Why Liberals Should Hate Bidenomics

By Ruchir Sharma

Friday, June 14, 2024

 

Despite all its flaws, even many foreign critics find it hard to summon a pure distaste for America, an attitude summed up over the years by a protest placard that has surfaced from Mexico to Poland and India, my home country: “Yankee go home, but take me with you.”

 

Even now America is the closest thing the world has to Ronald Reagan’s “shining city on a hill” — a land of opportunity for immigrants from all over. I was one of them, two decades ago. The dynamic community of entrepreneurs, financiers, and engineers who combine to make it the global tech leader, leave me in awe. No doubt, America has had a great run, particularly compared with rich rivals in Europe and Japan, but I am deeply concerned about where America is leading the world now under Joe Biden.

 

The daily crisis of capitalism is manifest in weaker growth, less fairly distributed. Contrary to the Biden diagnosis, this crisis is above all the result of a government that has been growing in most measurable respects more or less steadily since the 1930s, thereby narrowing the scope of private opportunity and initiative. Though this expansion has long been a bipartisan project, the essence of “Bidenomics” — even more government — can only make the crisis worse.

 

The resulting public disappointment is clear across the capitalist world. In 2023, the number of people who expected to be “better off in five years” hit record lows in all 14 of the advanced countries surveyed by the Edelman Trust Barometer. The optimists were a minority in every country. In nations with larger governments and slower growth, including Italy and France, only a fifth said they expect to be better off in five years. In 2022, Americans’ trust in government hit a record low in Harris polls that originated in the 1950s.

 

An expanding state is undermining economic freedom worldwide, but the decline is most jarring in America, still a beacon for those whom Reagan described as people “with the will and heart to get here.” In Heritage Foundation rankings for economic freedom, the United States has fallen to 25th in the world, from fourth in 2007, as a result of rising regulation and debt. Leading Indian businessmen now see in America’s turn to a nationalist industrial policy under Biden a dismaying echo of India’s disastrous tryst with socialism in the 1960s and 1970s.

 

The capitalist idea is beleaguered. Never mind that New York mayor Eric Adams warns fellow Democrats that the 2 percent pay 50 percent of city taxes; progressives want more of the same. A local university professor who recently told me that our great city is better off without “all the rich douchebags moving to Miami” could not have known that I too migrate south in winter, drawn to the freewheeling Florida culture. The salient point is that her remarks reflect the now conventional narrative, which is that the unfairness of capitalism springs from decades of shrinking government since Reagan; this gets the story backward.

 

Financial markets have grown roughly four times faster than the economy since the 1980s; because the rich own most of the financial assets, they prosper the most. Yes, deregulation, starting with Reagan and Jimmy Carter, did give investors new options for where to put their money, but the capital itself came mainly from governments and central banks, pumping money into increasingly bloated markets in a self-destructive effort to keep economic growth alive. Rich capitalists have been warning for years about the perversities of a state-sponsored “easy money” culture, but progressives won’t listen because, well, anything rich douchebags say is suspect.

 

Bouts of reregulation after recent crises ended up pushing money out of publicly trade markets and into less heavily regulated private ones, to which only “ultra-high-net-worth individuals” have access. In money-magnet cities such as New York and Miami, private wealth fed a boom in private clubs including Zero Bond and Enterprise. Charging members $250,000 a year just to get in the door, mere millionaires need not apply. Normal people may be only dimly aware of this parallel universe, but they are well aware that the entire system feels rigged against the little guy.

 

As big governments soak capitalism in a complex web of debt, they further promote the fortunes of the richest and most powerful. Most Americans think the U.S. is in hock to China, but the reality is that the richest 1 percent hold just as much of U.S. public and household debt as foreigners do. This “savings glut of the super-rich” is widening inequality, as rich lenders earn interest on bonds sold and loans extended to the rest. In recent decades, as the share of net wealth held by the richest 1 percent was doubling to 35 percent, that of the poorest 25 percent fell into the red: Their net wealth is negative because their debts outstrip any assets they own outright — often just the family car.

 

Liberals have a point when they argue that capitalism has been twisted into “socialism for the very rich,” but they miss the larger picture. That is “socialized risk,” a government borrowing ever more heavily to protect everyone, all the time, at a scale that ends up benefiting the super-rich more than the rest. And if the problems of modern capitalism flow from too much government, then the Biden plans for more of the same risk making American voters even angrier and more alienated.