Biden's Reversal of Reaganomics

In a parliamentary speech, "No trickle-down effect... It's time to boost the lower and middle-class economy"
Biden and Powell's 'duo' reforms, completely opposite to Reagan and Volcker in the 1980s

[Asia Economy Reporter Byunghee Park] On the 28th (local time), U.S. President Joe Biden declared in his joint address to Congress that "trickle-down economics does not work." Trickle-down economics is a theory that if the wealth of large corporations and the wealthy increases, the economy will be stimulated, benefiting small businesses and low-income groups. This concept supported Reaganomics in the 1980s. President Biden essentially denied Reaganomics.

In this regard, Bloomberg News analyzed on the 29th that the "duo" of President Biden and Federal Reserve (Fed) Chair Jerome Powell is comparable to President Ronald Reagan (in office 1981?1989) and Fed Chair Paul Volcker (in office 1979?1987) from 40 years ago, noting that both share the goal of fundamentally reforming the U.S. economy. However, it emphasized that the direction of reform is completely opposite.

◆ Economic power shifting from market to government = Biden is trying to shift economic power from the market to the government, and from capitalists to workers, focusing on equality rather than efficiency, and demand rather than supply. In contrast, Reagan emphasized the market, capitalists, efficiency, and supply. Reagan’s policies ultimately favored the wealthy. Biden, on the other hand, urged Congress, saying, "It is time to grow the economy for the lower and middle classes."

Adam Posen, president of the Peterson Institute for International Economics, described Biden as "the most labor union, redistribution, social welfare, and government spending-friendly president since Lyndon Johnson (in office 1963?1969)." Former President Johnson expanded healthcare and supported the extremely poor through his "Great Society" policies during his tenure.

The role of the Fed is also the opposite. Former Chair Volcker once raised the U.S. benchmark interest rate to around 20% because inflation in the U.S. had soared into double digits. In contrast, Chair Powell has maintained near-zero interest rates for a long time because U.S. inflation has barely reached the 1% range. While Volcker was the strongest inflation fighter among Fed chairs, Powell is doing his utmost to prevent deflation. He has even stated that he would tolerate inflation exceeding the Fed’s policy target of 2% to some extent. Amid the Biden administration’s massive stimulus policies aimed at raising prices, the Fed is also maintaining an ultra-low interest rate stimulus stance. Michael Bordo, a professor of economic history at Rutgers University, pointed out, "The Fed is overly aligned with the government’s expansionary policies," warning that "the Fed could lose the trust it earned as an inflation fighter during Volcker’s tenure."

◆ "Reflecting an era of oversupply" = Bloomberg explained that both Reagan and Biden share the commonality of strong backlash against existing policies. Reagan reduced the government’s role in response to Johnson’s expansion of government involvement in the economy. After Reagan, capitalism grew excessively, leading to side effects such as income inequality, and Biden’s economic policies emerged as a backlash against this. Of course, there are also views that policy changes are inevitable given the significant changes in the economic environment. Compared to Volcker’s time, inflation has dropped significantly, and the share of the top 1% wealthy in total income rose from 9.4% in 1980 to 20.4% in 2014. Income inequality has deepened.

Paul MacCulley, a professor at Georgetown University, said, "The key variables of the economic system and public policy are fundamentally changing." Megan Greene, senior fellow at Harvard Kennedy School, explained, "Reaganomics was based on the judgment that capital supply, goods, and labor were scarce, but now a new perspective has emerged based on the judgment that all of these are in oversupply." Bloomberg explained that oversupply suppresses prices and economic growth rates and expands inequality.

◆ Even Republican supporters say "there is no trickle-down effect" = According to a survey conducted by polling firm Ipsos after President Biden’s joint address to Congress, 71% of respondents agreed with Biden’s economic remarks. Sixty-five percent supported Biden’s plan to raise taxes on the wealthy.

The percentage of respondents agreeing with Biden’s view that trickle-down economics does not work was 51%. Only 26% disagreed. Among Republican supporters, the percentage agreeing that trickle-down economics does not work was higher. Four out of ten agreed, while three out of ten disagreed. Among Democratic supporters, seven out of ten agreed.

This content was produced with the assistance of AI translation services.