America’s presidency

Why Joe Biden’s instinctive caution makes real change posible

How a retro can be radical

When the history of the Trump presidency is written, a photo-op in Lafayette Square at the beginning of June might just mark the turning-point. Since he announced his run for the White House in 2015, Donald Trump’s political method has been to maximise at all times the amount of attention directed at him. The Lafayette Square escapade offended Christians, because the president waved a Bible around like a prop.

It embarrassed the country’s most senior military commander, who later apologised for joining a political show that involved the tear-gassing of peaceful protesters. More important, it did not work. Rather than being in command, Mr Trump seemed desperate. When power is based on appearances it can slip away suddenly.

Before covid-19 hit America, Mr Trump looked likelier than not to be re-elected, thanks to a relentlessly growing economy. Incumbent presidents almost always win in such circumstances.

Our election model made him a narrow favourite, even though he was a few points down in national polls with his rival, Joe Biden. However, the president is now in a deep hole. Mr Biden is up by nine points—more in some polls.

He is doing well in battleground states like Florida, Michigan and Wisconsin, and he has strong support among older voters and is doing surprisingly well among white voters who did not go to college. Our model now gives Mr Trump only a roughly 10% chance of winning.

The virus has demonstrated something definitively to a large number of persuadable voters: that Mr Trump is just not that good at being a president.

There is a long time until November. Anyone who has lived through the past decade knows that low-probability events need to be taken seriously. If the virus recedes and the economy rebounds Mr Trump’s chances may improve over the coming months.

If the virus is still rampant and states have not organised themselves for voting by mail, the contest could be an unpredictable, low-turnout affair. Either way, he will try to exploit the same divisions that have worked in his favour in the past.

For all that, Mr Biden finds himself in landslide territory without having had to do very much to get there. Mr Trump’s flailing has made a Democratic Senate majority possible. That opens up the chances of a highly productive presidency which once seemed inconceivable.

Before covid-19 and widespread social unrest, Mr Biden’s candidacy was about restoration—the idea that he could return America and the world to the prelapsarian days of 2016. It transpires that he could have the opportunity to do something big instead.

Mr Trump is already painting this as a threat. He wants to scare voters with warnings that his opponent is a doddering fool who will be taken hostage by dangerous radicals seeking to defund the police and confiscate everybody’s guns. Some Democrats have the opposite fear, of an old patriarch stuck in his centrist ways.

And indeed when Mr Biden was first elected to Washington, Elvis Presley was playing in Hawaii and Leonid Brezhnev was general secretary of the Soviet Communist Party. He has survived by adjusting his views on race, sex, religion and other cultural signifiers as the Democratic Party has shifted.

How, hot-headed Democrats say, can a man who has followed rather than led be trusted to fix America’s ills?

In fact, both points of view could turn out to be wrong. The dominant theory, on the right and the left, is that change in America is made by the extremes. On the right that has meant Goldwater-ism, the Tea Party and Mr Trump.

On the left it has meant the anti-Vietnam movement, social-justice campaigns and Bernie Sanders. There is something to this idea: without these forces dragging him, Mr Biden might not have moved.

But to make lasting change through the federal government you need to win the Senate. And that cannot be done with a candidate at the top of the ticket who frightens the voters. That is the paradox of Mr Biden’s candidacy.

Because he has flip-flopped on abortion rights and school desegregation by busing, because he comes across as the grandfather he is, he is viewed with suspicion on the left.

Yet that is precisely what makes him reassuring, or at least unfrightening, to voters in states like Montana and Georgia where Democrats must win to gain a majority in the Senate. It is Mr Biden’s caution that opens up the possibility of more change than a real radical would.

That may be even more true in 2020 than in the past. Though Mr Trump’s victory in 2016 was presented, not least by him, as the triumph of the enraged and downtrodden against a broken system, it came after 20 consecutive quarters of falling unemployment, when there were few threats from terrorism at home.

This time is different. With 128,000 Americans dead from covid-19 and with unemployment rife, the centrist virtues of decency, experience and a willingness to act on advice from competent people could well seem more alluring.

For a sense of what that means in practice, consider Mr Biden’s platform. His campaign website is a smorgasbord of policy plans, most of which would never happen even if he were to win. But two of them conceivably could.

The first is a public option in health care, allowing Americans to buy health insurance from the government. America has been inching its way towards universal health care, a move that Mr Trump has been unable to reverse. Under a Biden presidency it could come within touching distance.

The second policy is a significant reduction in greenhouse-gas emissions. Mr Biden wants to pass legislation to bind America to reaching net-zero emissions by 2050. Add to this Mr Biden’s return to multilateral engagement in foreign policy—which America’s allies would wholeheartedly endorse, and which could begin to steady a chaotic world.

Even if Mr Biden accomplished only part of this agenda, the criticisms from the Democratic left would seem churlish.

Some consequential presidents have been accidental radicals. Think of Lyndon Johnson, who took office after JFK’s assassination and passed the Civil Rights Act, or George W. Bush, transformed by 9/11 from a compassionate conservative into a neocon who started two of his country’s longest wars.

To have a hope of a transformative presidency, Mr Biden must not misread the paradox on which his future depends. It is by cleaving to the centre that he can best lead America in a new direction.

Coronavirus could kill off populism

Trump, Bolsonaro and Johnson have all demonstrated incompetence in a crisis

Gideon Rachman

James Ferguson illustration of Gideon Rachman column ‘Coronavirus could kill off populism’
© James Ferguson

Populists hate to be unpopular. That is why they have proved so bad at handling Covid-19, a crisis that brings nothing but grim news — death, economic destruction and curtailed freedoms.

Donald Trump, the US president, and Jair Bolsonaro, Brazil’s president, are the two most prominent populist leaders in the western world. The disastrous results of their approach to coronavirus are now becoming apparent. Last week, Brazil became the second country in the world, after the US, to record more than 50,000 Covid-19 deaths.

The distinguishing characteristic of the Trump-Bolsonaro approach to Covid-19 is a fatal inability to face reality. Mr Trump virtually ignored the virus through January, February and half of March. At various times he has suggested that it would disappear by magic and that injections with disinfectant might be a good remedy. As new cases and deaths continue to surge, Mr Trump’s latest bright idea is to argue that America should simply stop testing, in the hope that reality will disappear if it is simply ignored.

Mr Bolsonaro has been even more flamboyantly irresponsible — dismissing Covid-19 as a mere sniffle, addressing anti-lockdown protests and ousting two health ministers.

Both men are now paying a significant political price for their incompetence. Mr Trump is trailing badly in the polls, ahead of the November presidential election. Mr Bolsonaro has also seen his approval rating slump — amid talk of impeachment and investigations into corruption in his inner circle.

In Britain, Boris Johnson has been more respectful of the scientific consensus. But, early in the crisis, the prime minister did succumb to one of the biggest flaws in the populist approach: a dangerous reluctance to act on bad news. As other European nations went into lockdown, he proclaimed that “we live in a land of liberty” and delayed taking action. Partly as a result, the UK has the highest number of Covid-19 deaths in Europe. In just two months, Mr Johnson has gone from record popularity to a negative approval rating.

By contrast, Angela Merkel — who is detested by Mr Trump and many other populist leaders — has had a good crisis. Germany has one of Europe’s lowest per capita death rates. When Mr Johnson protested in parliament last week that there is not a single example of a country with an effective contact-tracing app, Sir Keir Starmer, the leader of the opposition, responded with a single word: Germany.

The contrast between Ms Merkel’s performance and those of the populists demonstrates that an ability to understand evidence is a useful trait in a leader. The German chancellor has a doctorate in chemistry. By contrast, Mr Trump is a real estate developer, Mr Bolsonaro is a former army captain and Mr Johnson has a second-class degree in classics. Ms Merkel was able to give a calm and clear explanation of the mathematics of infection rates and to act upon it; Mr Trump complains that the US is doing too many tests.

Ms Merkel has also surged in the polls — recording her highest approval ratings for many years. By contrast, Germany’s populist Alternative for Deutschland party — traditionally hostile to the establishment line on everything from the EU to vaccinations — has slumped.

Observing this pattern, Francis Fukuyama of Stanford University speculated to the BBC recently: “The Covid-19 epidemic may actually lance the boil of populism.” Matthew Goodwin, co-author of National Populism — The Revolt Against Liberal Democracy, recently set out a chain of entirely plausible events, which would change the tone of world politics over the next few years.

These would include the electoral defeat of Messrs Trump, Bolsonaro and Johnson, the re-election of President Emmanuel Macron in France and a slump in support for the AfD. Collectively, Mr Goodwin suggests that would mean, “Liberalism is back. Populism is out.”

The defeat of Mr Trump in particular would have global implications — since he has served as an inspiration for “national populists”, including Mr Bolsonaro, the governments of Hungary and Poland and the radical right in France, Germany, Italy and elsewhere.

Liberals have good cause to hope that populism will emerge severely damaged by Covid-19. But they should not celebrate too soon. Mr Trump has had a very bad few months. But the prospect of a “culture war” in America — centring on emotive issues like race and national symbols — could help his campaign.

The forces that first fuelled populism have also not disappeared. As Mr Goodwin points out, some of the social groups most drawn to populism — people without a university education and the poorly paid — will be hit particularly hard by an economic slump.

And then there is the possibility that, amid a crisis, the norms of democratic politics will simply break down. Mr Trump has already unnerved many political observers with his repeated assertions that November’s election will be rigged. Mr Bolsonaro has packed his cabinet with generals and said that the military will ignore “absurd” rulings “to remove a democratically elected president” — an apparent suggestion that the military would refuse to accept a successful impeachment in Congress.

Populism may indeed be rejected by voters in the wake of Covid-19. But there is no guarantee that the populists will go quietly.

The Mystery of High Stock Prices

Why is the market doing so well when the economy is doing so poorly?

By Steven Rattner

Brendan Mcdermid/Reuters

From the Department of Curiosities: On Tuesday, as the number of new coronavirus cases continued to spike to record levels, the stock market closed out its strongest quarter in more than two decades.

That was just one stop for the equity markets on a spring roller coaster ride, three months that saw the fastest 30 percent decline in stock prices in history, followed by the fastest 50-day increase on record.

This year’s volatility may be extreme, but it’s only the latest of many seeming disconnects between stocks and the economy. In March 2009, for example, while reported monthly job losses were topping 700,000, share prices abruptly ended their 17-month decline and began a recovery that essentially lasted until the virus arrived.

What gives? Why has an economy that has experienced the biggest collapse since the Great Depression not — at least to date — inflicted any lasting damage on a market that is often expected to reflect the state of the economy or, at least, of corporate profits?

Some hold the view that the economy’s troubles will be short-lived; a V-shaped recovery will soon unfold and the stock market is merely looking ahead. Others cite the upsurge in buying by small individual investors.

My vote for the most significant driver of stock prices is the huge amount of liquidity that the Federal Reserve has injected into the financial system, in an effort to counteract the depressive economic impact of the virus.

That has pushed interest rates to record lows, turning money market funds, bonds and other fixed-income instruments into low-returning investments. The Standard & Poor’s index of 500 stocks, for example, currently has a dividend yield of 1.9 percent, compared with 0.7 percent for 10-year Treasury notes.

Unusually, an investor can now make more in current income from stocks than from high-quality fixed-income securities while participating in any future appreciation in share prices. (Yes, while stocks can also go down, over the long term, they have always appreciated.)

Coincidence or not, the day the Fed announced a massive injection of liquidity, the plunge in the market abated and the extraordinary recovery in stocks began.

“Don’t fight the Fed” has been a mantra for investors for decades. During the tenure of Alan Greenspan as Fed chairman, the notion that the Fed would provide a fire hose of liquidity whenever a crisis threatened became known as the “Greenspan put.”

In fairness, the Fed is not the only factor influencing the market. Individual investors, known for their often poor timing of entry and exit points, have been trading actively, aided by commissions that major online brokers have dropped to zero.

That has created some weird anomalies: After pandemic losses drove Hertz shares below $1 and the company filed for bankruptcy, small investors piled in and sent the stock briefly above $5, even though shareholders rarely receive material proceeds from a bankruptcy.

However, as a whole, data on fund flows do not show — at least yet — enough new retail money coming into the market to materially account for its quick and strong recovery.

And the overall strong performance of stocks masks the fact that the market has recognized that profits of fast-growing technology companies have not been significantly hurt by the pandemic while more cyclical companies in manufacturing, retail and the like are suffering mightily.

Since the market peaked on Feb. 19, the tech-heavy Nasdaq index is up four percent essentially unchanged while the Dow Jones average — more oriented toward cyclical companies — has fallen by 12 percent.

Nonetheless, many legendary investors — from Stanley Druckenmiller to Paul Tudor Jones — remain deeply concerned about the gap between share prices and economic fundamentals.

Warren Buffett, who made billions for his company, Berkshire Hathaway, by investing heavily during the financial crisis, appears to have mostly stayed on the sidelines.

In recent days, the market has seemed sympathetic to their view. As virus cases have begun spiking, stock prices have shuddered, as they did on Friday, June 26. But so far, at least, they have quickly stabilized, albeit below the highs of early June.

So at the moment, as much as President Trump would like to think otherwise, lofty stock prices are not a sign of a strong economy.

And in the long run, the view of professional investors that share prices must eventually align with economic fundamentals will prevail.

To me, those fundamentals look scary. The new climb in virus cases threatens to force shutdowns and delay reopenings. At best, the recovery is likely to be lengthy, particularly for industries including travel and hospitality.

Without a robust economy, corporate profits are unlikely to recover fully, eventually pulling down stocks. To know when that recovery might occur, keep a close eye on the path of the virus.

But also, don’t forget to watch the Fed.

Priorities for the COVID-19 Economy

With hopes of a sharp rebound from the pandemic-induced recession quickly fading, policymakers should pause and take stock of what it will take to achieve a sustained recovery. The most urgent policy priorities have been obvious since the beginning, but they will require hard choices and a show of political Will.

Joseph E. Stiglitz

stiglitz274_Gav GoulderIn Pictures via Getty Images_coronavirusclimatechangeprotest

NEW YORK – Although it seems like ancient history, it hasn’t been that long since economies around the world began to close down in response to the COVID-19 pandemic. Early in the crisis, most people anticipated a quick V-shaped recovery, on the assumption that the economy merely needed a short timeout. After two months of tender loving care and heaps of money, it would pick up where it left off.

It was an appealing idea. But now it is July, and a V-shaped recovery is probably a fantasy. The post-pandemic economy is likely to be anemic, not just in countries that have failed to manage the pandemic (namely, the United States), but even in those that have acquitted themselves well.

The International Monetary Fund projects that by the end of 2021, the global economy will be barely larger than it was at the end of 2019, and that the US and European economies will still be about 4% smaller.

The current economic outlook can be viewed on two levels. Macroeconomics tells us that spending will fall, owing to households’ and firms’ weakened balance sheets, a rash of bankruptcies that will destroy organizational and informational capital, and strong precautionary behavior induced by uncertainty about the course of the pandemic and the policy responses to it.

At the same time, microeconomics tells us that the virus acts like a tax on activities involving close human contact. As such, it will continue to drive large changes in consumption and production patterns, which in turn will bring about a broader structural transformation.

We know from both economic theory and history that markets alone are ill suited to manage such a transition, especially considering how sudden it has been. There’s no easy way to convert airline employees into Zoom technicians. And even if we could, the sectors that are now expanding are much less labor-intensive and more skill-intensive than the ones they are supplanting.

We also know that broad structural transformations tend to create a traditional Keynesian problem, owing to what economists call the income and substitution effects. Even if non-human-contact sectors are expanding, reflecting improvements in their relative attractiveness, the associated spending increase will be outweighed by the decrease in spending that results from declining incomes in the shrinking sectors.

Moreover, in the case of the pandemic, there will be a third effect: rising inequality. Because machines cannot be infected by the virus, they will look relatively more attractive to employers, particularly in the contracting sectors that use relatively more unskilled labor. And, because low-income people must spend a larger share of their income on basic goods than those at the top, any automation-driven increase in inequality will be contractionary.

On top of these problems, there are two additional reasons for pessimism. First, while monetary policy can help some firms deal with temporary liquidity constraints – as happened during the 2008-09 Great Recession – it cannot fix solvency problems, nor can it stimulate the economy when interest rates are already near zero.

Moreover, in the US and some other countries, “conservative” objections to rising deficits and debt levels will stand in the way of the necessary fiscal stimulus.

To be sure, the same people were more than happy to cut taxes for billionaires and corporations in 2017, bail out Wall Street in 2008, and lend a hand to corporate behemoths this year. But it is quite another thing to extend unemployment insurance, health care, and additional support to the most vulnerable.

The short-run priorities have been clear since the beginning of the crisis. Most obviously, the health emergency must be addressed (such as by ensuring adequate supplies of personal protective equipment and hospital capacity), because there can be no economic recovery until the virus is contained.

At the same time, policies to protect the most needy, provide liquidity to prevent unnecessary bankruptcies, and maintain links between workers and their firms are essential to ensuring a quick restart when the time comes.

But even with these obvious essentials on the agenda, there are hard choices to make. We shouldn’t bail out firms – like old-line retailers – that were already in decline before the crisis; to do so would merely create “zombies,” ultimately limiting dynamism and growth. Nor should we bail out firms that were already too indebted to be able to withstand any shock.

The US Federal Reserve’s decision to support the junk-bond market with its asset-purchase program is almost certainly a mistake. Indeed, this is an instance where moral hazard really is a relevant concern; governments should not be protecting firms from their own folly.

Because COVID-19 looks likely to remain with us for the long term, we have time to ensure that our spending reflects our priorities. When the pandemic arrived, American society was riven by racial and economic inequities, declining health standards, and a destructive dependence on fossil fuels.

Now that government spending is being unleashed on a massive scale, the public has a right to demand that companies receiving help contribute to social and racial justice, improved health, and the shift to a greener, more knowledge-based economy. These values should be reflected not only in how we allocate public money, but also in the conditions that we impose on its recipients.

As my co-authors and I point out in a recent study, well-directed public spending, particularly investments in the green transition, can be timely, labor-intensive (helping to resolve the problem of soaring unemployment), and highly stimulative – delivering far more bang for the buck than, say, tax cuts.

There is no economic reason why countries, including the US, can’t adopt large, sustained recovery programs that will affirm – or move them closer to – the societies they claim to be.

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is Chief Economist at the Roosevelt Institute and a former senior vice president and chief economist of the World Bank. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.