Joe Biden’s stunning New Deal

It’s usually worth listening to Larry Summers. Although he is too close to Wall St, he has got a good record of forecasting and defining the big numbers of given cycle:

  • Forthcoming Biden stimulus risk inflation.
  • Progressiveness tend to economic “overreach”.
  • Labor is already short before $4tr of new stimulus.

I am not concerned by an outbreak of wage push inflation in the US. The structural forces of disinflation will return over the next year as catch-up growth and COVID stimulus passes, plus China slows.

That said, I do expect a lot more US wage inflation in the coming cycle than in the last. The base from which it will rise is very strong:

This is a great thing for the US political economy and the liberal capitalist world as the battle against autocratic capitalism advances. US inequality has given us all a huge warning about the fate of our system if a Trumpian populist is allowed to run wild.

On that front, the Biden stimulus is a work of wonder, not something to fear. Deutsche breaks down the $4tr in spending:

A few points:

  • The hard infrastructure component is clearly NOT big enough to support any kind of commodity supercycle as China slows. On the contrary, putting a rocket under electric vehicles also boosts the recycling of base metals.
  • Most of the spending in both packages is productive and, as such, self-funding to the extent that it lifts productive capacity and the tax take.
  • While we’re on the subject of taxes, guess who pays for it all?

Some more points:

  • A staged rollout of higher corporate taxes is eminently sensible and roughly 40% of the revenue increase comes from closing foreign loopholes. This will also lift US investment over time.
  • Taxing the wealthy to lift various forms of productivity-enhancing worker incentives will boost aggregate demand in the economy over time as it works against inequality and the demand deficit that comes with it.
  • While we’re on the subject of inequality, check this out:

More points:

  • We can’t say that this is the end of US inequality. But it is the absolute end of trickle-down economics and transformational so far as that goes.
  • This will make it very difficult for any future populist return as US growth breaks out of lowflation and grows above 3% for the better part of a decade. US workers are about to enjoy their best decade in half a century.
  • This is why I am bullish on the US dollar.
  • Will these reforms get through? Yes, mostly:

Arguably, Larry Summers played his part in giving rise to US populism. After the GFC, he led the Obama administration into a new cycle of trickle-down economics, completely missing the opportunity to convict Wall St treason, as well as reorient the economy away from its toxic financialisation.

Put another way, Summers delivered US workers a staggering insult that left them desperate and angry. Donald Trump is the full stop on that story.

As Winston Churchill once famously observed, Americans will always do the right thing, only after they have tried everything else.

The Biden New Deal is the right thing, ten years later than it should have been enacted.

David Llewellyn-Smith


  1. DingwallMEMBER

    Hilariously Biden indicated in his speech that “Anybody Making Less Than $400,000 Will Not Pay A Single Penny In Taxes”
    He forgot one word ………….. additional ……….. ie in additional Taxes.

  2. Strange EconomicsMEMBER

    And now…. ScoMo announces the same policies to fix the budget in Australia ! (LOL. Aussie High Wealth individuals would not stand it) . Even fixes the budget deficits !
    Today Spotify and Netflix announced they pay virtually no tax in Australia. (only in Sweden !) . Stand by for action by the Libs haha.

    • Jumping jack flash

      We can only hope, but they missed their one opportunity.

      If they stimulate again the rest of the world will side-eye us and the cat will be out of the bag… Think crashing dollar and interest rate hikes (for the banks)… Not a good scenario at all.

      They had one opportunity to restart the debt economy with COVID stimulus.

  3. drsmithyMEMBER

    The mind boggles that in a first world country in the 21st century, $100b needs to be spent on “clean drinking water”…

    There’s a lot of potential here, but the conservatives will do everything in their power to prevent, disrupt and as a last resort, pervert its success. Plus every slightest failing (ie: lack of improvement) will be broadcast as evidence of how none of it could ever possibly work.

    Be very interesting to see what things look like in a couple of years as the next election campaign begins.

        • Cynical snake

          Exactly the same thing.
          Expanding population requires expanded fresh water supply.
          They aren’t saying that people don’t have clean water, but that more will be required.

          • drsmithyMEMBER

            The spending in the US is mostly around addressing stuff related to distributing clean and healthy water, like removing lead pipes.

            It’s not the same thing as a desal plant to increase supply, at all.

        • Strange EconomicsMEMBER

          Compare to Sydney – easy to need 100 Billion.
          Sydney – (or melbourne also) $ 1 billion unnecessary Desal plants and 50 Million a year to maintain unused.. (If they had rainwater harvesting on houses and Level 2 water restrictions they wouldn’t even need).
          $ 3 ? Billion to raise dam wall
          2 $ billion to fix leaky underground pipes that lose 20% of water ?
          Same for each city.
          Australia has 5 large cities.
          The US has 300 big cities and they have run their infrastructure down for decades to pay lower taxes to the wealthy.

          • drsmithyMEMBER

            As I said above, that’s about increasing supply.

            The bulk of the work intended by the US program, as I understand it, is fixing the supply of existing water (eg: lots of lead piping remaining).

    • “Plus every slightest failing (ie: lack of improvement) will be broadcast as evidence of how none of it could ever possibly work.”

      So….. basically one of the top 3 political strategies deployed by every politician, across every party at every level of govt since time began.

  4. GarethMEMBER

    Don’t know enough about the US legislative process but this looks like something the republicans will veto with their last breath considering the top 1% impact, needs to happen but you cam guarantee some massive fights.

    Used to be go long anything to do with guns, god and gasoline in America. Now it pays to go long EV’s, BTC’s and Veganism – also pays to worship at the feet of the Fed, all hail our savior J Powell – May his balance sheet be long on zero’s and his self interest firmly aligned with subsidising wall street.

  5. RomulusMEMBER

    Have to say Biden has positively surprised me so far in terms of policies enacted and not leaning much woke/culture war issues.
    Still long way to go though but given his history it could have been a lot worse.

      • A POTUS who doesn’t hold a press conference for 50 days.. then celebrates a certain jury verdict in one state by holding a joint press conference with VPOTUS…. is avoiding the culture war??
        Your assessment is too partisan to be believed. I’d like to believe the economics though but even @smithy has pointed out the incredible elements here.

          • Sorry David, to suggest that Biden has or even can avoid a ‘culture’ war based up on his (almost total) lack of interaction with (or accountability to) the media is hardly objective or evidence based either.

            Time will tell if actual helicopter money can buy the allegiance or at least the silence of the deplorables (it’s quite possible). Time for popcorn, but no basis for victory champagne (unless you’re a corporate / political beneficiary of the coming cash tsunami course).

          • @BB_AU

            It will make military contractor fraud seem romantic, did I mention Biden was Bills boy and road the neoliberal horse out into the wide open pastures ….

          • drsmithyMEMBER

            Sorry David, to suggest that Biden has or even can avoid a ‘culture’ war based up on his (almost total) lack of interaction with (or accountability to) the media is hardly objective or evidence based either.

            Isn’t that the point of the White House daily press briefing ?

        • RomulusMEMBER

          Trump needed to showboat to stroke his ego – hence the frequent press conferences and did very little to actually help the working class economically. All hat and no cattle.
          Biden doesn’t and wants to say as little as possible (wise in his case) and let his actions do the talking.
          People voted boring and competent which they are getting.

      • Ritualised Forms

        Just imagine those nights sitting around baying at the moon and sacrificing virgins to the great defender of family values, free markets and democracy with the swivel eyed, steam snorting, furrow browed nut jobbery cowering in the corridors of the Heritage Foundation as the last holdouts against the incipient Marxism Biden represents…

      • Narapoia451MEMBER

        Probably best not to mainline koch brothers propaganda, that stuff will rot your brain, pervert your empathy, amplify your bigotry and subvert your interests.

    • Perhaps it’s simply a case of what is and isn’t being reported to you. coverage of US politics is MIA in Australia, amazing given that it occupied at least part of our MSM coverage 24/7 for 4 years straight. Turn up for questions, don’t turn up, fall up the stairs don’t fall, foot in mount not in mouth, retain Trump policy don’t retain it, doesn’t matter, all roads lead to ZERO analytical let alone critical MSM coverage.

      Media was almost completely partisan during Trump and that did not magically change on Bidden’s election nor will it change going forward.

  6. Jumping jack flash

    This is stimulus done right!

    Take note, Scomo and Joshy Boy. Your piddling effort wasn’t worth a tinker’s continental, and the slow return to 2019 in a few months will be proof of your abysmal failure. Keep watching for the resumption of business closures and layoffs starting H2. Stagnant wages growth and an eventual flattening of debt growth.

    The US on the other hand will get their CPI, they will get their wage inflation, they will get their perpetual debt!

    It will be rainbows and lollipops in the US. Everyone will be happy. A bankers’ utopia. The stimulus will be spent on CPI. The CPI will transform into wage inflation. The wage inflation will transform into debt inflation.
    The business owners will be happy. The people will be happy, and most importantly of all, the banks will be happy!

    A cup of coffee may hit $10, $20 a cup, but wages will increase enough on the back of these price increases so nobody will care.

    And when the people arrive at the bank and ask for debt, the volume of debt they will be eligible for will be truly gargantuan, but the most important thing is that it will inflate at the correct rate to be able to pay its own interest! (Repaying debt principal is deflationary and should never happen in a properly functioning debt economy!)

    • What would you expect from Bill Clinton’s Tres secretary, one of the stooges that rebuffed Born on derivatives, almost blew up the Harvard endowment fund, and a Flexian if there ever was one ….

      Lmmao …. just search naked capitalism larry summers for a good time …. Oh Yeah … Biden was right there with Bill to on NAFTA, Prison Industrial complex, WARS …. and in case some are still befuddled … Summers is a key neoliberal operative for decades ….

      • Jumping jack flash

        The frontman in the suit is a useful distraction. More importantly is what the people behind the curtain do. And this is a good step in my opinion.

        Well, considering the entire system is broken, turned inside out and upside down by the banks after they were put in charge, this is probably the best thing they can do.

    • Sure looks like it! All that support for R&D as well, so much of the stimulus seems like it really will be the right kind, improve efficiency, communication, transportation, technology it really should work a treat. Meanwhile our LNP are stimulation tar supply side & picking winners & wasting money on gas etc. If it goes 10yrs anyone who can get a job there should go asap.

  7. Pie in the sky plan.
    Budget will blowout in the first year of enactment with hundreds of billions disappearing with his base voters wondering when are they going to get rich from all this money as they see the cost of living punishing them.
    Free government money has a habit of doing that and it will seep into projects and companies that will take advantage of all that pork and it will have zero effect on the economy.

    And no way wealthy Americans and their corporations will pay for it.

    In the end, who cares as there is a good chance he will only last one term…if that.

      • I just don’t think US corporations and businesses are in a morally, ethically and responsibly good position to take yet more free money and re-allocate it to help the other 99%. They are already rolling in cash from all the other previous stimuluses not to mention the amount of liquidity the fed is providing. They can’t believe the government is going to give them more.
        Apple just bought $77b in share buybacks over the last 4 quarters and the other tech giants are doing the same.
        AECOM (eng, building, infra) will purchase $300m over the year after $155m in the last program and they still have $600m approved after that. Amedisys (healthcare) which will get huge chunk from this bill just approved a $100m share buyback program for this year. Wages is the last thing on the list of what to do with all this money thrown at them.

    • Jumping jack flash

      “Budget will blowout in the first year of enactment with hundreds of billions disappearing with his base voters wondering when are they going to get rich from all this money as they see the cost of living punishing them.”

      Cost of living maybe, but just like what was happening in 2007 here in Aus, the cost of living was racing upwards, but so were wages!

      Nobody “gets rich”, but they don’t get poorer, at least not too quickly if they keep their skills up and switch jobs every so often to “climb the corporate ladder”. And that’s the best anyone can hope for in this kind of economy designed by the banks and corporatists.

  8. Reus's largeMEMBER

    I am gonna go with the MB contra indicator, which means that this is going to be a crap deal for Americans in general and that the swamp is going to be the only beneficiary !

  9. my toranaMEMBER

    Support mass immigration leading to alienating resident Australians and you will end up with fascism, that is my concern, in same vein as how Larry Summers led to Trump.

  10. The correct response of the Scotty government is to cut the NDIS bludger-scam some more and privatise Medicare. The government that governs least governs best, just like we saw with the US recovery after WWII.

    As Thatcher said, “there’s no such thing as society”! Just let the free market so what it does best! I have little doubt that when Australia removes more taxes, then our great Australian companies will invest and invest and invest in Australia for the betterment of all!

    Free market Australia will rocket ahead and leave the US with its failing and wasteful water and train plans in the dust! $100 billion on a stupid and unnecessary video entertainment system? That could be given as tax breaks, to really unlock the innovation of unfettered private industry.

    Australians will be super rich and Americans super poor! Ha ha ha!

    • Jumping jack flash


      Scomo should take a leaf from Howard’s book with regards to so-called “bludgers”. They are incredibly useful. Pork barrel the proverbial out of them to juice CPI which will then flow into wages. It is basically a back-door to stimulus without announcing to the rest of the world that we’re up the proverbial with no clue and nobody at the wheel. Its also win/win. As CPI necessarily lurches upwards, the “unfortunates” will start squealing – just like in 2007, but the added pork will tide them over and everyone will be happy.

      Its strange he doesn’t consider this because he seems to follow Howard with regards to many other policies such as wage and CPI suppression (for no good reason in today’s climate).

      The guy is clearly an idiot of the highest order, as is most of his cabinet and opposition. I don’t know how he dresses himself in the morning without help.

      • Scotty won’t follow Howard. Scotty believes poor people are poor because God doesn’t like them. Making poor people be not poor would be against God’s will. I guess if he imports enough debt hungry immigrants, they’ll take on the amount of debt required to pay back the existing interest.

        Maybe a government-guarantee on immigrant mortgage debt? After all, they’re having a go, so they get a go! Should be able to lend the average immigrant at least a million bucks with such a scheme, and there’s zero risk, because it’s safe as houses!

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