The economic and social impact of neoliberal policies and practices informed the populist rhetoric that carried Trump to the White House in 2016. However, Trump assembled “the wealthiest cabinet in modern history” and governed on behalf of the major power centers of corporate America. While Biden is certain to reject Trump’s combative protectionist rhetoric, the substance of policy towards China is unlikely to depart from the present mix of military and high-tech confrontation and Wall Street’s further penetration into China’s capital markets, writes Valdai Club expert Alan W. Cafruny.
The 2020 US elections are taking place amid an economic and social crisis that is comparable to the Great Depression. The Covid-19 pandemic has triggered the greatest economic contraction in American history and the highest unemployment rate since the outbreak of World War II. The nation’s death toll is projected to reach 300,000 by the end of 2020 as it embarks on a “second wave” of infections and further lockdowns. The crisis has entered the political sphere through mass mobilizations against racism and police violence and a right wing populist countermovement that has been nurtured by the president’s flirtation with violent white nationalists, his appeals for voter intimidation and suppression, and his refusal to commit to a peaceful transition of power.
Proclaiming that “we built the greatest economy in the history of the world and we are doing it again,” Trump has based his re-election campaign on the prospect of a rapid return to the idealized pre-pandemic economy of the first three years of his presidency, accompanied by additional tax cuts, further deregulation, including for fossil fuels, cutbacks in the social safety net, and renegotiated trade deals. By contrast, Joe Biden’s “Jobs and Economic Recovery Plan for Working Families” promises to “Build Back Better,” focusing on racial justice, employment, elements of the Green New Deal that was advanced by the Democratic Party’s Left but omitted from the party’s platform, and the implementation of modestly redistributive tax policies.
The pre-pandemic economy: Pre-existing conditions
The United States is the epicenter of the pandemic. This is because the pandemic arrived in the wake of a decades-long bi-partisan neoliberal project that resulted in a precipitous decline of state capacity including public health spending and preparedness alongside a dramatically increased level of inequality that is unique among the G-7 countries. In 1965 the average CEO received 20 times more than the average employee; by 2018 that figure had reached 278. Representing one-third of the private workforce in 1955 trade unions now account for less than 7%. The financial de-regulatory bacchanal that started in the 1980s culminated in the Great Recession of 2008, whose legacy of bail-outs of “too big to fail” banks and crippling austerity continues to cast a long shadow over the United States and much of Europe.
The trend towards inequality has been exacerbated by decreasing total tax revenues, a result of sharply reduced rates of taxation for wealthy Americans and large corporations supplemented by a vast assortment of tax loopholes facilitated by globalization. The declining government share of national income is “unique in modern history among wealthy nations.” In conjunction with an outsized military budget and a succession of costly “forever wars” it has led to substantial increases in public debt, crumbling infrastructure, and slower growth. The Rand Corporation has documented the staggering impact of this transformation on American society:
The economic and social impact of neoliberal policies and practices informed the populist rhetoric that carried Trump to the White House in 2016. However, Trump assembled “the wealthiest cabinet in modern history” and governed on behalf of the major power centers of corporate America. The centerpiece of his economic program was the $1.5 trillion “Tax Cuts and Jobs Act” of 2017 which reduced corporate taxes from 35% to 21%. Expansionary fiscal and monetary policies did prolong the modest recovery from the Great Recession that had started in 2010 under President Obama. Between 2017 and 2020 the US growth rate was 2.5% and by the end of 2019 unemployment reached a half-century low of 3.5%. Trump cited the surging stock market as further evidence of economic recovery.
However, these hyperbolic claims overlook the continuing stagnation of household incomes, massive increases in household and student debt, and the increasing precarity of work during the first three years of the Trump presidency. A recent Brookings Institution study showed that low-wage workers (defined as earning less than $16 per hour) comprise 44% of working adults between the ages of 18 and 64. The reduction of corporate taxation did not lead to a substantial increase in business investment, but did generate a wave of stock buybacks. Trade wars did not cause a significant increase in manufacturing employment. Between 2016 and 2018 nearly 1800 factories disappeared. While the trade deficit with China has declined modestly since Trump took office the overall US trade deficit has increased substantially since 2016. Notwithstanding limited “de-coupling,” most corporations that have left China have not returned to the United States. Trump has essentially consolidated neoliberalism within a more authoritarian framework.
The pandemic, the economy, and the elections
The initial effects of the lockdowns wiped out the gains from the modest Obama-Trump recovery. As the official level of unemployment surged to 14.7% Congress passed the relatively generous $2.2 trillion CARES Act, which included a Paycheck Protection Program and $1200 per month payments to unemployed workers. The Federal Reserve engaged in unprecedented monetary easing, orchestrating a massive increase in stock prices that now have little relation to the real economy. The S&P 500 has soared 50% from its low in late March. As the lockdowns were lifted--albeit in many cases prematurely – the unemployment rate fell to 7.9% in October. Despite initial Republican resistance, it appears likely that a successor to the CARES Act, which expired at the end of August, will be enacted, although with reduced benefits.
Notwithstanding these modest steps towards recovery, the prognosis is not good. The official level of unemployment greatly underestimates the real level: millions of workers have dropped out of the work force and, hence, the unemployment rolls. Large numbers of manufacturing jobs have been lost forever, and the service sector, which is now experiencing massive layoffs, is expected to remain stagnant for many years. 26 million workers remain unemployed and the nation faces a further “tidal wave” over the next two months as 5 million workers enter the category of long-term joblessness. Moreover, the Covid-19 recession has been the “most unequal recession in modern US history,” eliminating low-wage jobs at eight times the rate of high wage jobs. Black men, Black women, Hispanic men, Asian Americans, younger Americans, women, and people without college degrees have borne the brunt. Prior to the pandemic 13.6% of American families with children were experiencing food insecurity. At the present time that figure stands at 29.5%. One-third of Americans are now exhibiting signs of clinical depression or anxiety.
If Joe Biden wins the election and is able to take office his policies will be greatly influenced by the balance of power in the Senate and the strength of the party’s growing social democratic base. His economic program will be developed with one eye on the budget deficit and Federal debt (projected respectively at $3.3 trillion and $27 trillion in 2020), and the other on Wall Street, which has received assurances that under his presidency “nothing will fundamentally change.”