Bidenomics focuses on building the economy from the bottom up and middle out, giving attention to communities affected by deindustrialization.
The Risk-King approach in Bidenomics mobilizes private investment but may not effectively discipline private capital or support successful green industrial policy.
An alternative to the Risk-King approach is a Big Green State, which advocates for closer control of private investment and coordination between institutions of macroeconomic policy-making.
The US perceives China's rise as a threat due to concerns about its economic development and military power, leading to a shift from viewing China as a potential partner to an active threat in key manufacturing sectors and the energy transition.
Deep dives
Distributional Aspect of Bidenomics
Bidenomics aims to build the economy from the bottom up and the middle out, rejecting trickle-down economics. It emphasizes sectoral aspects of the economy, particularly in relation to industrial policy. There is also an emphasis on place, giving attention to communities that suffered from deindustrialization. Prevailing wage standards are encouraged through tax credits in the clean energy sector. However, some critiques argue that the reliance on incentivizing private investment may not guarantee progressive outcomes for labor.
The Risk-King Approach
The Risk-King approach involves mobilizing private investment by absorbing certain risks and improving the risk-return profile through measures such as tax credits, loan guarantees, and preferential terms. It entails a market-based relationship between the state and capital, where capital is in the driving seat. Critics argue that this approach may not effectively discipline private capital in line with strategic priorities, and may not be conducive to successful green industrial policy.
The Need for a Big Green State
In contrast to the Risk-King approach, the argument for a Big Green State advocates for a closer control of private investment and a change in the macroeconomic relationship between institutions of macroeconomic policy-making. A Big Green State would proactively shape investment decisions and discipline capital in line with strategic priorities. It could be achieved through increased public ownership and greater coordination between the central bank and the treasury. Some argue that this approach would better serve progressive distributional outcomes and effective green industrial policy.
Labor Concerns and Decarbonization
In the IRA, there are provisions that incentivize prevailing wage and good labor standards, particularly in the clean energy sector. For example, tax credits in wind and solar can increase from 6% to 30% if prevailing wage is paid. However, there are concerns that relying on private investment may not guarantee the desired labor outcomes, leading to questions about the effectiveness of the Risk-King approach. Labor unions express concerns that the transition to electric vehicles may not reverse, but accelerate the decline of union density in the auto industry. The struggle for labor rights and better working conditions continues within the new terrain shaped by Bidenomics.
The US China Problem
The US perceives China's rise as an existential threat due to concerns about its economic development and military power. The change in perception is not solely due to illiberalism or authoritarianism, as other countries with similar systems do not receive the same level of scrutiny. The US justifies its new approach by arguing that China is not playing by the rules of the global economic order, necessitating the creation of new rules to compete with China. The bipartisan norm of perceiving China as a threat emerged over time as the optimistic assumption of convergence between economic integration and political liberalization proved unfounded. The US believed that China would fully subordinate itself to US geopolitical interests, similarly to Japan and Germany after World War II. However, the self-critique within the US policymaking elite recognizes the need to reassess this approach. The concerns about China's economic development and military power drive the perceived threat.
The Economic Consequences of Opening up to China
The opening up to China in the 90s and early 2000s had significant domestic economic consequences that were not anticipated. Import penetration from China led to the decline of certain manufacturing sectors, particularly in geographically specific areas. It also had political consequences, as regions with heavier import penetration tended to align with the Republican party.
China's Dominance in Key Manufacturing Sectors
China's dominance in key manufacturing sectors, such as solar panels, critical minerals, and battery supply chains, has alarmed the US policy-making elite. The realization that China could potentially dominate future energy markets has raised concerns about the US's energy transition and its reliance on Chinese technology. The US and European countries want to establish their own industries to produce for domestic and export markets, leading to a shift in perception from viewing China as a potential partner to an active threat.
Featuring Daniela Gabor, Ted Fertik, and Tim Sahay on Bidenomics. We define and debate the new American industrial policy, the energy transition, the New Cold War with China—and more.
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