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Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University.
President Joe Bidens bid to retool the U.S. economy has me thinking about the parallels with earlier transformational presidents: FDR and Reagan. One of the most interesting aspects of these previous administrations was that the big changes they implemented actually began under their predecessors of the opposite party. Just as Ronald Reagan expanded on Jimmy Carters accomplishments, and Franklin D. Roosevelt got a running start from Herbert Hoover, Biden is benefiting from a change in momentum that began under Donald Trump.
Reagans economic program consisted of three main pillars: tax cuts, deregulation and tight money. But the latter two were actually hallmarks of the Carter administration.
Libertarians were no fans of Carter when he was president, but theyve come to realize that he was actually a very vigorous deregulator in many ways, more so than Reagan himself. The economic double threat of stagnation and inflation in the 1970s created a general consensus that the government needed to reduce its control over prices and participation in specific sectors of the economy, particularly transportation and energy.
A little of this happened under Gerald Ford, but mostly it happened under Carter. The Airline Deregulation Act of 1978 removed all kinds of federal controls over what routes airlines were allowed to fly and what prices they were allowed to charge and how easy it was to start a new airline. The Staggers Rail Act and the Motor Carrier Act did similar things for rail and trucking. Carter also removed many of the price controls on oil and natural gas implemented during the Nixon administration. Reagan also did some deregulation, but he was mostly just continuing down the path that Carter had already laid out.
The high inflation of the 1970s also created a general consensus that monetary policy needed to be tightened up. This was done by Paul Volcker, whom Carter appointed in 1979 as chair of the Federal Reserve. Volckers interest rate increases began under Carter (and the recession they caused probably contributed to Carters 1980 electoral defeat).
So a lot of what we tend to think of as the Reagan Revolution began under Carter. This echoes another historical episode: the New Deal. Though Herbert Hoover eventually became a bitter opponent of Roosevelts programs, as president he was widely hailed as a champion of policy activism. An engineer by trade, Hoover tried to encourage cooperation between government and industry. When the Great Depression hit, he responded with a flurry of programs that boosted spending by almost 50 percent and increased regulation of agriculture; he created laws to prop up wages and signed a pro-union bill. All of these represented unprecedented levels of government intervention in the economy, and foreshadowed actions FDR would eventually take under the New Deal.
Thus, its very normal throughout history for economic policy revolutions to start under presidents from the opposite party of the one who eventually gets the credit. A similar progression looks likely to play out with Trump and Biden.
Trumps economic policies were, generally speaking, shambolic and unfocused. He didnt appear to be following any intellectual paradigm or school of thought; instead, he lashed out at whoever annoyed him in the moment, be it China, U.S. allies or American companies that shipped factories overseas. But by doing that, he broke with the most important and powerful consensus in elite policy circles: free trade.
This consensus, which was shared by almost all economists, was so strong that perhaps only a maverick like Trump could smash through it. Below the level of elite opinion, dissatisfaction with free trade had been boiling for years. Though worries over competition from Japan and Europe in the 1980s turned out to be overblown, China had proved to be the real thing. In the 2000s, substantial numbers of American workers lost their careers to Chinese competition and never recovered. Meanwhile, the U.S. industrial commons eroded, calling the entire nations competitiveness into question:
Though Biden is suspending tariffs on U.S. allies, hes keeping the ones on China. In fact, Bidens entire China policy essentially continues in the direction that Trump laid out. Bidens economic program, though it doesnt involve the president yelling at companies to put jobs in America, revolves around industrial policy and the reshoring of supply chains; in this sense it shares a basic goal with Trump.
Trumps break with orthodoxy wasnt complete, of course. In many ways he governed as a typical Republican, cutting taxes and regulation and increasing work requirements for welfare programs. But on trade and industrial policy, he blazed a trail by neutering his own partys opposition to change. On these topics, a fair number of conservative think tanks and politicians are joining the bandwagon.
Perhaps thats how big policy changes ultimately happen. Carter wont go down in history as the great champion of deregulation, nor Hoover of big government. And if Biden ultimately succeeds in reorienting American economic policy away from free trade in a systematic and effective manner, hell likely be the one who gets associated with that shift by future generations. But it was Trumps stumbling, erratic approach that paved the way.
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