Fiscal Follies in the Biden Campaign

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Joe Biden has heartened progressives with his calls for levels of public spending, well into the trillions, equal to the urgent needs at hand. These include funds to address not just the pandemic, but climate change, student debt, the caring economy, and the need to invest in infrastructure and rebuild American supply chains and jobs.

If you add up Biden’s proposals, they total at least $3.5 trillion, and even more with commitments he added in his convention acceptance speech.

But on the very eve of that address, Biden’s top aide and transition director Ted Kaufman rained on Biden’s progressive parade in an interview with The Wall Street Journal: “When we get in, the pantry’s going to be bare,” said Kaufman. He cited Trump’s tax cuts and the cost of the pandemic, adding, “We’re going to have limited funds to do what we’re going to do.”

And Kaufman is the most progressive of Biden’s inner circle. Notably, in directing these comments to the Journal, Kaufman was falling into the trap of thinking that financial markets needed to be reassured that his man was not one of those liberal spendthrifts.

So there you have it. Which Joe do we get?

The Federal Reserve will advance something like $9 trillion this year to keep financial markets and stock prices afloat, while the rest of the economy sinks. Unless Biden breaks with fiscal orthodoxy and invests the scale of public funds that the crisis requires, short term and long, the promise of a transformative progressive presidency is over before it starts.

The fact that interest rates are close to zero courtesy of the Fed opening the spigots (to the wrong people), despite a national debt now equal to about 100 percent of GDP, shows that the old rules of thumb about deficits, debts, interest rates, and needed public spending no longer apply.

The New Yorker recently reported that Biden has been reading How Democracies Die, by Steven Levitsky and Daniel Ziblatt. Good start. Now he needs to read Stephanie Kelton on The Deficit Myth. Or better yet, appoint her to head OMB.

To be an effective president, Biden needs to listen to the people inspired by his call to a better American future, not to the usual deficit hawks.

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