April 28, 2021

The adoption of policies that create a sustained economic expansion with high paying union jobs as well as reducing income inequality in the US economy are some of the stated goals of the Biden-Harris administration. Bidenomics assumes that producers and owners of capital have some monopoly power that they exploit, resulting in an unfair transfer of income from workers to owners of capital which Bidenomics intends to offset. To deliver on its promise, the Biden program proposes increasing taxes on corporations and high-income levels. The tax increases serve two purposes: To raise revenues and to offset the transfer of income associated with the presumed monopoly power of the owners of capital. According to Bidenomics the tax increase will not have any adverse or disincentive effects on the equilibrium level of output and employment. Yet despite of these assumptions, Bidenomics devotes a lot of resources to reduce factor mobility and competition. Simply put, Bidenomics spends a great deal of time attempting to stamp out substitution effects. The list includes preventing the states form lowering their tax rates by writing into the COVID19 legislation that states that participate on the federal program cannot directly or indirectly use the federal revenues to lower their tax rates. Then there is the national minimum wage endorsed by the President, the proposed federal legislation aimed at overriding the states right to work laws, the global minimum tax proposed by the Treasury Secretary. All explicit attempts to limit mobility and competition. The previously mentioned policies are blatant attempts to preserve the state and local and federal government tax revenue sources, which Bidenomics needs if it is to “re-imagine” America, control the economy, invest, and redistribute income at will. The managed or dirigiste outcome produced by the policies of the Biden-Harris administration will reduce the economic efficiency and result in a lower rate of return. The reduction in economic efficiency will have a negative compounding effect, if unchecked the policies will ultimately lead to a “new new normal” that will make us nostalgic of the real GDP growth under the old new normal. If adjustment is costly, the changes in the corporate sector capital structure induced by Bidenomics will be gradual and so will the negative impact on the rate of GDP growth.

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