After a month of smart moves, Biden is back in the game

Now, after the most productive one month any large democracy can boast of since… well, arguably India’s economic reforms of 1991, all has changed. The Biden administration passed a recast version of its Build Back Better bill as the Inflation Reduction Act. Its accelerated timeline for reducing greenhouse gas emissions and critically a fee for emitting methane will also be helped by upping spending on renewables by $300 billion to $1.2 trillion by 2035. The bill’s long overdue bringing to heel of the powerful pharma lobby in the US is critical. The bill gives the US government’s health programme for the elderly sharp new teeth: if drug prices for Medicare outpace inflation, as they have for years, Big Pharma in the US will have to issue a rebate. The bill is not perfect; it includes a complicated new way of calculating corporate income tax for companies with net income of more than $1 billion.

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But the Biden administration’s August on steroids included much more. With threats from Beijing to Taiwan, which accounts for about 90% of global semiconductor production, multiplying by the day, Biden signed a bill to promote the development and manufacturing of these chips in the US. It envisions $53 billion in additional spending spread across R&D and manufacturing. The bill enjoyed unusually wide bipartisan support, passing by 64-33 in the Senate and 243-187 in the House of Representatives. The US’ track record suggests it has a far better chance at succeeding at chip manufacturing than most other countries. Unlike India, it has plenty of materials engineers and an abundant supply of clean water, both crucial for chip manufacturing.

If all this weren’t enough, Biden fulfilled another campaign promise by passing a bill that will forgive large chunks of student debt for those with incomes of less than $125,000. At one stroke, it cancels debts of up to $20,000 for millions of Americans. Our judges and others may deem this a freebie, but then India’s production-linked incentive (PLI) schemes are freebies too. As with rising pharma bills, the cost of education had become a faultline along which rising economic inequality in the US was increasingly defined. The wildly unequal status quo is a marked change from the America of decades ago.

This past month of hyper-productivity has seen a turnaround in Biden’s approval ratings and a reassessment of Democrat prospects for elections in November. The party is leading in opinion polls in many important races. Then again, they are all-important. If the Democrats lose control of the House of Representatives as was widely predicted earlier this summer, Republicans will block Biden for the remainder of his term. The Justice Department’s possible prosecution of former president Donald Trump is also a high-risk exercise because so many thousands among his supporters are armed. The Republican embrace of Trump’s quasi-fascist views is heightening the chances of violence by his supporters. Last Thursday, Biden sought to mobilize voters by saying it is “not hyperbole; you need to vote to literally save democracy."

Biden’s run of legislative victories and the death of Mikhail Gorbachev at 91 this week are a reminder that consensus builders and decent soft-spoken men can be great leaders. Amid the high-voltage nonsense that passes for political analysis on social media, this is all too easily forgotten. Too many people, notably Donald Trump but also many commentators, swoon over former and current Communist autocrats such as President Vladimir Putin and President Xi Jinping and implicitly bat for their need to expand their spheres of malevolence. Significantly, Putin regarded the dissolution of the former Soviet Union in 1991 as a moment of “complete degradation and oblivion", which he referenced as Russia started its invasion of Ukraine.

The year 1991, of course, also heralded the most significant economic reforms India has seen, but for all its transformative successes, the modest, soft-spoken people behind these reforms in the finance ministry, Reserve Bank and those who made new fortunes in India Inc still get much less credit than they deserve. Instead, through successive tariff hikes, industrial policies such as PLI schemes and enabling oligopolies in many critical industries, India is turning its back on 1991.

The interim report card of Joe Biden as he approaches his 80th birthday is thus an important management and morality tale. Research from economists at the University of California at Berkeley shows that in 2021 annual growth in inflation-adjusted income was especially strong at almost 11% “in the bottom half of the income distribution". 2021 also saw the highest one-year increase in jobs in US history. Now blessed with historically low unemployment rates and decelerating inflation, Biden might yet lead the Democrats to victory in November. India and the world ought to be watching closely.

Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.

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