President Joe Biden’s multibillion-dollar plans to revitalize the US economy rightly draw comparisons to his predecessor Franklin Delano Roosevelt. But while it’s the same goal, the two have somewhat different approaches, reflecting both the distinctive circumstances and the best data available for Biden.
Biden’s initiatives are a lot like a New Deal in some ways. The recently announced infrastructure spending plan includes money for roads, bridges, housing, schools and a better electricity grid – all of which FDR has also spent a lot on. If passed, Biden’s bill will change the physical landscape of the nation, leaving a legacy of shiny new construction and improved living standards for the poor. Biden’s support for unions also echoes FDR’s creation of the modern system of work organization. Like the New Deal, Biden’s programs would help reverse a decades-long trend of rising inequality.
But the similarities end there. The economic challenges Biden faces are vastly different from those faced by FDR, and his approach is bound to be unique.
On the one hand, the economic crisis that Biden faces is not another great depression. COVID-19 has not destroyed America’s financial system, nor has it apparently caused a wave of pervasive economic pessimism. In fact, most expectations are for the economy to come back strong after vaccines finally send the pandemic on its way.
Because the COVID-19 crisis triggered only a modest overall lack of demand, Biden did not have to focus on interventions with a high budget multiplier; instead of public works, its initial relief effort simply sent checks in the mail. And since there is no longer a gold standard in the US monetary system, and the Federal Reserve has been quite willing to put pressure on growth with very low interest rates, Biden had no no longer to worry about monetary conditions.
The current president also has much better data than FDR’s to help him understand what works and what doesn’t. Most of the architects of the New Deal only had data on prices and domestic production; so they tried to control these things directly, with the National Recovery Administration and the Agricultural Adjustment Administration. The results have been disappointing, as controlling the prices and quantities of products is not an effective way to remedy a shortage of demand.
Biden, on the other hand, has decades of careful empirical economic research to guide him. And this research increasingly shows that cash benefits – such as the new child allowance, $ 1,400 checks, and additional unemployment assistance – are much more beneficial than previously thought. So, Biden’s initial focus on distributing money.
Finally, because he came to the end of the crisis, all Biden really had to do on the recession-fighting front was continue the successful policies of 2020 for a little longer. This allowed him to focus more on a long-term structural transformation of the US economy. FDR ultimately did a lot of this, but it really took a world war to make it happen; Biden tackles it in his first year.
Biden’s plans to reshape the U.S. economy are based in part on scientific research, with several major initiatives to increase federal spending on research and development, including a new branch of the National Science Foundation and hundreds of billions of dollars to modernize laboratories across the country. This echoes a successful program of the Roosevelt era: the Office of Scientific Research and Development, established during World War II, which spawned technologies that ended up spurring many American high-tech industries in the period. post-war. Biden does indeed learn from FDR’s success and scale it up, which is exactly how government policy should be conducted.
But when it comes to innovation and productivity, Biden faces a much harsher long-term test than FDR. Even as the Great Depression dampened the economy in the 1930s, the United States was actually making a lot of useful innovations; these discoveries were put to good use in the post-war years. In contrast, Biden faces a productivity slowdown that is now in its second decade. Hence the emphasis on revitalizing the research network of countries.
Biden also faces much greater economic competition than FDR. While the United States was a fairly self-sufficient economy during the Depression (and even more so after a series of misguided tariffs), in the 2020s the United States faces a global competitive challenge from China, unlike what they have experienced before.
With the economic center of the world moving to Asia, Biden doesn’t have the luxury of assuming that the United States can do whatever it needs; thus, its plans include initiatives to relocate strategic industries and critical supply chains. This direct intervention in the structure of American industry is less than what FDR accomplished in WWII, but much more than the previous New Deal. Biden also wants to increase spending on home care services, reflecting greater uncertainty about the future of work than existed during FDR’s time.
So, while FDR’s biggest burden was to mirror a dying economy, Biden’s big task is to reverse the slowdown in productivity and deal with the competitive threat from China. FDR transformed the structure of the American economy, but mainly by accident or because of the demands of World War II. Now Biden has to do it on purpose.