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Two centuries ago, the notion of the “Hegelian dialectic” emerged in western philosophy as an attempt to explain the development of ideas in history. The German philosopher GWF Hegel posited that any new idea (or “thesis”) sparks a reaction (the “antithesis”) as the historical pendulum swings, before yielding a “synthesis” in turn.
America-watchers should ponder this now, as President Joe Biden prepares for the 2024 election. More than 40 years ago, Ronald Reagan embraced a policy swing towards free-market, free-trade policies. “Reaganomics”, as it came to be known, was defined in opposition to the previous postwar consensus that promoted paternalistic government guidance for markets and commerce.
Now another Hegelian “antithesis” is taking shape. On Wednesday, Biden delivered a speech that, for the first time, explicitly embraced the label “Bidenomics” to describe a “fundamental break from the economic theory that has failed America’s middle class for decades now . . . called trickle-down economics” — Reaganomics, in other words.
More specifically, Biden embraced “smart investments in America” to create an “economy that grows the economy from the middle out and the bottom up instead of just the top down”, with a new focus on industrial policy and government oversight for markets.
Such language will undoubtedly make some investors wince. After all, the financial elite have benefited from the Reaganite dispensation that Biden now seeks to repudiate. And phrases such as growing the economy “from the middle out” tend to sound either irritatingly vague or like political posturing.
The White House’s messaging with the business and financial world has also been complicated by a subtle social pattern: the economists who have developed Bidenomics in recent years hail from a different professional tribe to those who dominated recent Democrat administrations.
The latter — whom I sometimes think of as the “Rubin tribe” since Robert Rubin, former Treasury secretary, was highly influential on them — had close ties to Wall Street. This made it easy for investors and executives to understand their thinking (and vice versa). Biden’s tribe do not enjoy the same proximity, creating a communication gap.
But now that the label “Bidenomics” is formally launched, outsiders should pay close attention. There are five key points in this week’s speech that investors need to understand.
First, these policies are not primarily focused on delivering a short-term economic boost before 2024; they aim for a longer-term structural reset. Or as Heather Boushey, one of Biden’s advisers, told me this week, this is not about “creating lots of jobs now, but a path to do this in the future”.
Second, this repudiation of Reaganomics translates into a mixed bag of practical initiatives. These include measures to subsidise green innovation, embrace infrastructure investments, curb corporate monopoly power, retrain workers and bolster critical supply chains by implementing an “America first” trade policy.
Third, Bidenomics is the symptom, as much as the cause, of a wider zeitgeist shift in the west. Many of its ideas have been bubbling away in the environmental, social and governance movement for a decade. More strikingly, before Biden, the administration of Donald Trump started to embrace “America-first” trade policies and the idea of government intervention in supply chains on national security grounds.
That might look odd, given Reagan’s legacy, until you remember that after the second world war, a Republican president, Dwight Eisenhower, also embraced industrial policy. Indeed, Gene Ludwig, the former Comptroller of the Currency, views Bidenomics as a “back to the future” echo of the Eisenhower era when “we had a shared bond between business and markets and the government”.
Fourth, Bidenomics is spreading. Most notably, the leaders of the UK’s opposition Labour party are studying this platform and view it as a potential blueprint for their own manifesto.
Fifth, even if the precise contours of Bidenomics are still being defined, the policy shift is already producing tangible economic surprises — and these are likely to multiply. Just look at the unexpected launch of the Inflation Reduction Act last year; or the fact that manufacturing investment has (equally unexpectedly) almost doubled in the past two years.
Of course, there is no guarantee that this pendulum swing will continue — for one thing, two-thirds of American voters do not approve of Biden’s past handling of the economy (albeit for reasons that do not necessarily relate to the future of Bidenomics).
And even if the Democrats do win next year’s election, the bond markets might take fright at full-blown Biden ideas, particularly if this entails more public spending amid rising government debt. Then there is the (justified) concern that re-industrialisation policies and protectionism are apt to be inflationary.
But, as Hegel also noted, when pendulum swings occur in history, they rarely move back fast. I suspect that the phrase “Bidenomics” could shape the zeitgeist for some time — and even outlast Biden’s political career. Welcome to the new (old) world of American policymaking. Investors ignore it at their peril.
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