by Noah Smith
President Joe Biden’s 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 Carter’s 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.
Reagan’s 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 they’ve 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. 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, chair of the Federal Reserve. Volcker’s interest rate increases began under Carter (and the recession they caused probably contributed to Carter’s 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 Roosevelt’s programs, as president he was widely hailed as a champion of policy activism. When the Great Depression hit, he responded with a flurry of programs that boosted spending by almost 50% 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, it’s 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.
Trump’s economic policies were, generally speaking, unfocused. He didn’t 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. 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 nation’s competitiveness into question.
Though Biden is suspending tariffs on U.S. allies, he’s keeping the ones on China. In fact, Biden’s entire China policy essentially continues in the direction that Trump laid out. Biden’s economic program, though it doesn’t 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.
Trump’s break with orthodoxy wasn’t 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 party’s opposition to change. On these topics, a fair number of conservative think tanks and politicians are joining the bandwagon.
Perhaps that’s how big policy changes ultimately happen. If Biden ultimately succeeds in reorienting American economic policy away from free trade in a systematic and effective manner, he’ll likely be the one who gets associated with that shift by future generations. But it was Trump’s stumbling, erratic approach that paved the way.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
