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Opinion: Biden’s infrastructure plan must look to the future, not wrap itself in a nostalgic view of past American greatness


CAMBRIDGE, Mass. (Project Syndicate)—President Joe Biden’s $2 trillion infrastructure plan is likely to be a watershed moment for the American economy, clearly signaling that the neoliberal era, with its belief that markets work best and are best left alone, is behind us. But while neoliberalism may be dead, it is less clear what will replace it.

The challenges that the United States and other advanced economies face today are fundamentally different from those they faced in the early decades of the 20th century. Those earlier challenges gave rise to the New Deal and the welfare state. Today’s problems—climate change, the disruption of labor markets due to new technologies, and hyper-globalization—require new solutions.

Capitol Report: Biden says he’s ‘prepared to negotiate’ on infrastructure as he meets bipartisan group of lawmakers

We need a new economic vision, not nostalgia for a mythicized age of widely shared prosperity at home and global supremacy abroad.

On climate change, Biden’s plan falls short of the Green New Deal advocated by progressive Democrats such as Rep. Alexandria Ocasio-Cortez. But it contains significant investments in a green economy, such as supporting markets for electric vehicles and other programs to cut carbon-dioxide emissions, making it the largest federal effort ever to curb greenhouse-gases.


Economics is different from an arms race. A strong U.S. economy should not be a threat to China, just as Chinese economic growth need not threaten America.

On jobs, the plan aims to expand employment offering good pay and benefits, focusing, in addition to infrastructure, on manufacturing and the growing and essential care economy.

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The role of government

New ways of thinking about the role of government are as important as new priorities. Many commentators have framed Biden’s infrastructure plan as a return to big government. But the package is spread over eight years, will raise public spending by only 1 percentage point of gross domestic product, and is projected to pay for itself eventually.

A boost in public investment in infrastructure, the green transition, and job creation is long overdue. Even if the plan were nothing more than a big public investment push financed by taxes on large corporations, it would do a lot of good for the U.S. economy.


We need a new economic vision, not nostalgia for a mythicized age of widely shared prosperity at home and global supremacy abroad.

But Biden’s plan can be much more. It could fundamentally reshape the government’s role in the economy and how that role is perceived.

Traditional skepticism about government’s economic role is rooted in the belief that private markets, driven by the profit motive, are efficient, while governments are wasteful. But the excesses of private markets in recent decades—the rise of monopolies, the follies of private finance, extreme concentration of income, and rising economic insecurity—have taken the shine off the private sector.

At the same time, it is better understood today that in a complex economy characterized by so much uncertainty, top-down regulation is unlikely to work. Regardless of the specific domain—promoting green technologies, developing new institutional arrangements for home-care workers, deepening domestic supply chains for high-tech manufacturing, or building on successful workforce development programs—government collaboration with nongovernmental actors will be essential.


If it succeeds, the example it sets of markets and governments acting as complements, not substitutes—demonstrating that each works better when the other pulls its weight—could be its most important and enduring legacy.

In all these areas, the government will have to work with markets and private businesses, as well as other stakeholders such as unions and community groups. New models of governance will be required to ensure public objectives are pursued with the full participation of those actors who have the knowledge and capacity to achieve them. The government will have to become a trusted partner; and it will have to trust other social actors in turn.

In the past, each excessive swing in the state-market balance has eventually prompted an excessive swing in the opposite direction. The Biden plan can break this cycle. If it succeeds, the example it sets of markets and governments acting as complements, not substitutes—demonstrating that each works better when the other pulls its weight—could be its most important and enduring legacy.

Biden’s unhelpful framing

In this regard, it is unhelpful to view the Biden plan as a way to restore America’s competitive position in the world, especially vis-à-vis China. Unfortunately, Biden himself is guilty of this framing. The package will “put us in a position to win the global competition with China in the coming years,” he recently argued.

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It may be politically tempting to market the infrastructure plan in this fashion. In an earlier era, the prevailing fear that the U.S. was losing its edge to the Soviet Union in ballistic missiles and in the space race helped catalyze a national technological mobilization.

But there is much less reason for fearmongering today. It is unlikely to buy much Republican support for the plan, given the intensity of partisan polarization. And it diverts attention from the real action: if the plan increases incomes and opportunities for ordinary Americans, as it should, it will have been worth doing, regardless of the effects on America’s geopolitical status.

Moreover, economics is different from an arms race. A strong U.S. economy should not be a threat to China, just as Chinese economic growth need not threaten America. Biden’s framing is damaging insofar as it turns good economics at home into an instrument of aggressive, zero-sum policies abroad. Can we blame China if it tightens restrictions on U.S. corporations as a defensive measure against the Biden plan?

The plan could transform the U.S. and set an important example for other developed countries to follow. But to achieve its potential, it must avoid misleading state-versus-market dichotomies and outdated Cold War tropes. Only by leaving behind the models of the past can it chart a new vision for the future.

This commentary was published with permission of Project SyndicateBiden Must Fix the Future, Not the Past.

Dani Rodrik, professor of international political economy at Harvard University’s John F. Kennedy School of Government, is the author of “Straight Talk on Trade: Ideas for a Sane World Economy.”

More From Project Syndicate

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James K. Galbraith: Here’s why fears of surging inflation are off-base

Minxin Pei: China sabotages its economic future by escalating tiff with West over forced labor of Uighurs



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Stocks Drop Amid Powell’s Testimony


U.S. stocks edged down Tuesday as investors digested testimony by Federal Reserve Chairman Jerome Powell about the U.S. economy.

The S&P 500 ticked down 0.8% as of the 4 p.m. close of trading in New York. The Nasdaq Composite fell 1.1%, while the Dow Jones Industrial Average fell 0.9%.

Mr. Powell, in a joint appearance with Treasury Secretary Janet Yellen, reiterated in a congressional hearing that the central bank will continue providing support to the economy through loose monetary policy. Mr. Powell also said he doesn’t expect the $1.9 trillion stimulus package will lead to an increase in inflation, but he emphasized that the central bank has tools to deal with rising price pressures if necessary.

Investors are also reassessing their expectations for a fast and widespread global recovery, which had led to rising bets earlier this year that companies sensitive to an economic recovery would benefit. Rising Covid-19 cases in Europe and recent extensions to lockdowns in Germany, France and Italy are also weighing on sentiment.

“It feels like the reflation theme is running into a few roadblocks,” said Sebastian Mackay, a multiasset fund manager at Invesco. “We are probably in a cyclical recovery, but we may have gotten ahead of ourselves. This is a pause for thought: how rapid is this recovery actually going to be?”



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Stocks Turn Higher After Fed Holds Steady


U.S. stocks rose Wednesday after the Federal Reserve vowed to keep its easy-money policies in place until the U.S. economy further recovers from the effects of the Covid-19 pandemic.

The S&P 500 added 0.3%, and the Dow Jones Industrial Average climbed 0.6%. The tech-heavy Nasdaq Composite advanced 0.4%, reversing losses earlier in the session.

All three indexes turned higher at the release of the central bank’s 2 p.m. ET statement. Investors are focused on any sign the monetary stimulus that has supported markets during the pandemic could begin to subside.

With unemployment still elevated, Fed officials are taking a cautious approach that supports the economy, said

George Catrambone,

head of Americas trading at asset manager DWS Group,

“Investors are taking some solace in that,” he said. “We’re going to make sure it’s there, that the recovery is sustainable and inflation is sustainable, before we really think about raising rates.”

The Fed also highlighted the brightening outlook for growth. Investors in recent weeks have trimmed bets on the technology stocks that soared earlier in the pandemic while adding shares of economically sensitive companies that should do well as the vaccine rollout progresses and more fiscal stimulus enters the financial system.

Shares of

Apple

and

Amazon.com

are down 5.6% and 3.1% this year, respectively, while the energy and financial sectors are leading the S&P 500.

“Tech is the funding source for reallocation,” said

Jamie Cox,

managing partner for Harris Financial Group. “You’re restoring the allocations that you had pre-pandemic.”

Money managers have started pricing in a rise in inflation, leading to a selloff in government bonds, and are betting that interest rates will start climbing by the end of next year. They have started exiting stocks that look to be too richly valued after last year’s rally.

“Markets across the board are expensive today, and that is pinned on central-bank support,” said

Hugh Gimber,

a strategist at J.P. Morgan Asset Management. “So this whole market is very, very sensitive to changes in central-bank policy.”

After the Fed’s reassurance that interest rates will stay low, shares of rapidly growing companies rebounded from earlier losses. The Russell 1000 Growth Index was recently up 0.3%, trailing a 0.4% gain by the Russell 1000 Value Index. Value stocks—which trade at low multiples of their book value, or net worth—have outperformed growth stocks in recent weeks.

“The resurgence of value investing has been the big story of the year,” said

Mace McCain,

chief investment officer at Frost Investment Advisors, noting that the rollout of coronavirus vaccines should help the economic recovery. “We expect tremendous growth this next year.”

In bond markets, the yield on the benchmark 10-year U.S. Treasury note rose to 1.641%, from 1.622% Tuesday. Yields rise as the price falls. The yield has climbed sharply from this year’s low of 0.915% on Jan. 4.

Traders worked on the floor of the New York Stock Exchange on Tuesday.



Photo:

Colin Ziemer/Associated Press

Among individual stocks,

NRG Energy

fell 17%. The company said it is withdrawing its 2021 financial guidance after the recent winter storm hit its results. Shares of

Plug Power

dropped 8% after the hydrogen and fuel-cell technology company said it would restate financial statements.

Brent crude, the international benchmark for oil, fell 0.6% to $68.00 a barrel.

In overseas markets, the Stoxx Europe 600 edged 0.4% lower. Most major indexes in Asia were little changed. South Korea’s Kospi index fell 0.6%, while the Shanghai Composite, Hang Seng and Nikkei 225 indexes all ended the day nearly flat.

Write to Karen Langley at [email protected] and Will Horner at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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U.S. Stocks Rise Ahead of Tech Earnings


U.S. stocks rose Thursday, rebounding after fresh data showed jobless claims dropped and the economy expanded sharply in the third quarter.

The Dow Jones Industrial Average gained 137 points, or 0.5%, as of the 4 p.m. close of trading in New York. The S&P 500 added 1.2%. Both indexes on Wednesday suffered their biggest one-day percentage declines since June.

The Nasdaq Composite advanced 1.6% ahead of earnings reports from some of the biggest companies in the technology sector.

Fresh data showed that 751,000 Americans applied for initial unemployment benefits through the week ended Saturday, down from a seasonally adjusted 791,000 in the prior week. The decline is a sign that the labor market is slowly recovering, though claims remain at historically high levels.

Meanwhile, U.S. gross domestic product for the third quarter rose at an annual pace of 33.1%, the biggest gain ever. The increase followed a record drop in output earlier in the year when the virus and related shutdowns disrupted business activity across the country.



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