One year on

The calamity facing Joe Biden and the Democrats

The president needs to distance himself from his party’s left fringe

Two of the better books on the job invented for George Washington share a title: “The Impossible Presidency”. 

Even the most capable presidents are doomed to fail, writes Jeremi Suri in the more recent of them: “Limiting the failure and achieving some good along the way—that is the best we can expect.”

Even by these gloomy standards, Joe Biden is foundering. 

Having received more votes than any candidate in history, he has seen his approval ratings collapse. 

At this point in a first term only Donald Trump was more unpopular. 

The Democrats have just lost the three top statewide offices in Virginia, which Mr Biden won by ten percentage points a year ago. 

This augurs poorly for next year’s mid-terms: his party will probably lose its congressional majorities.

Democrats in Congress are riven by factional bickering. 

Earlier this year they passed a big stimulus, but the rest of Mr Biden’s agenda—a $1trn bipartisan infrastructure package and a social-spending bill worth about $1.7trn over ten years—has stalled. 

If passed, the legislation will almost certainly include more money for infrastructure, a poverty-cutting child tax credit, funding for pre-school, a reduction in the cost of prescription drugs and a clean-energy tax credit which will encourage private investment in new generating capacity. 

This spending is likely to be funded by harmful tax changes, but voters may not care.

Indeed, their spirits may lift next year. 

Covid-19 cases have fallen by half since September. 

If unemployment drops further, supply-chain blockages ease and inflation ebbs, life will get easier for those who feel that the odds are against them. 

Yet, for Mr Biden, that is where the good news ends.

Some of his problems are inbuilt. 

American politics is subject to patterns more like the laws of physics than the chances of horse-racing. 

One is that the president’s party loses seats in the mid-terms. 

Democrats have only a four-seat cushion in the House of Representatives, so their majority is probably doomed. 

Whatever Mr Biden does, the legislative phase of his presidency is therefore likely to give way to the regulatory phase. 

Yet, with a conservative majority on the Supreme Court, he will find his room to remake the country with his pen and phone curtailed.

Beyond next year, the Democrats’ prospects are even bleaker. 

Their unpopularity with non-college-educated whites costs them large tracts of the country outside cities and suburbs. 

To win the electoral college, the House of Representatives and the Senate they need a greater share of the raw vote than any party in history. 

Winning under these conditions, while simultaneously repairing national institutions and making progress on America’s problems, from public health to climate to social mobility, is a task for a politician of superhuman talents.

Mr Biden is not that guy. 

He has dealt admirably with personal misfortune and by most accounts is kind and decent. 

However, there is a reason why winning the presidency took him more than 30 years of trying. 

Democratic primary voters picked him not for inspiration, but largely as a defensive measure to block the progressives’ champion, Bernie Sanders.

Mr Biden campaigned on his competence, centrism, experience in foreign policy and a rejection of nerve-jangling Trumpism. 

But the withdrawal from Afghanistan was a debacle, he has governed to the left and the culture wars rage as fiercely as ever. 

The fact that no voters seem to have a clue what is in the infrastructure and social-spending bills is partly his fault. 

Child poverty has fallen by a quarter, thanks to legislation passed by Congress on his watch. 

This would be news even to most Democrats.

The problem is not just Mr Biden, though. 

His party’s left-wing, college-educated activist class consistently assumes that the electorate holds the same attitudes on race and on the role of the government as they do. 

Virginia is the latest example of this folly. 

America is a young, diverse country. 

The median age is under 40 and just 60% of the country identifies as white. 

The electorate is different. 

Taking an average of the 2018 and 2014 mid-terms as a guide, 75% of voters will be white and their median age next year will be 53. 

Democrats have a huge lead among the college-educated. 

But only 36% of Americans completed four-year degrees. 

That is far too small a base, especially as Republicans make inroads with non-white voters.

When Richard Nixon won in 1972 the new-left Democrats were painted as the party of “acid, amnesty and abortion”. 

The new, new left is just as easily caricatured as the party of white guilt and cancel culture, of people who say “birthing person” instead of “mother” and want to set the fbi on parents who have the gall to criticise teachers.

These noisy activists, and the small number of radicals they elect from safe Democratic seats, make it hard for the party to win in more moderate areas, even though they do not represent the majority of the party’s voters. 

Immigration activists are camped outside the vice-president’s residence complaining that Mr Biden has not changed Mr Trump’s border policies. 

By contrast, Democratic voters in Minneapolis, where George Floyd was murdered, have just voted against replacing the police department with a department of public safety.

Countering the Republican message that he carries out the wishes of the radical left will require Mr Biden to be much tougher on his party’s fringe. 

That may mean doing things they hate. 

He could campaign to hire more police officers in cities where the murder rate has spiked (“refund the police”, perhaps), or pick fights with the school board in San Francisco, which thinks that Abraham Lincoln is a symbol of white supremacy.

If Democrats believe that grubby attempts to win power are beneath them, then they should look at what is happening in the Republican Party. 

Glenn Youngkin’s election as governor of Virginia suggests that Republicans can win in swing states, even with Mr Trump as head of the party, by being cheerful, Reaganesque culture warriors who know how to throw red meat to the base. 

In a two-candidate race for the presidency, both nearly always have a real chance of winning. 

Mr Biden and his party need to think hard about what they are prepared to do to limit the risk of another four years of Mr Trump. 

Because that is where a failed Biden presidency could well lead. 

Monetary and Inflationary Traps

Having adopted a more flexible policy framework in response to the low-inflation conditions that preceded the COVID-19 crisis, the US Federal Reserve now finds itself confronting an entirely different economic regime. The balance of forces is thus weighing heavily against decisive action to control today’s price increases.

Raghuram G. Rajan

CHICAGO – Price increases in the United States are spreading across goods and services, and inflation also can be seen in broad-based business inputs such as transportation, energy, and increasingly labor. 

How should we expect central bankers to react?

For its part, the US Federal Reserve has emphasized that it will contemplate raising interest rates only after it is done tapering its monthly asset purchases, which will be sometime in July 2022 at the current pace of unwinding. 

Nonetheless, some members of the Fed’s rate-setting Federal Open Market Committee worry that the central bank will have fallen behind the curve by that time, forcing it to raise rates more abruptly, to higher levels, and for longer than anticipated. 

Hence, Fed Vice Chair Richard Clarida recently indicated that the Fed might consider speeding up the taper (so that it can raise rates sooner) when its members meet again in December.

Notwithstanding the growing (but often unspoken) worries at the Fed, central bankers nowadays are reticent to see inflation as a problem. 

In the past, the current levels of inflation would have prompted them to square their shoulders, look determinedly into the TV cameras, and say, “We hate inflation, and we will kill it” – or words to that effect. 

But now they are more likely to make excuses for inflation, assuring the public that it will simply go away.

Clearly, the prolonged period of low inflation after the 2008 global financial crisis – when the Fed had great difficulty elevating the inflation rate to its 2% target – has had a lasting impression on central bankers’ psyches. 

The obvious danger now is that they could be fighting the last war. 

Moreover, even if they do not fall into that trap, structural changes within central banks and in the broader policymaking environment will leave central bankers more reluctant to raise interest rates than they were in the past.

To adapt to the pre-pandemic low-inflation environment, the Fed changed its inflation framework so that it would target average inflation over a (still-undefined) period. 

This meant that it could allow higher inflation for a while without being criticized for falling behind the curve – a potentially useful change at a time when elevating the public’s inflation expectations was thought to be the key problem. 

Gone was the old central-bank adage that if you are eyeball to eyeball with inflation, it is already too late. 

Instead, the Fed would stare at inflation for a while and act only when it was sure that inflation was here to stay.

Moreover, the new framework places a much greater emphasis on ensuring that employment gains are broad-based and inclusive. 

Because historically disadvantaged minorities in the US are often the last to be hired, this change implied that the Fed would potentially tolerate a tighter labor market than in the past, and that it would have more flexibility to run the economy hot, which is useful in an environment of weak demand. 

Yet now the Fed is facing an environment of strong demand coupled with supply-chain disruptions that look unlikely to abate quickly. 

Ironically, the Fed may have changed its policy framework just as the economic regime itself was changing.

But shouldn’t greater flexibility give decision-makers more options? 

Not necessarily. 

In the current scenario, Congress has just spent trillions of dollars generating the best economic recovery that money can buy. Imagine the congressional wrath that would follow if the Fed now tanked the economy by hiking interest rates without using the full flexibility of its new framework. 

Put differently, one of the benefits of a clear inflation-targeting framework is that the central bank has political cover to react quickly to rising inflation. 

With the changed framework, that is no longer true. 

As a result, there will almost surely be more inflation for longer; indeed, the new framework was adopted – during what now seems like a very different era – with precisely that outcome in mind.

But it is not just the new framework that limits the effectiveness of the Fed’s actions. 

Anticipating loose monetary-policy and financial conditions for the indefinite future, asset markets have been on a tear, supported by heavy borrowing. 

Market participants, rightly or wrongly, believe that the Fed has their back and will retreat from a path of rate increases if asset prices fall.

This means that when the Fed does decide to move, it may have to raise rates higher in order to normalize financial conditions, implying a higher risk of an adverse market reaction when market participants finally realize that the Fed means business. 

Once again, the downside risks of a path of rate hikes, both to the economy and to the Fed’s reputation, are considerable.

The original intent in making central banks independent of the government was to ensure that they could reliably combat inflation and not be pressured into either financing the government’s fiscal deficit directly or keeping government borrowing costs low by slowing the pace of rate hikes. 

Yet the Fed now holds $5.6 trillion of government debt, financed by an equal amount of overnight borrowing from commercial banks.

When rates move up, the Fed itself will have to start paying higher rates, reducing the dividend it pays the government and increasing the size of the fiscal deficit. 

Moreover, US debt is at around 125% of GDP, and a significant portion of it has a short-term maturity, which means that increases in interest rates will quickly start showing up in higher refinancing costs. 

An issue that the Fed did not have to pay much attention to in the past – the effects of rate hikes on the costs of financing government debt – will now be front and center.

Of course, all developed-country central banks, not just the Fed, face similar forces that push toward restraint on rate hikes. 

So, the first large central bank that moves may also cause its currency’s exchange rate to appreciate significantly, slowing economic growth. 

This is yet another reason to wait. Why not let someone else move first, and see if they invite market and political wrath?

If the post-2008 scenario repeats, or if China and other emerging markets transmit disinflationary impulses across the global economy, waiting will have been the right decision. 

Otherwise, the current impediments to central-bank action will mean more and sustained inflation, and a more prolonged fight to control it. 

Fed Chair Jerome Powell will have a lot to weigh as he begins his second term.

Raghuram G. Rajan, former governor of the Reserve Bank of India, is Professor of Finance at the University of Chicago Booth School of Business and the author, most recently, of The Third Pillar: How Markets and the State Leave the Community Behind. 

China blocks access to shipping location data

Number of identification signals drops dramatically after new data law is introduced

Eleanor Olcott, Harry Dempsey and Steven Bernard in London 

China has blocked public access to shipping location data, citing national security concerns, in another sign of its determination to control sources of sensitive information.

The number of Automatic Identification System (AIS) signals from ships in Chinese waters dropped dramatically from a peak of more than 15m per day in October to just over 1m per day in early November.

The AIS was initially developed to help avoid collisions between vessels and support rescue efforts in the event of a disaster. But it also become a valuable tool to enhance supply chain visibility and for governments to track activity in overseas ports.

“The intelligence extracted from this data endangers China’s economic security and the harm cannot be ignored,” warned a Chinese state media report on November 1 on AIS stations in the coastal province of Guangdong.

Authorities interviewed in the report said foreign intelligence agencies, companies and think-tanks use the system to keep tabs on China’s military vessels and analyse economic activity by surveying cargo traffic.

The decline in AIS data is one of the first victims of China’s new data protection regime, which restricts transfers of sensitive information overseas. 

Companies wanting to send important data abroad need to undergo a security assessment with the country’s data watchdog.

Anastassis Touros, in charge of the AIS team at information provider MarineTraffic, said he did not believe that AIS data pose a risk to national security, and that military vessels often hide their location from the trackers.

The drop-off in AIS data from the first week of November has impacted the ability of shipping companies to track the activity at Chinese ports accurately, said Charlotte Cook, head trade analyst at VesselsValue, a maritime data provider.

Touros said decreased visibility would likely cause more congestion at Chinese ports, which have been gridlocked amid poor weather and pandemic-related disruptions, because it would become harder to time vessel arrivals with low-traffic periods. 

But one shipping executive and two freight forwarders said it was unlikely that the lack of terrestrial AIS data would cause worse bottlenecks.

Safety of vessels navigating in Chinese waters is also unlikely to be affected, said Gregory Poling, the co-author of a recent Center for Strategic and International Studies report that used AIS data to analyse militia deployments. 

He said Chinese officials will have other systems to track vessels through coastal waters.

AIS data give analysts insights into port activity globally, but China is unique in describing this data as a national security problem. 

Touros noted that even the stringent European General Data Protection Regulation does not restrict providers from using AIS.

But Beijing is more sensitive to the sharing of geolocation data, as highlighted by the punishment doled out to ride-hailing company Didi Chuxing for perceived data violations.

“Collecting and sharing of geolocation data, especially when it comes to shipping routes up and down the Chinese coast, is a matter of great sensitivity,” said Carolyn Bigg, a Hong Kong-based technology lawyer at DLA Piper.

Why All the Inflation Worries?

Some respected economists are talking as if the US economy is in serious inflationary trouble. But the current uptick in price growth is highly likely to be a largely benign consequence of the post-pandemic recovery.

J. Bradford DeLong

BERKELEY – In the past three years, technological advances have provided about one percentage point of warranted US real wage growth each year – admittedly, only half the rate of earlier times, but still something. 

Yet, real wages are currently 4% below their warranted value from adding on the underlying fundamental productivity trend to the pre-pandemic real wage Employment Cost Index (ECI) level. 

Does that sound like a “high-pressure” labor market to you?

Those who believe that the US labor market is in some sense “tight” point out that the ECI increased by 3.7% in the year to September – well above its 3% annual growth rate in the pre-pandemic years of former US President Donald Trump’s administration. 

But, because US consumer prices have increased by 5.4% over the past year, the ECI-basis real wage has fallen by 1.7% in that period. 

In a high-pressure economy with a tight labor market, workers would have enough bargaining power to obtain real wage increases.

Nowcasting is extremely difficult, and hazardous. But the “now” that I see today is the one I forecasted two to three quarters ago. 

Yes, the recovering US economy, like a driver who suddenly accelerates, is leaving inflationary skid marks on the asphalt. 

But, as I argued in May, these should not concern us, because “burning rubber to rejoin highway traffic is not the same thing as overheating the engine.”

The US is not currently in a situation where too much money is chasing too few goods, which would result in a surfeit of demand for labor and likely trigger an inflationary spiral. 

This is despite the fact that the ongoing COVID-19 pandemic and its associated disruptions continue to cause a substantial undersupply of labor.

Today, the US economy’s overall employment-to-population ratio is three percentage points below what we used to regard as its full-employment level. 

The ratios for women, African-Americans, and workers without a college degree are, respectively, five, 4.5, and four percentage points below this level.

Yet, economists whom I respect talk as if the economy is in serious inflationary trouble. 

Jason Furman, a former chairman of President Barack Obama’s Council of Economic Advisers, thinks “the original sin was an oversized American Rescue Plan,” the $1.9 trillion recovery package that President Joe Biden signed into law in March. 

In Furman’s view, it would have been better to have less aggressive policy measures and thus a slower employment and growth recovery this year, because Biden’s plan “contributed to higher output but also higher prices.” 

And according to the same New York Times report, former US Treasury Secretary Larry Summers thinks that “inflation now risks spiraling out of control.”

The inflation worriers then argue that the COVID-19 crisis has permanently damaged the supply side of the economy by causing a lot of early retirements, as well as lasting disruption to the lean-and-mean supply chains on which a good deal of productivity and prosperity had depended. 


But similar arguments in the early 2010s, in the aftermath of the 2008 global financial crisis, aimed to justify policies that did not put the pedal to the metal and attempt rapidly to re-employ so-called “zero-marginal-product” workers. 

One consequence of this timidity was the election of Trump, whose rise was fueled by the rage of those who thought “elites” cared more about immigrants and minorities than they did about blue-collar workers whose economic opportunities had never recovered to pre-2008 levels.

Lastly, some claim that, regardless of whether or not the labor market is tight, inflation – whether driven by supply-side or demand-side factors – is high and salient enough that firms and households will swiftly incorporate it into their expectations. 

Thus, the inflationary snake has to be scotched now, while it is small, before it grows and devours everything of value.

But so far, rising inflation has not been incorporated into any of the “sticky” prices in the economy, according to the measure constructed by the Atlanta Federal Reserve. 

True, the financial market’s current 30-year breakeven inflation rate, at 2.35%, is more than half a percentage point above where it settled in the second half of the 2010s. 

But today’s rate is similar to that in the first half of the decade, and slightly below the level that would be consistent with the US Federal Reserve’s inflation target of 2% per year.

The current uptick in US inflation is highly likely to be simply rubber on the road, resulting from the post-pandemic recovery. 

There is no sign that inflation expectations have become de-anchored. 

The labor market is still weak enough that workers are unable to demand substantial increases in real wages. 

Financial markets are blasé about the possibility of rising inflation. And a substantial fiscal contraction is already in train.

Given these facts, why would anybody argue that the “original sin” was the “oversized American Rescue Plan,” and that tightening monetary policy starting right now is the proper way to expiate it? 

I, for one, simply cannot follow their logic.

J. Bradford DeLong is Professor of Economics at the University of California, Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates. 

Who Won What in the Bipartisan Infrastructure Deal

By Michelle Cottle

Credit...Kenny Holston for The New York Times

Finally! After months of excruciating negotiations, President Biden gets to take a victory lap in celebration of his own Big Freaking Deal.

Shortly before midnight Friday, the House passed the $1 trillion bipartisan infrastructure package on a 228-to-206 vote — including 13 G.O.P. votes in an era of mind-numbing partisanship. 

With the bill on its way to the president’s desk, Mr. Biden declared on Saturday morning that the spending was a “once-in-a-generation investment” — and rightly so. 

For years, states have struggled to shore up deteriorating systems, much less move ahead with the new technology and projects needed to keep America competitive. 

Multiple administrations and Congresses talked about addressing the problem. 

“Infrastructure week” became a running gag during Donald Trump’s presidency, because of his constant invocation of the concept and complete inability to deliver on it. 

But Joe Biden has delivered.

Admittedly, this is something of a partial delivery. 

The fate of the Build Back Better portion of Mr. Biden’s agenda, the ambitious social spending bill favored by progressives, is yet to be determined. 

Having worked to nudge his progressives into line for this win, Mr. Biden’s next challenge, getting his centrists to embrace a version of Build Back Better, looms large — and has many in his party on edge.

But for now, let’s focus on the achievement in hand: This is a major win for America.

The infrastructure bill will provide close to $600 billion in new federal spending over the next decade on a cornucopia of infrastructure delights: roads, rail, ports, water systems, bridges, dams, airports, broadband! 

It puts $47 billion toward helping communities deal with the impacts of climate change. 

Jobs will be created, “the vast majority” of which, Mr. Biden stressed, would not require a college degree. 

“This is a blue-collar blueprint to rebuild America,” he said.

It is also a much-needed win for Mr. Biden and congressional Democrats. 

For months, the public has suffered through the dispiriting sight of the party’s centrists and progressives slashing at each other over this bill and the Build Back Better plan to which it had been linked. 

Both bills have experienced multiple near-death experiences, and many, many Americans were beginning to doubt whether Democrats had what it takes to get anything done. 

Their basic competence was being called into question, and the rolling spectacle of — altogether now! — Democrats In Disarray likely contributed to the party’s poor showing in Tuesday’s elections.

Certainly, Tuesday’s losses served as a cattle prod — especially the Republicans’ overwhelming win in Virginia, which many political watchers had assumed was a solidly blue state. 

“Put up or shut up!” voters seemed to be saying to Democrats. 

Nothing focuses the mind like an electoral drubbing. 

The president and congressional leaders redoubled their efforts to get the feuding factions to take action on one, or preferably both, bills. 

Mr. Biden and House Speaker Nancy Pelosi spoke multiple times throughout Friday. 

She huddled with members in her office, while he worked the phones. 

Late into the night, there were arms being twisted, egos being stroked and deals being cut. 

The process wasn’t pretty, but the sausage got made. 

It’s impossible to know how much this victory will restore voters’ shaken faith in the president and his party, but it is a crucial start. 

Mr. Biden is making good on a key campaign promise that will benefit people in all 50 states. 

Ultimately, that is what Americans care about.

While we’re handing out kudos, Ms. Pelosi deserves to do a special victory dance of her own. 

Once again, the speaker showed that she knows how to herd her cats — even as they threatened to turn feral. 

Getting her progressive members to agree to embrace the infrastructure package without a vote on the social spending plan was a minor miracle. 

This achievement should rank right up there with Obamacare in terms of cementing Ms. Pelosi’s leadership legacy.

In addition to its substantive merits, this bill allows Mr. Biden to point and say: See, I told you I could get a big bipartisan win! 

Again, 13 House Republicans crossed the aisle to vote with Democrats. 

Only a half dozen progressives wound up opposing the bill. 

In this hyperpolarized age, with Republicans making obstructionism their go-to legislative move, this is something to crow about.

That said, the Democrats’ work is far from done. 

To get progressives to advance the infrastructure bill, several House centrists signed a statement committing themselves to supporting Build Back Better if a cost analysis from the nonpartisan Congressional Budget Office meets their expectations. 

That estimate is expected some time mid-November, and House leaders are now aiming for a vote during the week of Nov. 15.

Now, it doesn’t take a political whiz to recognize that there is a whole lot of wiggle room in the centrists’ promise. 

It also won’t matter much what House moderates have committed to if Joe Manchin or Kyrsten Sinema, the two Democratic centrists in the Senate who have been working to whittle the social spending bill down to a twig of its original form, decide they aren’t interested in passing anything else. 

Certainly, this is what progressives have feared all along: that once the party’s moderates got their beloved infrastructure dollars, they would have no incentive to support the investments in “human infrastructure” that progressives favor.

Centrists need to allay their colleagues’ fears and get serious about finalizing a compromise plan. 

This monthslong standoff has exacerbated rifts within the Democrats’ big tent. Tensions are high. 

Feelings are bruised. 

Trust is at an all-time low. 

The president has put his credibility on the line in these negotiations. 

Thus far, progressives have shown themselves much more serious about making compromises — even painful ones — in order to assuage the concerns of their spending-shy teammates. 

In passing the infrastructure bill, progressives gave up their leverage. 

Centrists need to respond with their own show of flexibility. 

A failure to do so risks fracturing the party’s already strained coalition.

It would also be a kick in the teeth to the millions of Americans who stand to benefit from the broadly popular measures contained in Build Back Better.

Mr. Biden and his congressional team deserve to bask in this moment. 

But they should only give themselves two cheers. 

There is more to be done. 

Will the next step be easy? 

Of course not. 

But as Nelson Mandela once observed — and this week’s infrastructure win drives home: “It always seems impossible until it’s done.”

Ms. Cottle is a member of the editorial board.