Bidenomics Is Yet Another Version of Failed Industrial Policy
On June 28, President Joe Biden took to the stage in Chicago to drum up support for his economic agenda, which his own team has taken to calling “Bidenomics.” The speech was part of a broader publicity tour, “Investing in America,” with the president and his cabinet traveling the country trying to get the American people to see Biden’s economic policies as successful and popular.
In his speech, the president attacked so-called trickle-down economics, which he painted as the dominant economic policy of the American government for decades. He then defined his agenda, Bidenomics, as a “new philosophy” set to “restore the American Dream.”
But Bidenomics isn’t a new philosophy. If you look at what’s been enacted and what’s still being proposed, it becomes clear that all Biden is doing is ramping up the federal government’s industrial policy. And industrial policy has, unfortunately, been around for a long time—as have its effects. When governments pursue industrial policies, they attempt a form of entrepreneurship. And in doing so, they divert scarce resources and capital away from the production of goods and services that people actually want, freed from the feedback of the market. Bidenomics won’t restore the American Dream but will do it damage.
All the fancy, focus-group-approved economic talking points the administration is now spamming us with begin to unravel when one understands basic economic truths. Chief among these truths is that the economy is a process—not a state of being. Specifically, it’s a process for producing goods and services that satisfy the needs and wants of consumers. Every part of every line of production is a means toward that end.
For an economy to grow and everyone to become wealthier, some people need to take on the role of an entrepreneur. Entrepreneurs reallocate resources to new lines of production or refine existing lines to account for changing factors like technology, capital availability, and consumer preferences. This activity is undertaken with the purpose of producing or contributing to the production of goods and services that consumers value enough to pay for.
In a market unhampered by a government, the resources and capital used in production are the property of capitalist-entrepreneurs. That means they have control over how these inputs get used. And, because they also own the produced outputs, the capitalist-entrepreneurs are personally subjected to the constant and unignorable feedback of the profit and loss system.
Consumers on the free market can opt out of any exchange for any reason. That’s why capitalist-entrepreneurs can only make profits if they produce things consumers value. When they don’t, they are stuck with the losses. Economic losses are a motivating signal that the resources used in a line of production would be better used elsewhere.
How does Bidenomics fit into all of this? Again, one could describe much of Biden’s economic agenda as ramping up industrial policy—meaning the government is attempting entrepreneurship. Political officials are using tax dollars to acquire resources that they then allocate to new production lines. Bidenomics also entails using tax-funded subsidies to get private investors to fund projects they wouldn’t have chosen otherwise. All these tax dollars pouring into new projects allow the administration to brag about creating jobs and producing stuff, which sounds good in a campaign speech, regardless of whether the end consumers value these things as the best use of scarce resources.
From a purely practical standpoint, the federal government cannot help but be a terrible entrepreneur because it is immune from economic losses. The American people are legally prohibited from opting out of their payments to the government as they are allowed to do with any other organization. As such, the government can spend decades on wasteful projects of little to no value and face no direct economic consequences. On top of that, the lack of feedback can allow the government’s operations to drift further away from reality as scarce resources go wasted and consumer needs go unmet.
Entrepreneurship is an essential part of a growing economy. But the wealth creation brought about by entrepreneurship is only truly possible with the freedom and feedback under private property. The quasi entrepreneurship taken on by the government in the president’s economic agenda siphons scarce resources away from more valuable uses and into projects protected from the critical feedback of economic losses. Policies like this aren’t going to “restore the American Dream”; they’re the very thing killing it.