If the global recession intensifies, only the US can pull the world out of it – but will Bidenomics save us?

If Joe Biden wins the election, there would be faster growth under his plans compared to Donald Trump’s, writes Hamish McRae

The former vice president speaks to reporters in Pennsylvania this week (Getty)

Will it be Bidenomics to the rescue? Or the second wave of the virus bringing a second wave to the Covid-19 recession?

Quite suddenly the world’s financial markets have realised we are not through this one yet. The decent bounce of the summer, gaining much – though by no means all – of the ground lost in the spring was already weakening before the second wave struck. So what can be done to keep the world economy moving?

Europe can’t help that there are plans for a big fiscal push to try to help the countries hardest hit by the virus, but that money will not flow until next year. The European Central Bank can always create more money, but it too is running out of options. Negative interest rates may do more harm than good. The UK is too small to matter in global terms and we have our own problems. China has recovered reasonably well, better than any other major economy, but it does not buy enough from the rest of the world to create enough demand in other countries to move the dial much. So it has to be America. Only the US can really help pull the world up if this second leg of the global recession does materialise. But will it?

Normally the US business community would have inclined towards the Republicans rather than the Democrats: lower taxes particularly on the rich, less red tape, a more business-friendly atmosphere generally. This year is different. The US economy has made a rather better recovery than most other countries but it needs another fiscal stimulus to keep things moving. The Trump plan is stalled in Congress, so the best way of getting something turns on a Biden clean sweep: the presidency and both houses of Congress. We would then see if Bidenomics works.

It is a cute expression, derived from that wonderful book Freakonomics by Stephen J Dubner and Steven Levitt, but what does it actually mean?

Well, for a start, it is not really a new plan as such. Moves to rescue the US economy have been developed by the Democrats and will probably be applied by Joe Biden, if he is to win next week. Rather, it is a group of ideas that have gradually gained ground among Democrat supporters about the proper role for government in a mixed economy. There are several elements. The stimulus, if it comes through, will be one immediate example of the thinking, for it seems likely that the Democrats will support a somewhat larger boost, and hence fiscal deficit, than the Trump plan that is currently stuck.

The US can get away with a looser fiscal policy than other countries, thanks to the global role of the dollar, but the flip side of more public spending will eventually lead to higher taxation. Big government costs big money. The details of the Biden plan have been analysed by US experts, and as you would expect, paid-up Democrat economists have given them fulsome praise. By contrast, paid-up Republicans have been more circumspect.

In the short term, there isn’t that much disagreement: the economy needs a boost. In the long term? Well, the best bit of analysis I have come across was done by Moody’s, the rating agency. It took the economic models used by the Federal Reserve and the Congressional Budget Office and worked out the impact on public borrowing by both party’s plans. Result: while there would be somewhat faster growth under the Biden plans, the national debt would rise to 128 per cent of GDP by 2030. The debt would rise to 125 per cent of GDP under Trump’s present proposals.

It concluded: “Largely because of Biden’s substantially more expansive fiscal policies, the economy would return to full employment more quickly coming out of the pandemic than under Trump – in the second half of 2022 under Biden compared with the first half of 2024 under Trump.”

Economics, however, is not simply about macro-economic numbers. It is about attitudes, confidence, human nature and so on. The most interesting aspect of Bidenomics seems to me not to be about fiscal policy. Rather it is about the signal it gives that US capitalism has to adapt and make sure that whole communities benefit rather than the quite small financial and commercial elites that have done so well over the past decade.

You could say this is anti-Trump, and I suppose in a way it is. But actually, it is much bigger than that. It is about how US society is organised, managed and governed. It is about a slightly larger fiscal role for the government but is equally about how big companies should be regulated, about labour market standards, about health care, and about opening greater opportunities for people who have started life under difficult circumstances.

It is a reset. Donald Trump has transformed foreign policy and the shift in attitude to China will stick. I suspect that we will get a similar reset of economic policy should Joe Biden win the election. But first, we have to hope America pulls itself out of this second dip – and pulls the rest of us out with it.