Berlin – The President is serious. “We have to act now,” said Joe Biden recently. “I see a lot of pain in this country. Many people have no work, many are hungry. ”With this, Biden was referring to the corona pandemic, which has ravaged the United States. Millions of Americans have lost their jobs. Without a job, there is a rapid risk of social decline in the United States.
So the new US president had to deliver. And he did. After a little more than 100 days in office, Biden has already initiated important reforms – and has also turned economic policy in his country upside down. Biden, the maker. That wasn’t exactly to be expected.
The Dow Jones gained 10.12 percent in 100 days Biden
During the election campaign, the 78-year-old was mocked by his opponents – above all Donald Trump – as “Sleepy Joe”, sleepy Joe. But hardly moved into the White House, the Democrat launched a $ 1.9 trillion (around 1.6 trillion euros) economic stimulus package. Tax checks of $ 1,400 for millions of Americans were intended to stimulate consumption, the unemployed received billions in government aid, and the corona vaccination campaign was strengthened.
Biden’s price is valued on the stock exchange. In the first 100 days of his tenure, the Dow Jones is up 10.12 percent. The economy is also picking up. In the first quarter, the economic output, extrapolated to the year, grew by 6.4 percent – and thus more strongly than expected by many economists. Biden is also planning an investment and infrastructure package as well as a strengthening of the welfare state. If you add up all the packages and projects, the investment will amount to six trillion dollars within a decade – if Congress approves.
We are seeing a paradigm shift in the US.
Sebastian Dullien, Director of the Institute for Macroeconomics and Business Cycle Research
So the President is doing everything he can. The plans are to be financed through new debts. And – atypical for America – higher taxes for the wealthy. Biden wants to raise the top tax rate from 37 to 39.6 percent and close loopholes, and corporate taxes are also to rise from 21 to 28 percent. Under Donald Trump, the rates were lowered. “We are seeing a paradigm shift in the USA,” says Sebastian Dullien, director of the Institute for Macroeconomics and Business Cycle Research (IMK) of the union-affiliated Hans Böckler Foundation. A US administration is planning an increase in corporate taxes, not just for the first time in decades. The national debt is no longer perceived as a limit, said Dullien of the Berliner Zeitung. The government can therefore pursue a very expansive fiscal policy – without having to worry about payment difficulties. Interest rates are low in the US too.
Biden’s policy has consequences: the national debt is increasing
Biden’s $ 1.9 trillion economic stimulus program is largely financed through loans – and that with a volume of almost ten percent of US economic output. However, this policy is not without consequences: The debt ratio, i.e. the ratio of national debt to gross domestic product, is likely to rise to over 130 percent this year. For comparison: In Germany the value is a little more than 70 percent. Biden argues that with the current low interest rates it is important to invest to get the job market and economy going again. To do this, however, long-term capital market rates must remain at a low level. Can this bet work?
“Americans have always been a little more relaxed when it comes to national debt,” says Rüdiger Bachmann. The German is a professor of macroeconomics and teaches at the private University of Notre Dame in the USA, he observes economic policy on both sides of the Atlantic. Even under Trump, the national debt has risen. However, what Biden plans to do for the US economy is “no sticking out of paper,” said Bachmann of the Berliner Zeitung. The states did not face serious payment difficulties, if only because the dollar is always in demand as the world’s leading currency. However, another problem could come to the fore: inflation.
The rate of inflation was already 4.2 percent in April, well above the 3.6 percent figure that many experts had expected. If the trend continues, the US Federal Reserve could see itself forced to act. However, rising interest rates are only a problem if the economy does not grow – and the US is currently a long way from that. Observers believe that the Biden government’s trillion programs will continue to support economic growth in the years to come.
There is no doubt that there is a need for investment in the USA. Some of the infrastructure is ailing, and climate change requires the economy to be decarbonised. Projects that cost a lot of money. IMK economist Dullien sees the Federal Republic of Germany facing similarly great challenges. Demography and digitization also played a major role here. However, as the upswing begins, the discussion in Germany is increasingly revolving around the black zero and how the federal government can comply with the debt brake again as quickly as possible. It is economically insane not to invest now, says Dullien. Joe Biden is a role model in this respect.
Rüdiger Bachmann would also like to see a more pragmatic approach to public finances in Germany. However, it would also be good for the USA to look a little more closely at the rule-based fiscal policy, as the Federal Republic does, he says. There is no answer to the question of how the debt ratio can at least remain stable.
The US population is divided on the new president
In the US, meanwhile, the public itself is skeptical of what is happening in Washington. In the first 100 days of office, the Americans have seen a president who doesn’t sit back and takes on a lot. Nevertheless, their judgment is divided. Joe Biden, for example, has an agreement of 54 percent on average in all surveys, and 41 percent of Americans see him as negative. Only two presidents, Gerald Ford and Donald Trump, had such meager approval ratings at the start of their terms in recent history.
For now, Joe Biden has no choice but to hope that the pandemic will soon be contained. And his economic and investment packages then also have a long-term effect – also with a view to their own popularity.
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