“By the way, these presidents didn’t lead the changes as much as they were chosen by people who changed their approaches as they reacted to the consequences of the excesses of the swings,” Ray Dalio wrote this week, after recapping a century of “left-right pendulum swings” in the US.
That’s a key point. I’ve repeatedly emphasized that although capitalism is quite fairly judged to be the “best” humanist religion we’ve managed to come up with so far, its excesses long ago reached intolerable levels. By the dawn of the 21st century, economic inequality in the US approximated levels last seen during the Belle Epoque.
It’s not a perfect analogy. In some ways, it’s apples to oranges. Inequality in the US is uniquely American in many respects, not least of which is the extent to which, over time, the disparity between what corporate executives earned and what employees further down the corporate ladder earned, ballooned so wide that “absurd” ceased to function as an adequate adjective. America is a society of super-managers and tech magnates, not gallivanting rentiers. Nowhere in the world is income inequality more acute (figure, below, from the World Inequality Database).
“We estimate that passing the Biden plan as proposed would lead to a 4-6% increase in lifetime tax paid for the richest Americans,” Bridgewater remarked.
The chart, below, illustrates Dalio’s “big left-right cycle” as it manifests in taxes. “We estimate that in their lifetimes these taxes would take a bit more than half of their wealth,” the firm went on to say, cautioning that “this isn’t an expert assessment” but rather a “quick, rough estimate with simplifying assumptions for the purposes of our research.”
Goldman adds some useful color and context. “The pre-tax income share of the top 1% of earners [in the US] was the highest among rich countries [in 2019], and the US spent about 20% of GDP on social benefits to households versus 29% in Germany and as much as 35% in France,” the bank’s Jan Hatzius wrote, in a Monday note.
“While US cash social benefits (e.g. pension benefits, health- and unemployment insurance) were within international norms, in kind social benefits (predominantly health care and education) were at the very bottom end of the scale,” Hatzius added, noting that “[Joe] Biden’s proposals to increase spending on child tax credits, child care, paid leave, and education would shift the US closer to international norms.”
Failing to at least take a shot at “correcting” this situation carries enormous risk. Donald Trump came to power on a platform that used Gorilla Glue to cement the nonsensical (from an economic interest perspective) alliance between, on one hand, the downtrodden white middle class and, on the other, corporations and the richest Americans. That “coalition” has never made any economic sense and generally relied on appeals to “values,” religious and otherwise, to hold it together. Trump strengthened the unlikely bond by spiking the punch with a noxious mix of xenophobia and ultra-nationalism.
Along the way, societal divisions deepened as the White House stoked domestic discord. In 2020, the situation became wholly untenable as the pandemic plunged America into a short-lived depression and the country was subjected to multiple videos depicting the murder of African Americans by uniformed police officers. Absent a quick reset, the country may well have descended into whatever “chaos” looks like in a developed nation.
That’s the context for the Biden infrastructure and tax proposals, and it’s crucial to view them through that lens. You hear quite a bit on the nightly news about the administration “going it alone” or eschewing bipartisanship in favor of rushing to get the Democratic agenda implemented. There’s a reason this White House has adopted that approach: The situation is urgent.
The US very nearly became ungovernable in 2020. And the lies that resulted in the events of January 6, 2021, are not only still circulating, but have in fact become the foundational principle for today’s GOP. Gone are budget discipline, family values, law & order and all the other pillars of modern American conservatism. They’ve been replaced by one overriding narrative: The 2020 election was “stolen” and the Capitol insurrection wasn’t a stain on democracy, but rather an attempt by “patriots” to prevent democracy being usurped. Liz Cheney is on the brink of losing her leadership position in the Republican party for steadfastly refusing to accept that manifestly insane spin. Her increasingly tenuous position in the party suggests that when forced to choose between preserving America’s system of governance (i.e., democracy) and Trump, the GOP is prepared to choose Trump.
The only way to turn this situation around (for good) is to improve the lives of enough voters to rekindle their faith in a system which failed them. That would strip Trump (and political opportunists keen to adopt his messaging) of a key talking point and rallying cry: “What do you have to lose?”
We learned on January 6 that the answer to that question is “everything.” But too many Americans don’t see it that way. Their plight didn’t improve under Trump, but it didn’t get any worse either, so to the extent his message resonated in 2016, it still does, perhaps even louder thanks to false narratives about stolen elections and purported “deep state” conspiracies against his associates (e.g., Rudy Giuliani and Matt Gaetz).
Again: This is why it’s necessary for the Biden administration to “go big,” right now. Taking serious steps to remedy the myriad societal inequities plaguing women and minorities while simultaneously instituting policies aimed at restoring at least a semblance of prosperity and dignity to the disaffected white middle class, would go a long way towards ameliorating the circumstances that could lead to a 2024 showdown between a hard-left candidate and, yes, Donald Trump (or one of his children).
While Ray Dalio isn’t shy about speaking his mind, he doesn’t say all of the things I’ve just said for obvious reasons. But he does allude to the same dynamics and general sense of urgency.
“The Biden tax and spend proposals together are a big gamble that the Democrats had to make now within their window of opportunity in order to have a revolutionary big impact as soon as possible,” he said, adding that while he “can’t tell you exactly how [it] will shake out” he can say that to “not have made the bet probably would have been as risky as to have made it, because the consequences of the lack of reforms are also very dangerous.”