First 100: The Obscure Issues Biden Must Address

There’s more in heaven and Earth than pandemic response.

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It’s February 10, 2021 and welcome to First 100. You can sign up to have First 100 delivered to your email by clicking here.

The Chief

For most of the existence of First 100, I have focused on two things: the vaccine rollout, and Joe Biden’s $1.9 trillion American Rescue Plan. There’s good reason for that. The vaccine has given hope for the end of a pandemic that has dominated American life for a year, with 44.4 million doses into arms, and the rescue bill comprises the sum total of legislative policymaking at the moment, as well as the critical signal of the trajectory of the Biden era in domestic policy.

It’s been appropriate to target our focus there, especially because that’s what Biden has been doing. And Biden is moving toward a novel conception of economic management, about which I’ll have more tomorrow. But presidents have a host of other responsibilities that go beyond one bill or one implementation, however important. There’s been a trend among liberal wonks to see themselves as macroeconomists, and attention inevitably gets pulled there. But there’s more to life than the macro-economy.

Biden has taken some tentative steps on immigration and foreign policy, but in a number of key areas, the laser focus on the pandemic has crowded out important decisions that eventually the president and his team will have to make. Here’s a sampling of the lingering issues that need addressing:

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Supply chain: When not smugly discussing kids on Reddit, the big story in the business world is a giant semiconductor shortage, which so far has hit the auto industry the hardest. General Motors has had to roll back production until the middle of March, along with other major car companies. Ford estimates it will lose $2.5 billion from the delay; the total industry losses could be as high as $61 billion. That translates into a lot of idled factories and lost manufacturing jobs. It should not surprise you that other industries use computer chips as well, and could see their own slowdown.

The shortage is being blamed on unexpected demand during the pandemic, which has made it difficult for carmakers to spin up production and find enough chips. But as many as 70 percent of all semiconductors come from Taiwan, and that kind of dependency is unhealthy and prone to disasters like this. Rebuilding domestic manufacturing capacity was a Biden’s campaign promise, though largely confined to the medical supply chain. But it’s about far more than facemasks.

Financial speculation: You know about GameStop, but I’ve written about how this just scratches the surface of the Wall Street casino. These special purpose acquisition companies (SPACs) in particular, which are companies with no revenue and no product that exist to buy other companies and take them public without disclosure of their financial statements, have gotten completely out of control. There are so many SPACs now that insurance companies that protect directors and officers against liability are overloaded. Colin Kaepernick has a “social justice” SPAC now.

These are just moneymaking schemes for the lead sponsors, and could easily be used to bilk ordinary investors through inflated valuations of junk companies. They’re taking risky venture capital plays and putting them on public markets, with investors taking all the risk. And we’re already seeing the first hints of fraud in the markets, as Chamath Palihapitiya’s SPAC purchased Clover Health without disclosing an active Justice Department investigation. What will financial regulators do about this? The SEC just gave its Enforcement Division subpoena power; it’s time to use it. More broadly, this rampant speculation will surely come to a bad end, and Biden’s team needs to get out in front of it before it spreads to Main Street.

Small business: An interesting paper from the Economic Innovation Group showed that 2020 featured a startup surge, with business applications up 24 percent year-over-year. That’s unlike most recessions, and the significant safety-net assistance provided to families allowed the laid off and those with shuttered businesses to try something new. But there’s a downside here; most of these “startups” were single self-employed individuals unlikely to hire employees. And with 9 million businesses at risk of failure in the pandemic, a number worsened by the sluggish initial vaccine rollout and new variants threatening another lockdown, these new businesses being formed might not be enough to replace the old ones.

Unless we want market consolidation everywhere and the associated harms, Biden’s team must figure out how to keep businesses likely to hire workers afloat, and access to capital would really unlock that. Related to this, the Consumer Financial Protection Bureau’s acting director, career employee Dave Uejio, outlined in a memo to agency staff that he would target banks who only took Paycheck Protection Program applications from existing customers, saying that this “may have a disproportionate negative impact on minority-owned businesses.” CFPB has jurisdiction over fair lending in small business loans; banks could be in big trouble.

Local government: We keep hearing these stories about the improved fiscal outlook for state and local governments, presumably obviating the need for any federal relief. But it raises a question: if revenues are so good, why have cities and states cut so many jobs? Job loss is running at about 7 percent in state and local government, while revenues are down only 1.6 percent in the last fiscal year. What’s the disconnect? Why are four times as many jobs being lost relative to revenues? Is it the increased costs from COVID measures? An unequal recovery from the pandemic leading to higher social service spending? The lack of in-person schooling? It’s something Biden’s economic team needs to understand.

Housing: Just keeping people housed in the pandemic is critical; the inadequate eviction moratorium isn’t protecting enough people, and mortgage relief is about to expire. Moreover, the debt overhang on rent and mortgage payments is a huge factor, one that we saw stunt recovery in the last recession. Implementing rental assistance programs so people can actually get relief is the biggest under-the-radar challenge of the Biden administration. And beyond the immediate crisis, the future of housing finance and housing affordability loom, requiring more building but also a better method for wealth building than a volatile asset critical to sustainability like shelter.

And also: Are we going to find a source of ongoing infrastructure spending besides the gas tax? Can farmers be persuaded to becoming part of the solution on climate change? Should we discourage Big Oil mega-mergers? Will Biden close a loophole that enables for-profit colleges to prey on veterans with GI Bill money? What changes will regulators make to debt collector practices? How will a trade dispute among South Korean battery makers disrupt the effort to electrify the U.S. fleet?

These are critical questions that won’t all be solved in one bill or through better vaccine distribution. There’s a whole presidency out there.

What Day of Biden’s Presidency Is It?

Day 22.

Today I Learned

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