What Was Bidenomics?

The Biden administration first embraced the slogan of “modern supply-side economics” six months before anyone uttered the phrase “Inflation Reduction Act.” Speaking before the World Economic Forum in January 2022, Treasury Secretary Janet Yellen explained that what distinguished the Biden administration’s “modern supply-side economics” from the Reagan-era variety was its program to raise labor-force participation and productivity through government spending and increased taxation of capital—to create a “supply-side expansion…that distributes expanding national income more equally.” “Three aspects of the Biden agenda” would address “longer-term structural problems, particularly inequality”: reform of key social-service industries such as elder and childcare, increased public expenditure on education, and corporate taxes. All that remained, Yellen declared, was passage of “the Build Back Better legislation that remains under consideration in Congress.”

Six months later, congressional reality parlayed “modern supply-side economics” into something else entirely. Speaking in Detroit in September 2022, Yellen outlined three different pillars that defined the administration’s “modern supply-side” approach. In place of increasing labor-force participation through paid-leave requirements, child-care price caps, public pre-K classes, and nursing-home reform, there was “resilience to global shocks.” Where there had been community-college funding to raise labor productivity, there were now business subsidies for “expanding productive capacity.” Rather than raising corporate taxes, there was now “economic fairness.” The meaning of “modern supply-side economics,” Yellen explained, was about “reducing economic and national security risks” posed by “countries like China.”

How did this transformation occur?

In early 2021, the push for public-sector solutions to the problems of inequality, wage stagnation, and political legitimacy began its encounter with the nexus of business and government that controls fiscal policy in America. In late 2022, it emerged as an amalgamation of business tax credits, targeted technology grants, and long-delayed infrastructure modernization. The resulting program—legislatively defined by the trio of the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the Inflation Reduction Act—passed in the context of procedural barriers, razor-thin Congressional margins, the ideological strictures of US budget politics, and a revival of defense spending amid a new Cold War consensus. Operating above all was the deep influence of corporate power within the federal government—which ultimately determined what kind of spending the US political system could tolerate.

As a positive vision, the resulting program centers on developing green technological (and military) prowess, national-security hawkishness, and the priority of corporate profitability over social reform. By the summer of 2023, the administration had embraced a name for this vision: Bidenomics. But as the American political system oriented towards the November 2024 elections—amid record evictions and homelessness, a flagging race between wage and price increases, and a gradually but definitely softening labor market—the rhetoric about Bidenomics created intractable confusion about the nature of the recovery from the Coronavirus pandemic. Fiscal expansion was underway, but mostly in the form of business tax credits, while public school districts were warned of staffing cuts and school closures. Military spending was forthcoming—for a foreign policy inviting charges of genocide at the International Court of Justice. With the President’s late-July announcement to withdraw from the election, and Vice-President Kamala Harris’s decision to run a ticket with Minnesota Governor Tim Walz, the forgotten promise of Build Back Better and its service-sector gambit to reshape the American political economy briefly became a resource for the party’s 2024 campaigns. But what was the promise? And what transformed it into the national-security synthesis that followed?

The two poles of budget politics

The terms of struggle over the federal budget, which define the limits of modern American government, were established in the resolution of the inflation of the 1970s. The fluctuations of inflation across the peaks of the Korean and Vietnam wars—both stopped with government controls—had by the 1970s brought growth economists to what would today be considered radical conclusions about the administrative and regulatory responsibilities of government. Down this path lay peacetime price controls, higher taxes on capital and top incomes, negotiated wage restraint, and government ownership: the panoply of planning tools required to reconcile full employment to price stability—to raise the standard of living for working people without sparking inflation.

Despite the heroic liberalism of the 1970s, the decade’s inflation was actually overcome not by greater public oversight but by a celebration of private entrepreneurialism. Price deregulation, union busting, top-end tax cuts, spending ceilings, and the rhetorical independence of monetary policy—these took priority as the program to stabilize the economy. Between 1978 and 1989, Congress lowered the tax rate on the highest earning corporations from 48 to 34 percent, on capital gains from 40 to 28 percent, and on top-bracket individuals from 70 to 28 percent. Through a growing non-union sector and its competition with union firms, capital captured a growing share of productivity gains. These transformations fundamentally reshaped common sense assumptions of how stable economic growth was achieved.

While the new commonsense was supposed to stimulate growth, private investment as a share of GDP declined throughout the 1980s. At first, the large deficits resulting from Reagan’s fiscal policy offered economists an explanation: in 1975, when faced with large recession-year fiscal deficits, then-Fed Chair Arthur Burns had warned that interest rates might rise and “private business and consumers may be squeezed out” of credit markets. Treasury Secretary William Simon had repeated Burns’s threat throughout the late 1970s; the Carter-appointed Fed chair Paul Volcker made them good after 1979. But “Reaganomics” did little to alleviate demands on credit markets from the US Treasury, which engaged in a seemingly unplanned buildup of government debt, averaging $167 billion annually—a total increase of $1.5 trillion.¹ And as it flexed new forms of political power, big-business’s aversion to deficit spending accordingly underwent a qualitative shift.²

When the US was adjusting to the reconstruction of Western Europe and Japan in the 1960s and 1970s, fiscal deficits had represented to many policymakers the risk labor’s power posed to the value of the US dollar—which was sinking after the unplanned shift to floating exchange rates in 1973. But after Reagan, as deficits resulted from tax cuts rather than spending increases, their political salience changed. The deficits faced at this time were unprecedented, but employment growth was sluggish and the dollar stronger than ever. Organized labor was in near-universal retreat. In the pinstriped world of American business, high interest rates supplanted workplace discipline as the guiding explanation for fates and moods.³ In response, the Congress had already set statutory deficit targets in 1985 and 1987, culminating in the Budget Enforcement Act of 1990. The Democrats limited new spending to what could be raised in new revenues—the “pay-as-you-go” rule, or PAYGO. Budget authority centralized in the reconciliation procedure.⁴ After the 1992 election, President Bill Clinton therefore made an agreement with Fed Chair Alan Greenspan that echoed the designs of Burns and Simon fifteen years prior. The former Arkansas governor raised the top-bracket rates to 35 percent for corporations and 39.6 percent for individuals—only to keep the lid on spending and begin paying down the debt. Greenspan’s low interest rates fueled the market for corporate paper and yielded the long-awaited stock- and labor-market boom. In the new political climate, a condition of leadership was building coalitions to militate against the expansion of non-defense expenditures—to reduce annual deficits—while cutting taxes to stimulate income and employment growth.

Yet the PAYGO theory of economic growth was little more than rhetoric for rationalization. The fiscal policy of the George W. Bush years threw a wrench in the theory that government borrowing “crowded out” corporations and raised interest rates. Congress again cut taxes in 2001 and 2003—leaving the corporate rate untouched but lowering the capital gains rate to 15 percent and the top-bracket for individuals to 35 percent. From 2002 to 2006, Treasury debt issuance averaged $300 billion annually—but interest rates remained at all time lows. As the debt again grew step-wise in response to the Global Financial Crisis, many liberal economists continued arguing government borrowing imperiled recovery, and urged reform of social-insurance programs to maintain “confidence” in the value of a paper that was also the world’s reserve asset. The earlier theory of investment emphasizing the political nature of profits and the distribution of income had given way completely to a constraining focus on the tightfisted concerns of large owners of public debt and the needs of entrepreneurs—reduced taxes and labor costs—despite the insatiable world appetite for investments in America.

As corporations have kept a greater share of pre-tax incomes since the 1980s, the lower tax burden on top-end individuals created new corporate payout incentives.⁵ Salary scales distended. Inequality increased. While the old public sector was withering away in overcrowded schools, reduced or canceled welfare benefits, and public-housing demolition, a new publicly financed but privately administered social-service sector grew up around the Great Society-era programs of Medicare and Medicaid. All the cycles of tax cutting, spending ceilings, and PAYGO legislative rules could not rectify the structural reality of a post-industrial mixed economy suffering from chronically insufficient demand created by extreme income inequality and an increasingly emaciated public sector. In the four decades before the Coronavirus pandemic, the US unemployment rate was at or below 4 percent for a total of thirty-six out of 470 months. Twenty-five of those thirty-six months were the period from January 2018 to February 2020.

Seeing the dual economy

The politically constrained environment in which Republicans pursue tax cuts, and Democrats pursue deficit reduction defined a decades-long period of unchallenged corporate hegemony. By Obama’s second term, some economists began to ask whether a theory of politics might be necessary to explain the observable economic trends. When Janet Yellen, then Chair of the Federal Reserve, began to raise interest rates in 2015 to check the tightness of labor markets, a number of them—including Peter Temin, Lance Taylor, and Servaas Storm—recovered the concept of the “dual economy,” originally articulated by Saint Lucian economist W. Arthur Lewis in the 1950s, who was awarded a Nobel Prize for the idea.

Lewis had described problems of economic growth characteristic to developing countries. With labor markets split between modern, high-wage firms in urban centers and a rural low-wage subsistence sector, they tended to see labor migrate to cities in search of higher incomes—regardless of whether jobs were available. Wages in the modern sector, while higher than the rest, were regulated by the virtually unlimited supply of labor from the countryside. Though modern industry raised productivity and lowered the cost of living, large owners with political power might oppose it to maintain the work discipline in subsistence areas. But even if future-oriented statesmen embraced new technologies, they faced the problem of how to rapidly increase and distribute investments without either creating inflation or exacerbating the social problems created by an unlimited supply of low-wage labor. For this, they needed the state—to raise taxes and to coordinate growth geographically and industrially.

As the US stumbled through its inertial recovery from the Global Financial Crisis, and both wings of the two-party system embraced fiscal and monetary austerity, its growth pattern appeared increasingly to exhibit many of the same characteristics of a post-colonial nation at midcentury guided by a backward-looking elite. “Conditions we were taught to regard as typical of developing nations,” wrote Temin, “are appearing in the world’s most advanced nation.”⁶ But as America’s economic recovery accelerated in the late Obama and early Trump years, it began to exhibit signs of dual-economy growth with implications very different from those faced by the developing world. Rather than a self-serving subsistence economy, the low-wage sector of the advanced capitalist world consisted of services—many of them vital to social reproduction. When labor markets tightened before the pandemic, giant firms in the low-wage sector such as Walmart and Amazon began raising their minimum wages. Labor became scarce not only in retail, however, but in healthcare and public education. As rising private-sector wages met public-sector austerity, the political effects of this kind of growth were expressed forcefully in a remarkable series of public-sector strikes in 2018 and 2019 involving over 645,000 educators across both the Republican-governed states of West Virginia, Oklahoma, and Arizona and the urban public school districts of Los Angeles, Denver, Oakland, and Chicago.⁷

Given its dual-economy structure, grown up around the low-wage services over the preceding decades, the American economy appeared unable to provide basic public services at full employment. This was an aspect of the dual-economy analogy many economists did not anticipate. Overcoming this problem would depend not just on raising the level of investment in modern, technologically advanced industries—the path for a developing country. It would require instead altering the terms of business in the service sector—expanding the provision of public spending on loss-making activities, such as education, to pay competitive wages; regulating the profits in low-wage industries such as long-term care or childcare, where expanding service at scale with high wages and high profits meant pricing themselves out of their markets; and overcoming the political resistance of low-wage employers, for whom softer labor markets were preferable to making these adjustments to a high-wage economy. It took the world-historical shock of the Covid-19 pandemic to make those deformations part of genuine legislative struggle.

The K shape

Signs of a tidal shift in Democratic political consciousness registered in the summer of 2020, in the form of pervasive rhetoric about the nation’s “K-shaped” economy. As the pandemic and election campaigns unfolded, the idea that the long-run development trends behind growing US inequality might have some structural explanation in a growth theory of bifurcated labor markets appeared increasingly plausible. The bewildering, taboo-dispelling mood of 2020—with four emergency spending bills totaling $2.3 trillion passed before the November election—obliterated the obdurate consensus between tax reduction and deficit reduction. A shift in economic thinking underway since the late Obama and early Trump years clicked into place.

As Biden explained in the first presidential debate that year, the “K-shaped economy” was “a fancy phrase for everything that’s wrong with Trump’s presidency…what ‘K’ means is those at the top are seeing things go up, and those at the middle and below are seeing things go down and get worse.” These kinds of explanations, used to diagnose the overlapping emergencies in American life, were key to what was new in the Democratic Party that secured a narrow victory in November 2020. “People worry about a K-shaped recovery, but well before Covid-19 we were living in a K-shaped economy,” Yellen would explain during her confirmation hearing. “Wealth built upon wealth, while working families fell farther and farther behind. This is especially true for people of color.”

In March 2021, the Congress passed the American Rescue Plan appropriating $1.8 trillion through the budget reconciliation process, with the bulk of outlays concentrated in the first two years. This was the moment of triumphant historical judgments about the “end of neoliberalism.”⁸ To the chief economics commentator at the Wall Street Journal, “Bidenomics” at this moment was “more a political movement than a school of economic thought. The Democratic base has moved left…That base now seeks, through Mr. Biden, to reshape the economy and society for years to come.” “We just lived through four years of Donald Trump, which certainly raises the stakes for making sure that we can effectively deliver and never go back to that again,” said Brian Deese, the former Obama official and BlackRock executive, who Biden appointed first head of the National Economic Council. “Historically…these moments of crises are moments where the potential spectrum of possibilities expands….the politics of the Democratic Party have changed.”

To make good on these aspirations, in April 2021 Biden announced requests for new tax and spending legislation for FY2022 and beyond. Their annual size was significantly smaller than the emergency bills signed by Trump and the Biden administration’s own ARP. But congressional budget rules required discussing them in ten-year totals—a point of procedural arcana which lent the public debate an air of unreality. First was the “American Jobs Plan”: $2.3 trillion for highways, bridges, water systems, and reform to the country’s Medicaid-financed long-term care market. Second was the “American Families Plan”: $1.8 trillion for tuition-free community college; existing K-12 programs; universal pre-kindergarten; Medicare expansion for dental, vision, and hearing; 12-weeks paid sick leave; and expanded eligibility for the Child Tax Credit. Offsetting this $4.2 trillion ten-year spending increase was $3.8 trillion in new revenues from the “Made in America Tax Plan”: an increase in corporation taxes—raising the rate on corporate income from 21 to 28 percent, a 21 percent minimum on offshore profits, a 15 percent minimum on reported profits, closing exemptions and deductions for fossil-fuel income, and reforming cross-border deductions. On top of these changes to corporation taxes, the White House proposed a 39.6 percent rate for top-bracket individuals, closing the “carried interest” loophole on capital gains, ending tax deferral for Section 1031 “like-kind” exchanges (a method of exempting real estate from capital gains), and $80 billion in expenditures for IRS staffing.

Improved conditions for care workers became a new touchstone, discussed in terms of “social infrastructure.” “Part of what is failing is the society failing to dignify the work that they [elder and child care workers] do, which is some of the hardest work,” said Deese. “As one of the expanding areas of employment in our economy, we’re going to need more care. And so we want to have that sector create not only more power for those workers, but more dignity for those workers.” The way to do that was not only “building childcare facilities, investing in the supply side of childcare so there are more available options,” but also ensuring “that the workers who provide that care are better paid, and have more opportunity to organize.”⁹

Altogether, the White House proposed to run annual deficits of $41 billion over ten years. Despite its relative modesty—about one seventh of the annual cost of the Bush deficits—the expansion of the public sector augured a profound reorientation of the direction of the US political economy: a reconstitution of fiscal policy in favor of greater social security, greater public payrolls, and an improvement of life for children and elders. “If the main elements in Joe Biden’s American Family Plan become law,” wrote Paul Krugman, “they’ll deliver huge, indeed transformational benefits to millions.” Rather than restraining the growth of the post-Great Society welfare system, reducing demand and employment in an attempt to stimulate private investment, the conventional wisdom had shifted. Together the spending and tax packages centered the ways public investment in these care sectors could sustain the sellers’ market for labor, begin to raise wages, and, with taxes on top incomes, set some constraint to the continued growth of inequality. It reimagined growth as a way out of the K-shape.

Lobbying in the dual economy

While much attention was being paid to the grand strategists in Biden’s advisory circle, a less dazzling but more foundational set of actors was becoming mobilized. Some form of the White Houser program appeared, in the spring and early summer of 2021, as inevitable to many business leaders. That meant some form of higher corporate tax obligations—the President was proposing 28 percent for domestic income and a minimum 21 percent for all income. (The direction of change had reversed over just a decade: in 2011, President Barack Obama had proposed reducing the corporate rate to 28 percent; presidential candidate Mitt Romney ran on the Business Roundtable’s own proposal of lowering the top bracket for corporations to 25 percent.) “None of these guys can realistically with a straight face oppose a 25 percent rate,” a Fortune 100 tech company executive told Politico in April 2021. “That’s not where the fight is.” Logrolling would come over the increases on foreign profits (global intangible low-taxed income, or GILTI), over the “stepped-up basis” exempting capital gains from inheritance taxes, or over the Section 1031 real-estate loophole.¹⁰ In late April, a partner at corporate law giant Holland & Knight said: “People are taking this seriously. It’s a high-anxiety time.”¹¹

Straight faced or not, the American business community mobilized against the Biden agenda. The President of the Chamber of Commerce staked out an early position, calling the infrastructure proposal a “nonstarter,” while the Business Roundtable warned “tax increases would make the United States uncompetitive as a place to do business.” Josh Bolten, Roundtable CEO and previously George W. Bush’s chief of staff, complained that, “having been elected precisely because he was neither Bernie Sanders nor Elizabeth Warren, Biden is governing like both of them.”

Among trade groups, the National Retail Federation led the opposition. With a board composed of executives from Walmart, Target, Albertsons, Microsoft, Macy’s, and Dick’s, among others, the NRF represents those low-wage service-sector employers whose costs would be most acutely affected by a restructuring of the American labor market. NRF hired Ernst and Young to model the effects of Biden’s proposed tax increase; the firm reported 700,000 job losses and a reduction in long-term GDP growth of -2 to -3 percent.¹² Major employers in the leisure and hospitality sector—represented by the International Franchise Association (IFA), the American Hotel and Lodging Association (AHLA), and the National Association of Wholesaler-Distributors—joined the fray. Before the pandemic, the retail and leisure-hospitality sectors each employed over 10 percent of the workforce, some 31.6 million workers altogether. The kinds of spending the Democrats were proposing would force a structural adjustment to their labor markets—indeed, that was the point. In May, the IFA, AHLA, and NAWD launched their own pressure group to shape the emerging economic agenda. Naming themselves America’s Job Creators for a Strong Recovery, they argued that a tax increase threatened to tip consumer and business spending downward into a recession, smothering the recovery. By focusing on the tax increases, this new coalition was able to mount a campaign against these larger changes to the terms of employment in their labor markets.

Joining these low-wage employers in their mobilization against taxes was big multinational capital. Founded during the 2012 election to urge Obama to lower corporate taxes, the RATE Coalition (Reforming America’s Taxes Equitably) was led by NRF chief tax counsel Rachelle Bernstein, along with executives at Disney, Carlyle Group, the Association of American Railroads, and Bank of America. By 2021 it included such behemoths as AT&T, FedEx, UPS, Toyota, Verizon, and Cox. The group was chaired by Clinton operative Elaine Kamarck, responsible for cutting federal payrolls in the 1990s. (She bragged then about “squeez[ing] all the left-wing socialist junk out of the Democratic Party.”) Lobbying from the liberal wing of big business was matched by Wall Street’s conservatives: The Committee to Unleash Prosperity—a six-year-old 501(c)(3) directed by Wall Street Journal opinion editor, Heritage Foundation economist, and Club for Growth founder Stephen Moore.

An historic strategic decision shaped the first phase of this struggle. Confronting wall-to-wall opposition among large employers, the White House delayed its legislative push for taxes in favor of a smaller agreement over spending with a group of Republican senators. A leading influence behind this decision was Anita Dunn, the lobbyist from the Washington consulting firm SKDK whose clients, in addition to party campaign committees, include Pfizer, AT&T, and Amazon, and who had “prepped the President for every interview and news conference since she took over his campaign.” In April, Dunn circulated a memo to “interested parties” in defense of the least controversial parts of the agenda: “Key components of President Biden’s American Jobs Plan are overwhelmingly popular among a bipartisan and broad coalition,” she argued, citing support for infrastructure spending from the US Chamber of Commerce and the CEO of Ford Motors. To flip eleven Senate Republican votes and secure additional spending, the White House removed from its $2.3 trillion proposal: $400 billion for long-term care, $424 billion for clean energy tax credits, $326 billion for affordable housing and public schools, and $566 billion for domestic manufacturing and research and development. All mention of taxes was removed. What remained was $550 billion over ten years for roads, bridges, airports, ports, water, broadband, and electric power distribution. (In July, the $80 billion for IRS funding was also cut.) In late June 2021, just as the tax debate got underway, the White House announced an agreement on the “Bipartisan Infrastructure Framework.” For some, the decision reflected an acknowledgement that the forces amassed to oppose a tax increase held the power of the Senate filibuster. To others, it made that fear into a reality.

Punting the tax fight in favor of the infrastructure bill cleaved the Democratic Party. Those around Senators Manchin and Sinema and the White House urged spending on infrastructure without taxes. The push for the Bipartisan Infrastructure Framework (BIF) built solidarity among the bipartisan coalition against new taxes. But it alienated significant portions of the activist and advocacy forces mobilizing behind labor-market reforms, public-sector expansion, and renewable energy. (When polled, the American public regularly approves of raising taxes on the wealthy.) With the framework secured in June 2021, Anita Dunn left the White House in July to return to SKDK. Punctuating the episode, when Kristen Sinema endorsed the infrastructure proposal to the Arizona Republic she added that she would not be voting for the larger $3.5 trillion spending package. In contrast to this bipartisan package, those around Representatives Pramila Jayapal and Nancy Pelosi urged tax increases to fund the full suite of White House proposals. On the same day Sinema announced her opposition to spending beyond physical infrastructure, Pelosi, yoked strategically leftward by Jayapal, announced her counter to the bipartisan pivot. Understanding that the left of the Democratic Party’s only leverage over the center was its ability to block bipartisan legislation, Pelosi declared that the House would vote on taxes before spending—ensuring at least some advance of the tax increases and “care economy” packages in what was excluded from the BIF.¹³

The structure of power revealed by House Democrats’ three month struggle in the late summer and early autumn of 2021 was little affected by the upheavals of 2020 and the ideological transformation represented in some fractions of the White House advisors circle. By July, the corporations that had urged social responsibility and the peaceful transfer of power after January 6 were mobilizing an inertial wave of money to carry a message against the new government’s efforts to limit top incomes. Seeking to protect low taxes on foreign profits, the RATE Coalition saw its annual budget increase eightfold during 2021. To block an excise tax on funding EPA “superfund” projects, the American Chemistry Council—representing 3M, Dow, DuPont (not yet merged), and Exxon Mobil—doubled its lobbying expenditures above the levels of 2018 and 2019. In July, the head of the Committee to Unleash Prosperity authored a public letter to Mitch McConnell—cosigned by FreedomWorks, the Conservative Action Project, and the Leadership Institute—demanding exclusion of tax increases from any legislation submitted to a vote in the Senate. Even the AFL-CIO joined in coalition with the National Association of Manufacturers (NAM), its generational opponent over the century-long career of the American labor movement, to urge prompt passage of the BIF.

Isolating the tax issue to divide the Biden coalition, McConnell allowed the Senate to vote on infrastructure in August.¹⁴ The next month, the Democrat-controlled House Ways and Means Committee marked up its own omnibus legislation for the FY2022 budget—now titled the Build Back Better Act.¹⁵ Registered lobbying expenditures lurched noticeably upward. Averaging $870 million per quarter for the preceding two years, total lobbying expenditures reached $934 million in Q3 2021 and $983 million in Q4, passing $1 billion in Q1 2022. This money flowed strategically into conversations within the Democratic Party, as corporate clients hired key staff from Senate offices and committees as lobbyists. The Business Roundtable, for example, retained senior staff from the offices of Chuck Schumer, Ben Cardin, Nancy Pelosi, and Ron Wyden.¹⁶ The American Investment Council, the trade association of private equity, hired staff from the offices of Karen Bass, Josh Gottheimer, Bob Menendez, and Tom Carper.

When the Ways and Means Committee reported the Build Back Better Act in late October, the wall of opposition took on new features aimed at specific spending measures designed to reshape power relations in the care economy. The pharmaceuticals industry has long been the top-spender on registered lobbying, with annual disbursements nearly double those of its nearest emulators in insurance, oil and gas, and securities. This medical segment of the chemicals market earned $92 billion in after-tax profits in 2019, and could afford a few hundred million more in lobbying costs.¹⁷ With a small number of drug price controls looming in the Build Back Better Act, pharmaceutical lobbying expenditures jumped upward in 2021, from $318 million in 2020 to $364 million in 2021, a 14 percent one-year increase.

But pharmaceutical-industry lobbying was only a part of a general resistance to reform inside the care economy. The American Dentists Association opposed including dental benefits under Medicare, which would limit their members’ pricing autonomy. Television ads featured patients concerned that drug-price negotiations would “make it harder for people on Medicare to get the medicines we need.” The president of America’s Health Insurance Plans (AHIP), a super-lobby formed in 2003 that shaped the Affordable Care Act (ACA), described Medicare expansion for dental, vision, and hearing as “unnecessary and unfair.” Together with for-profit insurers like Cigna, AHIP’s board consists of non-profit insurers such as BlueCross/BlueShield and Kaiser that are contracted to administer semi-privatized MedicareAdvantage plans; these companies would either expand coverage for the new benefits or lose customers to the public programs. From a level of $167 million in 2020, the insurance industry’s registered lobbying expenditures jumped 18 percent to $197 million in 2021 and $227 million in 2022; the biggest jump occurred between Q3 2021 and Q1 2022.

These were the months when the logjam within the Democratic majority between Pelosi-Jayapal and Manchin-Sinema reached its point of highest pressure, after the House Ways and Means Committee’s release of the Build Back Better Act met Senate Democrats’ conditions on any reconciliation package. But the surge of healthcare industry spending against reform was also matched at this moment by a rising tide of lobbying expenditures from another group, one interested in peeling off another portion of spending from the omnibus package—electronics manufacturing. In their insider accounts of the first Biden years, Alexander Burns and Jonathan Martins, and Franklin Foer all report that Sinema had made agreements with the White House to allow passage of the House bill.¹⁸ In his Biden book, Chris Whipple reports that Biden aide Ron Klain on October 30 thought “either we’re able to get it over the hump in the House this week, or else it just kind of falls apart” and said he “put BBB at 60 percent” on December 18. Foer dates December 19, when Manchin appeared on Fox and Friends to say he “was a no on this legislation,” as the day Build Back Better died.

The wistful tone of dramatic conflict that marks these journalistic accounts is difficult to square with the observed reality of corporate domination of the legislative process. The balance of power had been struck in June, when the White House agreed to separate infrastructure from taxes—to anticipate and accept corporate opposition to the latter, and secure votes for the former. Absent some change in events outside Washington, we can now judge that there was no reason to expect a different outcome. When Mitt Romney asked Sinema that autumn whether she was concerned about her re-election prospects, she made her motivations clear. “I don’t care. I can go on any board I want to. I can be a college president. I can do anything.”¹⁹

The price veto

What happened to the intellectual environment that produced the White House proposals amalgamated in Build Back Better? The key rhetorical device employed in the power struggle within the Congress over Build Back Better—the namesake of the legislation that eventually resolved the legislative cycle—was inflation. Despite gestures toward PAYGO politics, the agreement the White House had achieved had increased spending without taxes. The tax-hike package continued its advance, by November reaching the floor of the House. But even as it did, the environment the House Progressive Caucus fought in had changed dramatically.

Inflation replaced the K-shaped economy as the urgent target for domestic economic policy. By June 2021, the rate of inflation had risen to 5.3 percent, the highest since the oil price shocks of 2008. It leveled off for three months that summer, just as the agreement over tax-free infrastructure crystalized. But in October, as the Ways and Means Committee marked up the Build Back Better bill and the passage of the BIF hung in limbo, inflation jumped again to 6.2 percent and in November to 6.9 percent. As the tax legislation stalled in Congress but refused to die, inflation accelerated even more. The American economy was experiencing something it had not seen since the late 1970s: continuously accelerating inflation. It would shape the fate of fiscal policy for the next three years.

If it was to come at all, the investment spending that was integral to a new supply-side approach to economic growth would require a different form and political constituency. Internationalist in orientation, with a board chaired by Qualcomm CEO Cristian Amon, the Semiconductor Industry Association (SIA) had spent much of late-Obama and Trump years arguing against trade and investment controls that would disrupt their supplier and client relationships. The US semiconductor industry had for many years relied on fluid supply chains. “Fabless” chip design companies such as Qualcomm and Nvidia source their manufacturing to dedicated foundry companies, of which the largest is Taiwan Semiconductor Manufacturing Corporation (TSMC), before selling their products to device makers such as Apple, Lenovo, Dell, and so on. “Government actions…to ensure ‘self-sufficiency,’” the SIA warned in 2016, posed a “risk” to the industry in the “threat of overcapacity”—falling prices and oversupply being the primary hazard for any trade association.²⁰

This position ground against the reality of the Trump administration’s nascent trade war. Before the pandemic, John Neuffer, SIA president, represented the older vision of US global dominance through multinational capital’s global division of labor. Celebrated triumphantly by the neoconservatives of the Bush era, this vision opposed capital expansion and guarded against governments’ attempts to shape its growth. Neuffer himself had served in the Office of the US Trade Representative for George W. Bush; Neil Bush, the president’s brother, was a partner in a Chinese semiconductor manufacturer. The SIA opposed the Trump administration’s licensing restrictions on Huawei; the US market was, after all, only a portion of a multinational corporation’s income statement.²¹ Eric Schmidt, the former CEO and Chairman of Google, who served on President Trump’s National Security Commission on Artificial Intelligence, agreed with the new foreign policy consensus that “some degree of technological separation from China is necessary” but also insisted that “China’s tech sector continues to benefit American businesses.”²²

Against this Trumpian horizon a centerpiece of Bidenomics appeared: domestic subsidies for the construction of semiconductor manufacturing facilities and R&D. Washington’s most aggressive move on the semiconductor issue came on the eve of the pandemic with Canada’s detainment of Huawei executive Meng Wanzhou at the request of the DOJ. (The Royal Canadian Mounted Police held her under house arrest for 33 months altogether.) With 75 percent of global semiconductor manufacturing located in East Asia, and Sinophobia a defining feature of the protectionist coalition behind Trump, the pandemic and related shortages made new configurations of business and government power imaginable. As the White House began invoking the Defense Production Act (DPA), Secretary of State Mike Pompeo announced a new procurement policy: the State Department would no longer transmit communications using hardware manufactured in China. Shortly thereafter, former GM finance executive Keith Krach, then Pompeo’s Under Secretary of State for Economic Growth, Energy, and the Environment, secured the agreement that would become one of the defining achievements claimed by Bidenomics. In May 2020, Taiwan Semiconductor Manufacturing Co. (TSMC) announced a plan to locate a $12 billion foundry in Phoenix, Arizona. In September 2020, Krach traveled to Taiwan to fulfill the “global economic security strategy”: the White House would sell $7 billion of cruise missiles, mines, drones, and control stations to the island government.

The foundations of a techno-security manufacturing program were thus laid before the 2020 election. All that remained was a new formula for fiscal policy. In July 2020, the House had passed an omnibus defense bill that included authorization for “Semiconductor Manufacturing Incentives.” But the authorization did not appropriate any new funds. That same month, Google’s Eric Schmidt convened the China Strategy Group to produce policy and political pressure on the subject of tech and national security, featuring members from the Obama administration-staffed Center for New American Security (CNAS), former George W. Bush State Department staffers, management consultants, investment bankers, venture capitalists, and an NFT impresario. By September 2020, the SIA published recommendations for a $50 billion program to subsidize the construction of nineteen new semiconductor foundries in the US.

The lobbying push coincided with a definite partisan alignment within the industry. In prior election cycles, campaign contributions from the electronics manufacturing and equipment industry totaled around $50 million in a roughly bipartisan pattern with a slight Democratic margin. But in 2020, the industry spent $102 million on Democrats compared to $34 million on Republicans; $2 million for Biden compared to $684,000 for Trump. Most notable in this turn to politics was the SIA’s movement into the national-security lobbying apparatus. While member firms such as Qualcomm had long been active here, the trade association itself had remained above the partisan fray of State and Defense Department policy planning. This changed in November, with Biden’s victory. The day after the election, CNAS added the SIA to its public list of donors. The semiconductor corporations that had invested in Democratic Party defense-policy planning would soon have allies studding the top of Biden’s foreign-policy bureaucracy: Deputy Secretary of State Kurt Campbell had co-founded CNAS with Flournoy; Undersecretary of State for Political Affairs Victoria Nuland was CNAS CEO.

The American Families Plan in March 2021, the package of proposals that would become the Build Back Better Act, included $230 billion over ten years for semiconductor manufacturing and R&D. Two weeks before Sinema and the White House announced their June 2021 bipartisan agreement on infrastructure without taxes, the Senate passed the US Innovation and Competition Act (USICA), a $250 billion standalone semiconductor and corporate R&D bill, attempting to peel off the technology corporations’ subsidies from the larger project of raising taxes and expanding social services. But given competing claims over fiscal policy from within the Democratic Party, semiconductor subsidies were still contentious. As the Congressional Progressive Caucus ground down against the Manchin-Sinema obstruction, holding up all legislation in the summer and autumn of 2021, the fate of any spending was in limbo.

The rising cost of labor across 2021–2022 was intolerable for many business owners; they generated enormous amounts of political pressure to eliminate relief payments to working people. Widespread employer complaints of a “labor shortage” reflected this perspective, which cashed out in the effort to eliminate the enhanced unemployment benefits funded by the CARES Act and the American Rescue Plan, which twenty-two Republican governors had done at the state level by May of that first year. Inflation certified an ideological veto against the expansive worker-oriented spending of the immediate recovery period. The broad claims over the budget process, reoriented by inflation, had narrowed, and the semiconductor industry’s lobbying success provided something of a model for a bipartisan spending coalition.

Finding the national security base

Having shed its more social democratic, public services-oriented skin, the corporate claims on the national treasury now made their sleek advance. Topped by Oracle, Apple, Microsoft, Qualcomm, Intel, Palantir, Dell, Cisco, and IBM, among others, quarterly lobbying expenditures from electronics manufacturing and equipment makers increased 28 percent over the course of 2021, from an average of $40.7 million during 2019 and 2020 to $52.3 million by Q4 2021. As 2022 began, electronics and equipment manufacturers were ready to seize from the 117th Congress what its gridlock was refusing to the constituencies of hospital patients, healthcare workers, retirees, students, teachers, and parents: government spending. In January, the House passed the COMPETES Act—patterned on a bill John Cornyn had introduced during the initial Krach-TSMC negotiations of two years earlier. The industry’s registered lobbying then pulled noticeably away from the pack, reaching $57 million in Q2 2022 and $58 million in Q3, second only to pharmaceuticals among all industries. (See Figure 3 above.) Secretary Antony Blinken had set the tone for the legislative debate on the industry subsidies a year earlier in announcing the administration’s “national security strategy” as facing “the biggest geopolitical test of the twenty-first century: our relationship with China.”²³

The immediate impetus for salvaging a legislative coalition came with Russia’s invasion of Ukraine. On March 15, 2022, the President signed the first military supplemental appropriation bill for Ukraine for $10 billion. On March 18, the entente between Biden and Manchin occurred by way of Brian Deese, who flew to West Virginia to hear—over a zip-lining outing—Manchin’s opposition to Medicare entitlements and openness to business tax credits.²⁴ Weeks earlier Manchin had, he told Deese, begun discussions with Senator Schumer’s office about reviving a reconciliation package for FY2022. Having defeated the challenge over the use of government’s fiscal power, it was now time to bring it back into use.

On March 22, 2022, Biden attended the quarterly meeting of the Business Roundtable to thank the assembled multinational executives for adhering to US sanctions on Russia. General Motors’ Mary Barra—who had already announced a $35 billion commitment for EVs in 2025—hosted the meeting: its theme was green profits. These moves mirrored the world of tax lobbying. The green energy lobby flooded the field and reaped a series of bipartisan congressional meetings on climate. But reopening the budget process on Manchin’s terms meant concessions from the gains that the Congressional Progressive Caucus had made in the ARP: spending for FY2022 and FY2023 would be negotiated downward.

The revival of budget talks—sans taxes—also dislodged the stalled semiconductors package. Four days after Biden met with the Business Council meeting in March, the Senate passed its version of the COMPETES Act. Despite Manchin’s opposition to increasing the deficit throughout the saga of Build Back Better, the war in Ukraine had put spending back on the agenda; in late April, Congress approved and the President signed the second Ukraine military supplemental, this time for $33 billion. Meanwhile, the House and Senate COMPETES proposals sat in conference committee with the USICA, subject to the discretion of the Senate and its minority leader Mitch McConnell. As if signaling corporate sanction over the emerging fiscal policy, Biden in early May re-appointed Anita Dunn as a special advisor. A solution to the investment problem was at hand. On May 27, 2022, Manchin finally revealed to the public his ongoing discussions with Senator Schumer on climate subsidies—the $424 billion originally in the American Jobs Plan. But one last gasp of Republican Party partisanship remained. Not one to let the Democratic administration gain too much in the way of fiscal policy, McConnell was quick to understand his leverage in the evolving situation over the successes of the White House and the Democratic Congress. McConnell responded that he would now play Jayapal and Pelosi’s obstructionist game of the preceding summer. “Let me be perfectly clear,” he wrote, “there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill.”

How this partisanship was finally overcome illuminates the values that made Bidenomics possible. The administration whipped up a war scare. On July 13 Democratic Senators Schumer of New York and Maria Cantwell of Washington hosted a classified security briefing for the entire Senate on the importance of semiconductor manufacturing to the defense industry. There, a bipartisan group of Senators listened to Secretary of Commerce Gina Raimondo, Deputy Defense Secretary Kathleen Hicks, and National Intelligence Director Avril Haines explain for two hours the importance of stimulating the semiconductor industry. Hicks told the group that “98 percent of the chips purchased by the Department of Defense are tested and packaged in Asia,” while Haines walked the group through a hypothetical Chinese invasion of Taiwan. The next week, Pelosi’s office began telling reporters the House Majority Leader would be flying to Taiwan, the first time an American official of her rank had visited the island in a quarter century—provoking aerial military exercises from both sides of the South China Sea.

Manchin played the final card with a bluff. After the briefing, Raimondo asked Pompeo and Trump National Security Adviser Robert O’Brien to call through the GOP Senate caucus for approval of the funding. The day after the classified security briefing, Manchin announced he would not vote for a reconciliation package that raised taxes and spending. His agreement with Schumer had fallen apart, he said; McConnell’s opposition was now meaningless. On July 27, McConnell, satisfied, allowed the Senate to vote 64 to 33 on sending the USICA spending bill—now the CHIPS and Science Act—to the House. Early next morning, Schumer and Manchin went public with an agreement on a legislative package for budget reconciliation, billed as a climate, health, and tax deal: $369 billion in tax credits offset by $313 billion in revenue, raised from a variety of changes to corporate taxes that did not include raising the statutory rate; Medicare would gain controls over a small set of the pharmaceutical industry’s prices. The Inflation Reduction Act had arrived.

The invention of Bidenomics

The power structures holding together many congressional districts operated as a kind of decentralizing centrifuge against the forces driving the Build Back Better agenda. Employers needed labor costs stabilized; government spending, the national media consensus agreed, was the culprit of the destabilizing inflation. Opposition to spending was the solution. The weakness of a national constituency for even the kinds of spending increases necessary for the new global security agenda—much less an increase in the confidence of working-class activism—surfaced in the Rashomon-style theatrics required to cut taxes for green energy providers and subsidize the semiconductor industry.

The final details of the reconciliation process made this weakness explicit: of the tax increases included in the Schumer-Manchin agreement of July 28, Sinema was able at the twelfth hour to exempt core lobbies. At her insistence, the Congress retained the carried interest loophole that leaves private equity and hedge funds paying lower capital gains tax rates on their management fees. Manufacturing and telecommunications corporations won new accelerated depreciation and spectrum rights deductions. The $80 billion over ten years in IRS funding secured in August 2022 was bargained down, in June 2023 and March 2024, in budget-ceiling negotiations with the 118th Congress, to $60 billion.

The old hegemony of big business over the policy leadership of the Democratic Party weakened only after a global pandemic and the historic urban uprisings of summer 2020. But political resistance to growing and reforming the care economy and renegotiating the terms of employment in the American labor market decisively shaped what Bidenomics became: the embrace of national-security justifications for public expenditure; the celebration of technology and its attribution to entrepreneurs; the quieting of campaigns to build political power capable of raising the rate and shaping the distribution of taxes; the return of austerity to city budgets; and the pursuit of border security. In sum it had become what National Security Adviser Jake Sullivan calls “a strong, resilient, and leading-edge techno-industrial base” capable of “usher[ing] in a new age of the digital revolution.” This project, combined with military intervention abroad, eclipsed the incipient Build Back Better project of constructing an electoral coalition of low-wage service-sector workers, public-sector unions, and immigrants. Between the new Democratic Party insurgency to raise taxes and remake the welfare state, on the one hand, and the tax-averse, labor discipline-minded American business elite, on the other, the pressurized political impasse produced an adjustment of commitments.

And yet, a new fiscal policy has emerged from the Biden period. This has seen a stepwise increase in federal spending above the pre-pandemic norm. During the FY2011 federal budget negotiations in November 2010, in the nadir of that recession, OMB Director Peter Orszag said Social Security cuts would “help the federal government establish much-needed credibility on solving out-year fiscal problems.” John Podesta thought that “reforms [to Social Security] could starkly demonstrate to skeptical debt markets that the United States is willing to take on a politically difficult fiscal issue.” Paul Volcker, then an Obama adviser, supported the proposed benefit cuts as “confidence building.” This kind of rhetoric is not present in the 2024 election. Instead, both Donald Trump and Kamala Harris are campaigning on protecting Social Security and Medicare while the FY2024 budget, in an election-year political business cycle, projects a $940 billion deficit. Fiscal policy is back—in a murky synthesis of tax cuts that make up the new industrial policy. National security provides the ideological glue for the Continuing Resolutions and debt-ceiling increases that sustain this fiscal policy: since March 2022, when the war in Ukraine began, the Congress has granted an additional $275 billion across seven military supplemental funding bills while reducing civilian program budgets from their pre-IRA levels.

But will economic growth produced by the return of growing fiscal deficits reverse a half century of inequalities? The largest employment gains in the Biden years have been divided between two very different kinds of markets. The sector enjoying the largest absolute growth in total employment compared to February 2020 is professional and business services. Over three fourths of the 1.4 million jobs the economy added in this sector compared to before the pandemic have been in professional, scientific, and technical services: astonishingly, management consulting leads the group, followed by computer systems design and related services, and scientific research and development services. Following this is private education and medical services (1 million jobs) and transportation and warehousing (836,000 jobs). The latter are both low-wage industries with limited productivity gains from expanding demand; while their wages are also increasing, they are, in hourly terms, small fractions of the labor costs in the high-wage sector. Altogether, these trends represent a continuation of K-shaped patterns in the economy.

The changes in industrial and occupational structure of American employment produced so far by Bidenomics reflects the underlying balance of power in the mixed economy. Of the administration’s much-touted 800,000 manufacturing jobs, 650,000 of these represent recovery to the levels of February 2020. Manufacturing’s absolute gain of 150,000 jobs since before the pandemic represents a rate of employment growth lower than that of the rest of the economy. Extremely productive, manufacturers simply cannot find enough customers for their products to be able to grow their share of the workforce. Even in a newly protected trade environment, manufacturing has continued to decline as a share of national employment during the Biden years, dropping from 8.5 to 8.2 percent of the employed workforce. ²⁵

The fiscal expansion of 2020–2021 appears to have changed this picture only temporarily. New investments—spurred by IRA achievements like the Greenhouse Gas Reduction Fund, or the expansion of publicly backed loans from the Department of Energy—will shape the growth of new green energy projects across the country. But the private investment on offer has had the effect of reproducing and expanding a dual economy of low-wage services sustained by new construction, speculatively inflated values in real estate and securities, and a wealthy but low-employment sector of high technology and final assembly manufacturing firms. Given the full-employment experience preceding the pandemic and its continuation in the rapid recovery, the classic problem of growing government spending without provoking business panic or placing the spending in the hands of self-interested corporate actors remains untouched. Doing so would mean confronting the way that public spending and private investment together create the prevailing patterns of inequality in the service sector and the care economy—exactly the part of the agenda that could not find a home in the new legislative synthesis. In the absence of any alternative purpose that can glue together legislative coalitions in pursuit of what economists call “balanced” economic growth, advancement under the sign of national security will continue to be uneven, unequal, and politically constraining.

To be in a position to contemplate alternative full-employment strategies requires not only sustaining a tight labor market, but also control of government. The Harris-Walz campaign enters the final month of its election with a bare grasp on the former and an attempt at the latter through its embrace of George W. Bush-era conservatism on foreign policy and immigration. Unable to sustain a fiscal policy capable of more rapidly compressing wages and sustaining labor’s share of national income, Bidenomics converted a program for raising taxes and social spending into deficit-financed corporate tax credits for targeted growth of existing profit centers. To do this, the Democrats have turned to the imperial designs of the State Department to squeeze spending out of the Treasury.

In the 2020s, military preparedness is being reinvented as a winning bipartisan issue. “These professedly warlike preparations have in effect been preparations for breaking the peace,” Thorstein Veblen wrote in February 1917, a month before Woodrow Wilson committed American soldiers to Europe and set this process in motion. “A remedy had been sought in the preparation of still heavier armaments, with full realization that more armament would unfailingly entail a more unsparing and more disastrous war—which sums up the statecraft of the past half century.” However much political strategists may persuade themselves that the new nationalism can secure domestic consent and geoeconomic reach, the currents in which they are flowing lead back to the historical catastrophes out of which the very tools of macroeconomics were invented—to understand and consciously shape economic change.