The US is lusty and demanding for the future. But can it keep it up?
The good news is that Biden, so far, is not your typical machine Democrat who comfortably slips back into the numbing, destructive austerity and Neoliberal mindset that preceded the rancorous dishevelled (but much needed?) Trump wrecking ball revolution.
In many ways Biden is more a continuation and creation of what began under Trump rather than a return to the wasted machine-Obama years. Without Trump’s prior rule-breaking and fiscal recklessness Biden would no doubt find himself now doffing his cap to some austerity measures.
Without Trump’s prior rule-breaking and fiscal recklessness Biden would no doubt find himself now doffing his cap to some austerity measures
Trump ensures that fiscal rectitude and austerity are bad jokes told only by idealogues and ingénues. Significant elements of build back better and the Green New Deal appear like they will now be financed. Biden must still prove he can negotiate with political enemies, but Trump has opened a window of opportunity to work with, or around, some opponents.
Grasping the future rather than saving the past is the only option and the US seems the only country willing to take the leap to the future. Herein lies the USA’s great strategic opportunity and danger.
The figures are stark. Spending is way over the US’s current tax raising capacity and no tax increases can fill the gap in the short-to-medium term without being so large that they counteract the stimulus and investment. This is true across Europe too, but it does not match the US in relative and absolute terms, or in its determination to keep spending.
In China, reliance on excess spending is hidden but no less present – partly it relies on subsidised exports to others (pocketing that US stimmy cheque) and partly massive local debt creation that funds much unproductive investment (in 2020 debt rose by 25% of Gross Domestic Product).
Like all other major global economies, the US depends on a significant element of foreign trade and financial flows. While the US will never run out of dollars to transact with foreigners, nor owe them anything other than dollars, there is no certainty that those dollars will be valued highly. This is America’s potential Achilles’ heel.
American defence, healthcare and consumer consumption relies on the purchasing power of the dollar to hold up. External inputs may be overshadowed by the vast scale of internal US consumption and services, but if these external inputs become expensive or scarce due to dollar woes, then the buoyancy of that vast internal sea can deflate fast. No-one is immune to the risk of economic failure.
Hackneyed received wisdom is to conclude China is ascendant and the ultimate winner, and Europeans seem to be increasingly hitching their wagon to it whilst implicitly doubting the US. I believe that the 2020s, assuming the Biden plan stays on track, will show that the US remains the true global economic gorilla. Today everyone is weak and fragile, not just the US. But only the US shows the willingness and dynamism to risk making a profound change.
The US either wins through on its renewal mission or we all lose. I believe the reflexive, adaptive, unconstrained by hard money, self-interested global system will bend to the US solution as the other options are either very negative or opponents lack the cajones to back a genuine alternative.
As ever, the Europeans are making awful geopolitical choices, driven by a delusion of their importance and power. An enduring arrogant, almost colonial, conceit they are superior to those gauche Americans. Too enraptured with the endless, dreary soap opera of the European Project. Muppets.
Europeans, like the Chinese, are super dependent on what they decry as US reckless profligacy to make the global markets we need for our manufactures. Even if a surplus country does not have the US as a primary export market it is nevertheless US excess demand that oils the surplus they sell into.
Where would either a failure or retreat from global interaction by the US economy leave us all? At each other’s throat in a demand-deficit death spiral. The US is king and will be easily forgiven for its excesses. No one is in a position to replace its vigorous, lusty demand…and all will flirt evermore unseemingly to retain US amour. They just don’t realise it yet.
The US is king and will be easily forgiven for its excesses.
Biden is going to make Trump look thrifty. The US will employ unprecedented fiscal largesse and monetary financing to accommodate this “overspend”. Fiscal overreach on this scale is conventionally a formula for a balance of payment and currency crisis. Conversely, my bet is that the “cautious” surplus nations will suffer as the US economy and dollar once again make clear their global primacy. Ideologically agnostic financial markets will, chameleon like, welcome, not punish, US profligacy.
Negative yielding European sovereign debt is a form of deep self-harm and, as the dollar shows it’s not going to collapse, safety-seeking capital flows will move back in abundance to the US appreciative of its economic dynamism.
China has attracted mostly undeserved plaudits for its handling of the Covid crisis. Its economic outperformance does not have a healthy origin, but the world is dazzled by the headline positive GDP. In 2020 China focused on supply-side tax cuts and assistance to boost industrial production and so export into the demand-side consumer support given in the US and elsewhere. If US excess demand turns away, China will experience monumental debt distress.
On any true like-for-like 2020 performance comparison, the US and China did not have very different economic outcomes. This speaks to the underlying vibrancy and depth of the US economy. America knows it provides the global demand of last resort. As more stimulus and investment is pumped into the US economy, Americans will focus on making sure less demand from this stimulus leaks abroad. We’ll all be eager for table crumbs from the US’s dynamic virtuous circle of capital and activity.
The US has fully awakened to Chinese economic trolling and the harm it causes to them. The electorate seem unwilling to permit more bankers, CEOs and academics cheerleading for the Chinese. The Germans will come to regret their haste to sign an investment deal with China during the presidential handover period. Their geopolitical betrayal in taking gas from Russia too. Europe will be left chasing geopolitical shadows and will return begging for improved relations with the US.
My worry remains Biden’s age. At no point was it wise to put forward a near octogenarian for the biggest job in the world. That this has happened speaks to the fragility of the US political situation. I fear that a Kamala Harris takeover of the role in the first couple of years before Biden’s actions and credibility have bedded in, could inflame conspiracy and societal conflict narratives again. A fine environment for Trump to pick up Biden’s Make America Great Again.
