Spend Big, No Coddling Wall Street By Bloomberg

Spend Big, No Coddling Wall Street By Bloomberg


© Bloomberg. Joe Biden speaks during a campaign event in Wilmington, Delaware, on Aug. 12. Photographer: Stefani Reynolds/Bloomberg

(Bloomberg) — When Joe Biden entered the White House as vice president in 2009, the country was in economic turmoil caused by a global financial meltdown. The new president, Barack Obama, gave Biden a leading role in the economic recovery — and Biden’s approach then shows a former senator struggling to find middle-ground solutions that might anger people, but not alienate them.

Biden was willing to risk the wrath of Wall Street with his support for the Volcker Rule and other banking regulations, but didn’t embrace punitive demands from the left to break up big financial institutions. He fought to save third-ranked Chrysler Corp. when others on Obama’s team thought the carmaker should go under, because he feared the economic carnage of those lost jobs. He also focused on reviving manufacturers, clean energy and infrastructure, and on monitoring how the states were spending stimulus dollars.

On a September 2009 call with governors, Biden exhorted them to keep quarterly tabs of jobs saved by the Recovery Act. When the Democratic governor of Missouri, Jay Nixon, thanked him for his active involvement, Biden responded: “Pure self-interest, Jay. If it fails, I’m dead.”

If he’s elected in November, Biden, who accepts the Democratic presidential nomination this week, would once again step into the White House with the nation in economic crisis. Biden’s aides say he wants to pick up where he left off, especially in the areas of infrastructure and clean energy — work that Obama started and Biden hopes to finish.

Corporate Taxes

Biden’s pushing $3.5 trillion in infrastructure, manufacturing and clean energy programs as central elements of financial stimulus that appears likely to grow substantially if he is elected.

He would pay for the programs by raising the corporate tax rate, through taxes on real-estate investors with income of more than $400,000, and with other levies. The campaign has said those tax increases would raise $4 trillion over a decade. Additional spending would likely be treated as one-time stimulus, meaning that Biden would add to the deficit without paying directly for the programs.

“We need a plan that’s as big as the problem we have,” said Ron Klain, a key adviser who was chief of staff when Biden was vice president. “These challenges that we faced in 2009 and 2010, they’re back again — they never went away — they’re back again with greater emphasis, and his experience doing that makes him well-positioned to put these issues front and center today.”

Anyone looking for clues to how Biden would try to solve today’s pandemic-fueled economic problems can find them in the way he approached the Great Recession and its aftermath when he was vice president.

Working the Phones

The month after Obama’s inauguration in January 2009, Congress narrowly passed an $800 billion stimulus package to begin reviving the economy. Biden spent long hours lobbying former Senate colleagues, including three moderate Republicans, to help secure the votes to get it through Congress.

“If Joe Biden had not been able to deliver those three Senate Republican votes that got us to exactly the number of votes we needed to pass the bill, the consequences for Barack Obama’s presidency and for our economy would’ve been quite great,” Klain said.

As a sign of the change in Washington’s culture since then, only one of those moderate Republicans — Susan Collins of Maine — is still in office, and she’s a tight race for re-election this year.

Obama assigned Biden with overseeing how the stimulus money was spent, with orders to get the funds out quickly and avoid waste that Republican critics could use to attack the effort.

Biden dialed up governors and local officials around the country to admonish them not to splurge on pet projects. “I remember being with him in his office when he was calling mayors of pretty small towns, who were very surprised to hear from him,” said Jared Bernstein, then Biden’s chief economist and a current campaign adviser. Christina Romer, then chairwoman of Obama’s Council of Economic Advisers, recalls him importuning local officials in one conversation: “No building swimming pools.”

Springsteen Vibe

In a White House marked by cerebral policy debates, Biden often seemed to draw on a visceral connection with the Rust Belt.

“He had a Bruce Springsteen vibe in the administration,” said Austan Goolsbee, an Obama economic adviser, meaning that Biden was always searching for a story-line on middle-class Americans. “I think Obama very much liked having someone at a high level with that vibe, to balance out the technocratic impulses of the economic team.”

Biden also staked out an aggressive position in the Obama administration’s internal debate over the auto industry bailout, a controversial move at the time. Mitt Romney, now a Republican Senator from Utah, famously urged against a rescue in a New York Times op-ed headlined “Let Detroit Go Bankrupt.”

Biden not only argued for the bailout but was a vocal advocate of saving Chrysler when others thought it was expendable. Though he wasn’t the only official to take that view, the argument put him at odds with Romer’s CEA, she recalled. Obama ultimately sided with Biden.

He again clashed with the economists over mounting a more aggressive effort to use federal resources to bolster the manufacturing sector, which had been shrinking even before the recession that began in the year before he and Obama were elected. That fight came to a head in an Oval Office meeting with Obama and Biden in side by-side armchairs, as advisers sat on two facing couches.

Biden was “visibly upset” as it became clear the economic team’s skepticism of industrial policy favoring one sector was prevailing, said Michael Greenstone, then the economic council’s chief economist, who was tapped to present the case against the idea.

After the meeting, Biden erupted steps outside the Oval Office. “He just starts lighting into me,” Greenstone recalled. “He said, ‘You economists, you don’t understand about people, that people’s self-worth and dignity is tied up in their work.’”

In what Greenstone took as a goodwill gesture after the scolding, Biden soon afterward invited him for a trip on Air Force Two to a manufacturing event in Ohio. “It wasn’t just a kiss-and-make-up,” Greenstone said. “It was: ‘You’re going to understand.’ And I think he was right, with the opioid crisis and deaths of despair and all the challenges that the Rust Belt has faced since then.”

Volcker Rule Champion

Biden had limited sympathy for Wall Street, whose embrace of subprime lending and mortgage-backed securities stoked the global financial crisis and helped plunge the U.S. into recession. He sided against the financial industry in key Obama administration debates over what became the Dodd-Frank regulatory reform, and he pressed to make the Consumer Financial Protection Bureau the centerpiece of the legislation.

He enthusiastically championed the Volcker Rule — prohibiting banks from proprietary trading — that Wall Street hated. It was a cause Biden took up after a conversation with former Federal Reserve Chairman Paul Volcker. The vice president came to a White House meeting on the matter determined to prevail. He immediately began making his case for the rule, even though other items were first on the agenda.

“Part way through, the president puts his hand on the vice president’s arm and says, ‘Hold on there, Joe,’” Goolsbee recalled. “‘ Don’t worry. We’re going to get to it.’”

Biden was also a central player in negotiations that forced the Obama administration to make the painful choice to extend Bush administration tax cuts for the wealthy, which were reviled on the left, in return for a second stimulus in the form of a payroll tax cut that boosted the economy going into the 2012 election.

With the administration on its heels after Republican victories in the 2010 midterms, Obama’s team figured it had no choice but to extend the Bush-era tax cuts, said Gene Sperling, a senior Treasury Department official at the time and later Obama’s top economic adviser.

The team focused on continuing parts of the stimulus, extending emergency unemployment relief, tax credits for lower-income workers, and a new tax-cut stimulus. Biden won a promise from Senate Republican Leader Mitch McConnell for $120 billion in tax relief over two years, Sperling said. He then went back and negotiated for the full amount in 2011 as a one-year payroll tax cut, correctly anticipating the Republicans wouldn’t force an election-year tax hike. So the impact was doubled.

“We were all strategizing together, on what our goals were,” Sperling said. “But Biden was the one doing the negotiating, delivering.”

Working-Class Agenda

Biden sees common threads between the Great Recession when he was vice president and today’s economic problems.

“There are features of this crisis that are different obviously — public health and the pandemic — but he thinks that there is actually more room to make the case for a working-class agenda this time than there was in 2009,” said Jake Sullivan, a Biden policy adviser. “The American people have seen low-paid workers who don’t get strong benefits risking their lives to keep the economy running, and he thinks his ability to make the case to deliver on the worker part of his agenda is greater than it was in 2009.”

The Covid-19 pandemic and resulting recession has forced Biden to edge away from the moderate economic approach he advocated last year. At that point he called for a “reordering” of the capitalist system, which was mild compared with what progressives advocated. Now he’s proposing more drastic remedies to resuscitate the economy.

As he did in 2009, Biden considers running up the deficit as an unfortunate but necessary side effect of pumping money into the economy.

Public Works

His “Build Back Better” proposal is more oriented toward public works and community grants than tax cuts — evidence that he’s even more comfortable than Obama in putting his thumb on the scale for manufacturing, and less worried about free-market economists’ misgivings over government support for legacy industries.

For much of his Senate career, Biden commuted to and from Washington on Amtrak’s train service from his home in Wilmington, Delaware. As vice president, he advocated for public works projects such as a smart electric grid, clean energy production, road and bridge construction, and high-speed rail.

“Everybody likes infrastructure, but nobody likes infrastructure as much as Joe Biden,” Romer said. “I can see a really big infrastructure package as the thing that really gets the economy going. He will deliver on it.”

The Biden team has yet to announce what, beyond the $3.5 trillion in infrastructure and other programs, it may do to respond to the ongoing struggles of the retail, restaurant, travel and small-business sectors upended by the pandemic, and the resulting loss of millions of jobs.

Republicans are skeptical, to put it mildly. “Going big, spending $3 trillion — I think that gets it all wrong,” said Douglas Holtz-Eakin, an economic adviser to John McCain’s 2008 presidential campaign who’s now president of the American Action Forum, a center-right policy organization.

Still, Holtz-Eakin gives Biden credit for helping to steer the country back to solvency a decade ago, and says it may help the former vice president manage a new crisis that twins economic and public health calamities in an unprecedented way. “Biden got the job of running that stimulus and he will only benefit from that experience,” Holtz-Eakin said.

A President Biden would return to a very different Washington. He argues Republicans will have an “epiphany” after President Donald Trump leaves office and want to work with a Democratic White House. That appears unlikely given the toxic politics in the capital. Even some Democrats will be hard to persuade that he’s right about how to fix the economy. And those on Wall Street and in the corporate world who argued that Biden and Obama got it wrong the last time around won’t be reassured to hear Biden saying he intends to pick up where he left off.

That’s where Biden’s decades in public life would come into play, his aides say. Unlike other politicians who take pride in declaring themselves strangers to Washington, Biden’s entire claim to the presidency is that he is the ultimate insider.

“It’s not just that he has a bold plan,” Klain said. “It’s that he actually also has the tools to get Congress to pass it.”

©2020 Bloomberg L.P.



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