Thought of the Week:
This week, the Washington office had the opportunity to meet with former Congressional Budget Office (CBO) Director Douglas Holtz-Eakin to discuss the Biden administration’s fiscal and regulatory policy and the U.S.’s economic outlook. A major topic of discussion was President Biden’s recently issued Executive Order (EO) on promoting competition in the American economy. Broadly, the order directs federal regulatory agencies to move aggressively to address anti-competitive practices in health care, agriculture, transportation, internet services, technology, and labor markets. It also focuses particular concern on large firms’ acquisitions of competitors and competition with small businesses. While some contend the EO reflects bipartisan concerns about the power of large technology companies, Mr. Holtz-Eakin contends the order is not just a “mistake” but “dangerous” in that it does not apply the consumer welfare standard to guide competition policy. In fact, the National Association of Manufacturers (NAM) agrees, stating that the order positions the federal government as the arbiter of what lines of business companies can invest in and limits the ability of firms to grow; in essence, it extends the effort by the government to pick winners and losers among industries. Behind the order seems to be a belief among politicians in both parties that the U.S. faces some looming catastrophes that require a radical rethinking of economic policy. Both NAM and Mr. Holtz-Eakin think they are wrong. While they acknowledge that the country has serious challenges, they contend that the foundations of the economy are healthy. What has changed to make the populist right and progressive left seem to agree that the dominant consensus in economic policy of recent decades—a central role for markets, openness to globalization and free trade, and wariness of over-regulation—has been bad for Americans? One answer is simply that this consensus, and President Biden’s order, are predicated on the false view that the past several decades have been bad for workers. In actuality, tech companies have invested heavily in R&D to generate new services for consumers; online shopping has significantly expanded consumer choice and substantially reduced prices; in less than a year “Big Pharma” created multiple vaccines that are remarkably effective against a once-in-a-century global pandemic; and “Big Telecom” has allowed millions of Americans to work from home over the past year. Beyond moving antitrust policy away from the consumer welfare standard, which is supported by the mainstream of both political parties and by the courts, the Biden order is an example of government overreach and effort to micromanage the economy. The radical step of adopting the “big is bad” mantra is not only unnecessary, but could lead to politicized enforcement, higher prices, and lower quality goods and services. The U.S. faces considerable economic challenges, and it needs better policies to overcome them. Radical changes in public policy, predicated on a distorted understanding of economic outcomes, is not the answer.
Thought Leadership—from our Associations, Think Tanks, and Consultants:
Trade Analyst Laura Chasen: The auto 232 report—even the authors were embarrassed: The Biden administration released the Section 232 report that claimed imported autos and auto parts posed a national security threat. The report was done at the request of President Trump, but he refused to release it and did not take any of the actions recommended in the report. Nonetheless, he kept the threat of auto tariffs alive to gain leverage against Japan and the EU. The report was completed in 2019, and the time to take action in response to it has long passed. The White House may have released the report now to undermine future efforts to impose tariffs on national security grounds that are not clearly justifiable on defense-related concerns. At the same time, President Biden has yet to remove Section 232 tariffs on steel and aluminum. The steel and aluminum reports were released publicly when completed, and while better than the auto 232 report, they too were generally weak (the defense secretary at the time disagreed that metal imports were a national security threat). It would appear that the Biden administration is not looking to preserve its options to impose more unilateral tariffs on close allies on flimsy grounds, but whether the release will encourage the administration to end the steel and aluminum tariffs on all allied trading partners remains to be seen.
Eurasia Group: Between trillions in spending and a shrinking appetite for deficits, something has to give: Democrats on the Senate Budget Committee have agreed to a framework for $3.5 trillion in spending, which they intend to move in addition to infrastructure spending. While one group of senators continue work on the $1.2 trillion Bipartisan Infrastructure Framework (BIF), which includes roughly $570 billion in new physical infrastructure spending, any final spending packages will have to navigate a narrow channel between the demands of moderates to fully offset the cost of new spending and progressives who want to pass a historic expansion in government spending before they likely lose the House next year. Because it is unlikely that any combination of realistic tax increases and budget gimmicks can be found to finance the $4 trillion in spending, the topline number has to come down or the deficit has to go up. In the past, when trapped between ambition and reality, the thing that always gave was the deficit; however, sustained levels of high inflation and continuing warnings from former Treasury Secretary Summers has narrowed the fiscal space that lawmakers have to get a deal. The baseline continues to be a deal landing between $2-3 trillion, with a combination of budget gimmicks and a longer-term budget window for tax increases being the flex points that grease the skids for a partisan agreement in Q3.
Eurasia Group: Cuban Protests Represent Risk for Regime and Push Biden to Keep Existing Policies: Thousands of Cubans took to the streets on July 11 to protest food and pandemic-related shortages in the most significant demonstrations in decades; in response, the regime will ramp up arrests and block internet access, which may help contain the scope of unrest. However, President Miguel Diaz-Canel has limited economic resources and policy options with which to address public concerns, suggesting that the situation will remain delicate and a scenario in which protests escalate cannot be ruled out. Given increased media scrutiny and Florida electoral considerations, the Biden administration will likely continue to back the protests while finding it more difficult to ease restrictions put in place by President Trump.
In Other Words (Quote):
“We are completely at their mercy. I think we should be prepared for the worst.”
— Rep. Jim Cooper (D-TN) on the GOP state legislature’s control of redistricting
Did You Know:
Axios reports that about 1.8 million out-of-work Americans have turned down jobs because of the generosity of unemployment insurance benefits.
Image of the Week: