in 2021, the most obvious big idea for the Democrats is a stimulus bill to wash away the unemployment left by the pandemic. This stimulus should be centered around government spending instead of tax cuts. The economic reasoning is simple: Stimulus doesn’t work unless people spend the money. Tax refund checks can be stuck in a bank, but when the government invests directly, it’s 100% certain that the money is getting spent.
That spending should be on things the country needs anyway. Road repair is the obvious move, since it can be started quickly and we know it will be used. But infrastructure stimulus should also include a big build-out of green energy technology, such as nationally owned electrical grids, retrofitted buildings, and solar plants to replace coal and natural gas. Building this will create plenty of jobs, and it’s something the country will eventually need anyway.
The second big item Biden should push is a $15 federal minimum wage. Some will be afraid of raising minimum wages in a recession, arguing that businesses need cheap labor to get back on their feet. But economists have discovered in recent years that increasing the minimum kills far fewer jobs than previously believed, and often doesn’t hurt employment at all.
Even in rural areas where wages are lower to begin with, higher minimums can help cancel out the wage-suppressing power of dominant local employers, with little deleterious effect. The hike to $15 can be phased in over several years, so that its impact will come after the recession is over. And small businesses can be partially exempt, to improve their competitiveness and help them recover from the pandemic.
A third big-ticket item would be Biden’s proposal for a public option that would allow anyone to buy into a government health care plan and that would automatically enroll the uninsured. This system, while not as transformative as the plan advanced by Biden’s presidential primary rival, Bernie Sanders, would be a major and much-needed improvement on the current system. Not only would it increase coverage, but the expanded national health insurance provider would be able to use its market power to bargain down prices, thus bringing down the out-of-control costs that make the U.S. system inferior to that of other rich nations.
Senate Republicans are unlikely to pass any of these. But that doesn’t mean Biden shouldn’t advance these plans through Congress, and vigorously advocate for them in high-profile speeches and campaign tours. Infrastructure spending, a federal $15 minimum wage, and a public option are all very popular policies already. If and when Republicans block these initiatives, Biden will be able to blame them for prolonging the recession and for denying long-sought health care and wage boosts to the American people.
And as Biden, Yellen, and Rouse learned all too well during the Obama years, a compromise-first policy does not make today’s version of the GOP any less vehement in either their vitriol or their obstructionism. Instead, Biden and his advisers will hopefully have learned to swing for the fences.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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