Biden is painted into the History Corner

Ossification threatens his core philosophy

Ed Luce has a piece in this morning’s FT focusing on the problems of the filibuster and the costs of leaving Afghanistan. And that’s true enough. But the real threats to Biden’s whole approach are broader, and the Democrats helped create them.

Of course, the conservatives aren’t helping. But there’s plenty of conservatives in the Democratic Party, believe it or not, and it’s not clear Biden has enough room to bring his strategy to fruition.

First, I suspect the Infrastructure Package will pass. I’m no expert on parliamentary matters, but it seems like Democrats will know before recess whether the bipartisan track is happening, and will have their reconciliation package regardless. But here things get tricky.

A lot of inflation is transitory, but part of what Biden is trying to accomplish is to create inflation. Specifically wage inflation. Biden wants workers to be taking home more money and he wants to make sure people have jobs, so they won’t fear “the wolf at the door”, the constant gnawing economic anxiety which people who have actually had to work (i.e. few of the people running the Democratic Party) understand is crazy-making and a driver of hatreds subtle and gross, paranoia, despair, and in general provides a large amount of fuel for Trumpist urges.

Biden understands that stabilizing the nation requires a healthy dose of good ol’ Welfare Capitalism. And I have long advocated for a period of higher price growth, but I always gave it a caveat: we need to fix our markets.

In theory, inflation is how you square the circle of contending with downward-sticky prices and deflation consequences (e.g. a housing crash) while making the necessities of life affordable. And when you have markets out of kilter it’s possible, at least according to standard economic theory. Assuming you fix your markets.

If you make your overpriced, distorted markets competitive, wage inflation will allow relative prices to fall, since you’re removing the forces pushing for an “artificially” high equilibrium and inflation removes the downward-sticky phenomena preventing price adjustment. Things cost less without the sticker price falling.

This is what Biden’s executive order on competitiveness hopes to accomplish. Actually more than that, because we also have many markets being crushed by Amazon/Walmart monopsony, their abuse of buying power to make their costs artificially low, which harms all their suppliers, and has done a lot to force the country into a vicious cycle of offshoring and wage cuts.

But that also feeds into inflation, since as the monopsony power is broken, prices at “immiseration retailers” must needs rise. So making sure wage growth outpaces other forms of price growth is crucial.

A few random forces are fueling inflation now, which should be discounted. All the crap from COVID, like used car prices, are transitory. They could contribute to inflationary feedbacks, but they themselves are not a serious problem. Similarly, there has been a spike in meat prices as Russian hackers ransomware’d a major meat packer. Expensive meat is scary, but this too shall pass.

No, the real threats are the Big 3 “Demon Rats”, the markets Democrats have wrecked but pretend they didn’t, housing, education, and health care. All three are profoundly out-of-wack, and all three can trace it back to government “support”. More than Fanny and Freddy, housing is a schizophrenic market that at once wants to provide housing services while simultaneously serving as the primary middle-class investment vehicle, and so get a hugely distorting tax credit. Distortions in higher education and healthcare are simultaneously driven by various tax cuts, and by third-party-payer (parents, insurance companies) incentive-warping, not to mention enormous regulatory lockdown and a lack of choice. These tax cuts and institutional factors can be traced back to the postwar era, and have profoundly put the national interest at the mercy of the private market, by design. Don’t want to be a Commie, after all.

This brings us to the History Corner. Luce is right that the filibuster is a big barrier for Biden. But the deeper barrier is that Biden is constrained to working within the existing bureaucracy. For core parts of his strategy, he will need the existing laws and norms to provide him with adequate power and flexibility to make the changes he needs. He will also need elite players to give him breathing room to make these changes.

Being in the History Corner is a direct result of Biden’s establishmentarian approach. Instead of having the breathing room to make bold claims of executive power and engage reckless acts bureaucratic flexibility, he has to play by the book. It’s his brand, and his core message is that the existing book is just fine.

It may be. Biden has been around for a long time. As a commentator (whose identity I forgot, sorry!) once observed, “old hands know where old bodies are buried,” that is, Biden has a long enough experience with government that he may well remember the deep arts of running a society that doesn’t screw over its own people. But that society has been ossifying over the decades. Whether it still has the flexibility to haul the bodies up remains to be seen.