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31 August 2022updated 24 Oct 2022 3:49pm

Joe Biden’s “money illusion” – and how it could beat back Trumpism

With his own party divided, the US president’s big spending packages are a way to reconcile political opposites.

By Bruno Maçães

On 24 August President Joe Biden announced that the US federal government will erase up to $10,000 in student loan debt for everyone earning less than $125,000 a year – and double that amount for many from low-income families. The measure was met with jubilation by some, but economists were more critical. Jason Furman, who chaired the Council of Economic Advisers under Barack Obama, thinks it will add to current inflation by some 0.2 or 0.3 per cent.

The logic of student-debt relief is far from flawless. After all, the expectation is that going to college will bring you a large premium in terms of future earnings. Should your investment be paid for by those who did not have the same opportunity, either through higher taxes or higher inflation? And if the goal is to provide affordable higher education for every American, why not cap tuition prices in colleges with access to public money? The Biden plan looks like a short-term solution, with many asking if the idea is to announce a debt jubilee every year or every few years, as the rulers did in ancient Babylon.

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Nevertheless, Biden managed to accomplish one of his main campaign promises, just in time for the November midterms. The political scene is now looking far more auspicious for the Democrats than most predicted just a few months ago, with Biden having achieved an impressive sequence of policy victories, partly by mastering the art of the quick fix.

Biden avoids getting embroiled in the hard work of structural change – the nemesis of so many occupants of the Oval Office before him. Instead, he addresses social and economic problems using a modern version of what economists call the “money illusion”.

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His presidency exists at two levels of perception, which appear contradictory: revolution and conservatism. The Biden presidency is perceived as a period of radical transformation. Biden is compared to Franklin Delano Roosevelt in the boldness of his vision and its impact on the shape of American society and economy. One media outlet suggested the Biden administration was “re-engineering America”. The New York Times columnist David Brooks wrote in 2021: “[Biden] may not have sought transformation, but transformation found him.”

It is true that the infrastructure bill and the climate, tax and health bill approved by the administration in November 2021 and August this year add up to almost $2trn. But this is different from the structural changes to the US state that defined Roosevelt’s New Deal in the 1930s. Money has a way of creating powerful fictions without changing the underlying realities. It is no coincidence that Biden failed to pass an increase in the minimum wage to $15. The national minimum wage remains at $7.25 an hour, where it has been since 2009.

Modest in scope though increasing the minimum wage would be, Congress, and even many Democrats, considered it too radical. Such a policy could start to change the existing power relations, just as any attempt to reduce tuition costs would fundamentally change the nature of higher education in the US, perhaps even reshaping the nation’s class structure (elite colleges are much more likely to admit legacy students, whose parents attended the same institution, than candidates with no family connection). Biden is too cautious, too conservative, for that. Instead, he is seeking policies that can produce an immediate appearance of change without any transformation in social and economic reality. His administration has no intention of rethinking the role of the state in society and the economy.

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What is remarkable about US politics is the nature of the opposing demands that define it. The public wants to regard Biden’s presidency as a transformational or even revolutionary moment. The second demand, ironically, is that it be nothing of the sort. The fundamental weakness of Bidenomics is not a bug but a feature of American political culture. Deep down, in the collective unconscious, what the country seems to want is for Biden to fail as a transformational president while succeeding as a myth-maker. The genius of the process is that you get the best of both worlds: revolution without the real costs of social conflict.

Biden understands that there are two ways to change society. A president can try to alter society itself, a project as arduous as it is risky, and often politically fatal for those attempting it. Or they can move around certain quantities of money. Money is the record of all economic relations in society – like an X-ray of the underlying reality which can be changed or edited much more easily than one can modify social and economic structures. Inverting Marx, one could say: politicians have so far only changed the world in various ways, but the point is to interpret it. At the touch of a button, $500bn in debt has been moved from individual students to the taxpayer.

Forced to bring together very different sensibilities within the Democratic Party, Biden has found a way to reconcile political opposites. He can promise the progressive and more radical wing a final victory over the forces of reaction (or what Biden has called “semi-fascism”), while reassuring the centrists that he has no interest in changing how the country functions. The victory will be superficial, but at least it will be a victory. Obama pursued more, but ended up with less.

[See also: Towards a unified theory of Biden’s climate deal]

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This article appears in the 31 Aug 2022 issue of the New Statesman, The Liz Truss Doctrine