With Bernie Sanders calling it quits on 8th April 2020, the path to the Democratic nomination has been cleared for ex-Vice President Joe Biden. American voters, and the rest of the world, are looking at Biden’s manifesto now more than ever. With a dipping economy post-pandemic, it is crucial to analyse what the presidential candidate has in mind for the economy. This article will look at the key policies proposed by Joe Biden and their possible effects on the American economy.
Having served as Vice-President during the Obama Administration, healthcare remains a top priority for Joe Biden. He is also passionate about rebuilding the middle class, gun regulation, campaign reforms, immigration, education and climate change.
“We’ve got to rebuild the backbone of the country- the middle class” – Joe Biden
Health care: Joe Biden is extremely passionate about providing affordable and accessible healthcare since his days in the Obama Administration or even before. He plans on protecting the Affordable Care Act, if elected, and building on it further. He hopes to give a new choice to Americans of public health insurance. He also proposes giving tax credits to middle-income families to help pay for insurance and increasing the coverage to low-income Americans. Biden has decided to limit the price increases on drugs more than the inflation rate and allowing citizens to purchase drugs from other countries.
Biden’s drug policy will have an effect on the US’s trade. Allowing citizens to buy drugs from other countries will increase imports which will not be appreciated by domestic companies. Regulating prices of drugs will help keep the astronomical medicine prices in check. The overall healthcare policy should reduce expenditure on healthcare which will free up income that can be spent on other things. Consumption and saving should increase as a result. A general improvement in healthcare standards is expected.
Minimum Wage: Biden strongly supports increasing the federal minimum wage to $15 per hour (which is $7.25 per hour as of today). This is a step towards rebuilding the middle and empowering the lower class. He has also proposed expanding the worker base that can avail benefits of the national minimum wage to include farmworkers and domestic workers.
Raising the national minimum wage is a critical decision for any government. Doing so runs the risk of causing significant unemployment. Firms may no longer be able to afford a large number of employees after the wage hike and may be forced to let go of many workers. While this is a step towards equity and motivating workers to work harder, it can potentially lead to unemployment issues. After such a wage hike which is approximately double of the current minimum wage, many potential workers may choose to join the labour force. Their joining the labour market will increase unemployment pressure on the government, at least in the short run.
However, with higher wages, the lower class and middle class will be empowered. They will be able to spend more and possibly contribute more to the consumption levels in the economy.
Infrastructure Plans: Biden plans on investing a staggering $1.3 trillion over the next 10 years for improving the country’s infrastructure. He is disturbed by the fact that the US ranks 10th in overall quality of infrastructure (according to WEF) and considers the poor infrastructure quality to be a contributing reason for the issues faced by the middle class. He plans to improve conditions for the middle class, increase union jobs and build a greener America. The expenditure will be on building roads and highways, electrifying the railways, clean energy, water technology, schools, smart cities and more.
This expenditure will require massive fund-raising, which will mostly come from the tax reforms proposed (higher wealth tax and corporate tax). The plan is expansionary in nature for the economy and will certainly boost GDP and employment with the multiplier effect. Jobs created will be union jobs that will help empower the middle class. In the long run, such an investment, if successful, will help improve the productive potential of the economy. However, in the short run, it can impose demand-side inflationary pressures.
Climate Change Policy: Biden, in support of the framework of the Green New Deal, strongly believes in the urgency of Climate Change issues and that the environment and economy are connected. To battle climate change, Biden wants to ensure that the US ‘achieves a 100% clean energy economy and reaches net-zero emissions no later than 2050’. He proposes making a historic investment of $1.7 trillion that will be funded by rolling back the tax incentives set up by President Trump.
Investing in clean energy is smart planning for the future. With the trend of moving towards sustainable development, it is better for the US economy to start adjusting to these changes in energy systems soon. This opportunity will create jobs and contribute to the GDP, but it will have a major impact on US trade. As of November 2019, the US was a net oil exporter. Biden has decided to put an end to off-shore drilling and leases on federal lands held by Oil companies. This policy of moving away from fossil fuels and oil and natural gas will hurt the export sector for many years.
Joe Biden’s stands on many issues are the polar opposites of President Trump’s. With very different visions for the American economy and how to get there, this election shall shape the future of the global superpower. The Democrat’s policies are forward-looking and strongly grounded in his aim of empowering the middle-class. As expansionary as they are in nature, the high expenditure plans have merit only if they are efficient and successful in implementation. Only time will tell whether Biden gets to execute these plans, but for now, we know what the US might look like under the next democratic president.
Advaita Singh is a first year student of Ashoka University pursuing her major in Economics.