Is There an Alternative? The Macroeconomics of the Biden Administration

Is There an Alternative? The Macroeconomics of the Biden Administration

The response to COVID-19 proved that the federal government is far more capable of managing the economy than many people thought. What happens now that Bidenomics faces rising headwinds?

U.S. Treasury Secretary Janet Yellen (L) and Federal Reserve Board Chairman Jerome Powell testify during a Senate hearing on November 30, 2021. (Alex Wong/Getty Images)

After the Biden inauguration, many on the left settled down to await a familiar sequence of post-election equivocation and retreat. But a number of observers with no special affection for Biden have concluded that 2021 ended up marking some kind of a departure—if not quite the end of neoliberalism, at least the end of the bipartisan austerity consensus that has stifled American politics since the last days of disco. Corey Robin wrote that “No president since Ronald Reagan has achieved a more ambitious domestic legislative agenda in his first year than Joe Biden.” Cédric Durand, writing for the New Left Review, detected “a structural break in the regulation of capitalism.” By the end of 2021, however, Bidenomics was already encountering rising headwinds, including above-target inflation and the prospect of divided government.

What comes next? There are few better guides to this question than J.W. Mason, an economist at John Jay College in New York and a fellow at the Roosevelt Institute. I first encountered Mason’s byline on comment threads and listservs. Now it appears in the New York Times and Bloomberg, whose readers are suddenly eager for the insights of a heterodox economist whose CV lines include Dissent, the Working Families Party, and the Socialist Scholars Conference. We spoke in early December 2021; the transcript below has been edited and condensed for clarity.  —Tim Barker

Tim Barker: Why didn’t the 2008 crisis lead to the kind of changes that we’re seeing in 2020 and 2021?

J.W. Mason: The financial crisis was such a great time to be thinking about economics. It felt like we were on the verge of a new Keynesian revolution: someone would come galloping in with a new general theory, or maybe the old General Theory, and upend the economics profession. A few years later, it seemed like that was a fantasy, at least as far as the economics profession was concerned; we went back to the status quo very quickly. But perhaps the changes just took longer than we expected. A lot of conversations today are shaped by the Great Recession and its aftermath. There’s a very clear consensus, not just among people like us but in the broader economic policy world, that the response to the crisis of 2008 and 2009 was completely inadequate. If you talk to younger staff people on Capitol Hill, you’ll hear that the 2009 stimulus was much too small, that there was too much faith in the Fed, that we need to be much more ambitious today. The Obama administration’s premature turn away from stimulus and toward austerity is one of the great macroeconomic policy failures of our time, and I think that’s understood today in a way that it was not at the time. So maybe the lessons did get learned, just more slowly than we might have liked.

Barker: Perhaps in 2008, people still remembered the 1990s as a decade of economic success, and they gave the credit to Clinton’s budget balancing.

Mason: It’s interesting, because in some ways the 1990s are still the benchmark for macroeconomic success, but the political valence of that has flipped. In 2009 there was a sense that the ’90s were what we would get if we stuck with business as usual. But now, after a decade of slow growth and a weak labor market, the lesson is different. The ’90s are still there as a benchmark, but now it’s a marker for the economic performance that business as usual is not delivering. Instead of being part of the case for deregulation and fiscal responsibility and having the grown-ups in charge, it’s become part of the case for a bigger, more active public sector, and for setting our sights higher than they’ve been for most of the past the decade.

Barker: Is this a story about changing ideas, or are other sources of transformation more important?

Mason: We should never underestimate the role of social movements and mass politics in shaping intellectual debate. Keynes got a lot of things right. One thing he got very wrong was the relationship of economic theory to practical politics. He has that famous line about how madmen in authority are usually just repeating what some academic scribbler wrote a few years back. I think the relationship is much more often the other way around: the academic scribblers are repeating what’s said in political debates.

Movements like Occupy Wall Street have caused a profound shift on the question of inequality. At the time of the last crisis, inequality and income distribution were simply not macroeconomic questions. Inequality was not the Federal Reserve’s problem. Today, Jerome Powell, the Fed chair, will say very clearly that addressing income inequality is part of his job, and that the stagnant incomes over most of the past decade are a failure of macro-economic policy, a failure on the part of the Fed. Compare that to his Obama-appointed predecessor, Janet Yellen, who might have been concerned personally about inequality but didn’t see it as relevant to her job as Fed chair.

Barker: If you had to speculate, when Powell worries about inequality, is he thinking more about the potential for social disruption, or about macro-economic effects, such as the link between inequality and weak effective demand?

Mason: I don’t think he’s primarily approaching it as an obstacle to achieving his macroeconomic objectives. And honestly, I am not sure it is. We need to guard against what I sometimes call the liberal theodicy, which says that the conditions of social justice and the conditions of steady accumulation are going to be the same. The truth is, capitalist economies can function fine on their own terms with very high levels of inequality. So no, I don’t think it’s about demand. I think it is partly a sense that the long-term social stability of the country—and the system that he obviously would like to preserve—depends on a basic political consensus about its legitimacy. But even more than that, I think he’s responding to his political masters. He’s responding to Congress. When you have people like the Squad pushing him on this, that makes it his job. Ultimately, those are his bosses, and he’s going to respond to what they’re demanding from him. The intellectual shift comes from pressure from the outside.

Barker: What role have racial justice movements played in changing macroeconomic thinking and policy?

Mason: Racial inequality is now taken more seriously. Certainly, Powell takes it seriously, and that’s why Larry Summers mocks him for bringing “wokeness” to the Fed. I think there are strong links going both ways. On the one hand, the most powerful force for racial equality, at least in an economic sense, is full employment, a tight labor market, and a high-pressure economy. The historical evidence is overwhelming that when unemployment is high for everybody, it’s higher for nonwhite workers, especially Black workers. And, conversely, when you have a tight labor market, like we’re seeing a bit of now, it is Black workers who disproportionately benefit. The concern that full employment will “leave behind” Black or other less privileged workers seems to me to be the opposite of the case—they are the ones who need it most.

But on the other hand, to the extent that we have made progress in establishing that full employment is more important than price stability, or at least as important, one reason is that it’s understood as a racial justice issue. The case for full employment is stronger when it’s understood that Black workers bear the brunt of not pursuing it.

Barker: The 1960s were the last real experiment with deliberately fostering a high-pressure economy. In 1969, when the boom was at its crest, and people in the business press were starting to push for a recession, there was enormous concern within the Nixon administration that if unemployment rose, it would rise more for Black people. They were concerned about urban uprisings. Obviously, at some point after 1969 that concern went away, even though Black unemployment remained disproportionate. It certainly seems plausible that the recent revival of mainstream liberal interest in racial justice, driven in part by a new wave of uprisings, has made people less ready to accept unemployment as a solution for inflation.

Mason: That’s a very good point. Some of our friends on the left say that there’s an opposition between focusing on class and focusing on racial justice, or that the focus on racial justice is just a kind of tokenism that doesn’t challenge the real structures of power. I think that’s a mistake, for the reasons you’re saying. Concern for racial justice and inequality along racial lines has, historically, been one of the powerful levers for pushing a broader economic justice agenda. When you lose that focus, when you say racial equality doesn’t matter that much, or that it doesn’t matter if unemployment is higher for Black people, you’re giving up an important set of arguments, and an important source of pressure, for pursuing more aggressive full employment in a way that does serve broader class politics. It’s a mistake to set those two things up in opposition to each other.

Barker: So, if Ayanna Pressley gets Jerome Powell to act a little more dovish, that strengthens the entire working class.

Mason: Exactly. And, not necessarily her personally, but there are certainly people who will be more inclined to exert that kind of pressure when they understand monetary policy is also a racial justice issue.

Barker: Alongside the new departures in economic policy, there is plenty of evidence that the old order persists. Build Back Better has been sold as “fully paid for,” not deficit-financed, and enhanced unemployment insurance expired in September. Criticism of the Fed’s newfound tolerance for inflation seems to grow by the day. Where does this opposition come from, and what gives it strength?

Mason: The opposition never goes away. There’s a deep-seated bias toward austerity in our political system, enormous structural hurdles to any kind of expansion of the public sector.

People assume that one of the challenges that climate politics has to overcome is our overriding drive for economic growth. But I don’t think that’s necessarily true. As Michał Kalecki pointed out long ago, capitalists pursue growth at the individual level, but strong growth can be threatening to capitalists as a class because it empowers workers—and, we might add, the mostly poor countries that produce primary products. In a capitalist economy, growth never means just more; it’s a transformative process with winners and losers. That’s always dangerous for the people who are doing well under the current arrangement. I think you could make a case that elites generally prefer stagnation to rapid growth. It takes external pressure, some crisis like the Cold War, to generate a real pro-growth politics.

Another deep-seated reason for opposition is that the strongest weapon in the hands of the right is this idea that there’s no alternative. As soon as you bring in the public sector to solve one set of problems—like the need to develop a vaccine and preserve peoples’ income while we put the economy into deep freeze—you’re opening the door to the state doing other things. This is a very important lesson of our moment: we have proven that the federal government is far more capable of managing the economy than people thought. We just went through the first recession in modern history where those in the bottom half of the income distribution didn’t lose any income; in fact, their incomes went up. The bottom half has more assets and less non-mortgage debt than before the pandemic. Evictions are lower. We’ve proven that we can avoid recessions where people face hunger and homelessness and economic insecurity. That’s great news on one level. But if you are somebody who has defended your conservative political views on the grounds that, “Well, that sounds nice, but it’s just not possible, we just can’t afford it, it’s not practical,” then the notion that the public sector can solve pressing problems is very threatening.

And then of course there is also an important political constituency of small business owners and low-wage employers who just hate that workers are not feeling as desperate and insecure as they normally do. That is, I think, what’s behind today’s obsessive focus on inflation. It’s rising wages they’re really afraid of.

Barker: Where do professional economists fit in? Do figures like Summers constitute an important source of opposition to economic expansion?

Mason: I wouldn’t necessarily give a big independent role to the economics profession. A lot of individual economists are very, very much on the right on certain things, like teachers’ unions, but there’s not necessarily a coherent worldview. The core problem with economics is not that it supports particularly conservative positions. The problem is that it just doesn’t have any purchase in the real world at all. Some people on the left imagine that the economics profession is putting forward this sophisticated ideological defense of capitalism. It seems to me that what most academic economists are doing looks more like sitting around all day playing video games.

Barker: So economists trail behind political developments. But what happens when politics stalls, as it often seems to do in institutions such as the Senate?

Mason: In some ways I don’t know that it matters. There is never going to be a decisive victory, or a decisive defeat. You have to go on doing the work, no matter what happens in the short run. Whatever you’re doing now, keep on doing it, do it more, do it better, whether that’s making arguments or trying to build institutions. You wake up in the morning and contribute where you can. Maybe we’ll be successful, and maybe our accomplishments will be rolled back, but you do the work either way.

This is outside of my sphere of expertise, but as a political person I think we may have to look more to activism outside of the regular formal channels of politics. If we reach the point that we effectively do not have democratic government, then politics will have to be carried on by some other means. What I find sort of comforting is that American history has never been very democratic. There have always been entrenched elites and enormous institutional barriers to progressive change, and there has always been a crazy radical right that would rather burn the country down than give up any of its privileges. But plenty of people fought—not the ones whose names, necessarily, are on the monuments—and did what they could, and we gradually acquired a more democratic, responsive system. We have to keep doing what people have always done: a mix of arguments and organizing and putting your body on the gears of the system.

Barker: So not only climate change mitigation, but also expansionary economic policy, might come to depend on direct action?

Mason: That has to be part of it. I do a lot of work with the Roosevelt Institute, which I think as an organization has been really effective at bringing more progressive ideas into the political conversation. But I think we should be honest that if we get more of a hearing in D.C. than we used to, a big part of that is because there are people engaged in a different, more confrontational politics. The two things should be seen as reinforcing, two different moments in a larger process.

Barker: We’ve talked about how movements shape economics. I’m curious about the reverse: should people involved in movements understand economics?

Mason: That’s a tough one. What do you think?

Barker: My own experience over the last year has been that there is real demand out there for accessible discussions of topics like inflation, which people hear about all the time but usually in a mystified form. I imagine that at many Thanksgiving dinners this year, people talked about inflation. It would be good if they had access to a progressive common sense about economics—not an economic theory, per se, but a basic framework.

Mason: I agree. I think we could learn a lot from Modern Monetary Theory here. On the economics, I agree with them on some things and also think there are important things they get wrong. But where they have been tremendously successful is in reaching a broader audience than other economists on the left have been able to. Whatever you think of the substance of MMT, there’s a lot to learn from them as communicators. Some of my economist friends will say, “MMT is just taking things we’ve been saying for years and popularizing them.” If that’s true, it’s really a criticism of you, not of them. If you’re a radical, speaking to a popular audience is part of your job.

Barker: Where do things stand now with inflation? Is it a political problem yet?

Mason: A lot of people in the Biden administration seem to think so. People in the media are convinced that it’s a cataclysmic problem. I’m not sure how big a problem it actually is. In surveys, answers to questions about the state of the economy right now are quite negative, and people report that inflation is a serious problem. Yet when you ask people about their own personal economic situation, their own personal finances, the results are quite positive. In terms of peoples’ actual experienced economic situation, inflation has not offset the fact that we’ve seen big wage gains, especially at the bottom. The stimulus payments, pandemic unemployment insurance payments, and child tax credit payments have had a tremendously positive effect on the finances of most households, especially lower-income ones. People are in a much better position to pay their bills than they have been for a long time. Of course, the end of pandemic unemployment insurance, and the end of the expanded child tax credit if that happens, could reverse some of that progress. But assuming we stay on the trajectory we’re on, I think peoples’ experiences are going to trump the headlines.

Inflation is going to come down over the next year. Maybe a year from now it will be 4 percent, and some people will say that’s way too high. I think more likely it will be 2 or 2.5 percent. But it will not be 6 percent. Somebody can dig up this interview if I’m wrong and throw it in my face, but I feel very confident. The most important thing is not to panic and drop everything because we feel like we’re in a crisis. We’re not. The level of inflation we’re seeing now is not negligible. So far it has meant high prices for gas and for cars, but more recently rents are rising, which is the most important of those three. We should not dismiss these problems, but they are not a sign that the pandemic response was too big. We should never think that we would have been better off if we had had less public spending, if we had had less support for peoples’ income, and as a result, had somewhat lower inflation. Because our success in protecting people during the pandemic has been extraordinary. Peoples’ ability to continue paying their bills today is much greater than at any comparable point in any past economic crisis, despite the higher prices.

Barker: Historically, oil prices have been central to peacetime inflation. Will political pressure for low prices at the pump complicate the transition away from fossil fuels?

Mason: The inflation we’re seeing now—driven primarily by global oil prices—should be a powerful argument in favor of a faster transition away from carbon. It should be an argument in favor of Build Back Better, and doing it even bigger, investing even more money into alternative energy, electric cars, and so on. We should say, “Look at this: oil prices go down, they go up—it’s this incredibly volatile global price. We can’t do much about that. But we can make ourselves less vulnerable by becoming less dependent on oil.” It’s a little bit baffling to me that this argument isn’t getting made more than it is.

Barker: There was an idea in the 1970s called “real wage insurance.” I wonder if that slogan is worth reviving.

Mason: It’s not a bad idea. Some people will always say that if you boost incomes in response to inflation, you’ll set off a wage-price spiral. But the inflation we’re seeing now is not coming from labor-intensive sectors of the economy.

The real issue in all this talk about labor shortages is not inflation but higher wages. It’s clear that people on the right object to faster wage growth whether it leads to higher inflation or not. So what our side needs to do is make the argument that higher wages are a good thing, a big success story from the last year of macroeconomic policy. I would much rather the administration think about how to have that conversation than some clever ploy to turn things around on inflation, which is going to come down on its own.

Barker: The tight labor market has had egalitarian effects on income, with wage growth concentrated at the bottom. What about wealth inequality?

Mason: Unlike wages and incomes, where there has been significant compression, the share of wealth at the top is probably about the same as it was two years ago. But while not everyone will agree with this, I don’t think that’s necessarily something to worry about. Income and wealth are very different. The vast majority of us meet most of our material needs through buying things in the market. Income distribution translates pretty directly into your living conditions. But wealth is not like that. For most of us, our wealth is not an important factor in our money income. Most of us get our income from labor, and if we don’t get it from labor, we get it from various social provisions. For a lot of people, of course, it comes from membership in a family. The distribution of wealth has a much less direct link with people’s material situations.

It is not obvious that wealth equality implies a more egalitarian society. The example I like to point to is Social Security privatization. If you were to privatize Social Security by turning it into a system of individual accounts overnight, you would drastically reduce wealth inequality, because a huge number of people who currently have no wealth would suddenly have personal accounts with, in many cases, substantial amounts of money in them. But we would not be making the country more equal in any substantive sense.

Politically, wealth equalization is conservative; people with their little retirement accounts suddenly think like stockholders. Home ownership has led to vicious right-wing mass politics, because, suddenly, keeping Black people out of your neighborhood is how you preserve the value of your most important asset. Our goal shouldn’t be, “Everyone should have housing wealth.” The goal should be that everyone has stable, secure housing without needing housing wealth. I read something by an advocate of baby bonds a couple years ago who said that with a more equal distribution of wealth, everyone could send their kids to elite private schools. That’s sort of the reductio ad absurdum of the argument. Obviously, what we on the left should be fighting for is a stronger public education system, not more access to private schools.

So I don’t know that we want a more equal distribution of wealth. What we want is a society where wealth matters less; a society where less of our social activity, our collective life, and our individual life chances are organized around the possession of wealth.

Barker: You might still need to reduce the wealth of the very wealthy so that their control over the economy and the political system is reduced.

Mason: We should distinguish the goal of reducing the power of the very wealthy from the equalization of wealth. We don’t want Jeff Bezos to have the control over Amazon that he does, and certainly not the control over the rest of our society, but that doesn’t mean we want to divvy that up among everybody else. If you have raises for Amazon workers, or if Amazon has less market power, then the company will be less profitable, and its shares will be worth less. We’re not redistributing Jeff Bezos’s wealth in that scenario, we’re just making it go away. We are redistributing the benefits of whatever social value Amazon is creating, but not in the form of wealth.

Barker: What about financial instability? Has easy money inflated another asset-price bubble, which might bring down the whole economy if it popped?

Mason: I don’t think we’re looking at any kind of asset bubble. It’s not clear to me that stock prices are overvalued by any historical standard. But I also think it’s the wrong thing to focus on. There’s a dangerous impulse on the left to overstate the significance of financial crises and bubbles. The problem with the system we live in is not that it occasionally breaks down spectacularly. The problem is that even when the system is functioning, it leads to terrible lives for most people. Not just in terms of economic insecurity and all that comes from it—poverty and homelessness and addiction—but also the tedious, boring work that so many people do. They have no autonomy; they’re bossed around all day. Maybe it was an intellectual failure of the left a decade ago to make the financial crisis itself the symbol of the failure of the economic system. Focusing on bubbles and crises leads to a political focus on stabilization. But it’s not as if preventing financial crises and bubbles would mean we have an acceptable system.

Barker: So even if the new macroeconomic dispensation succeeds in stabilizing capitalism, the basic issues that concern us as leftists will remain unresolved.

Mason: The most profound issues are about hierarchy and inequality within the workplace. We take peoples’ creative capacities, our wonderful ability to do things, and we use them for such trivial purposes, in ways that degrade people as human beings. If we solve the macroeconomic problems, or at least move in the right direction, we’re creating a more favorable terrain to take up those challenges. But that’s where the real work begins.

Tim Barker is a historian of modern American capitalism and a member of Dissent’s editorial board.

J.W. Mason is associate professor of economics at John Jay College–City University of New York and a fellow at the Roosevelt Institute.