Rachel Reeves

He stumbles when coming down the stairs of Air Force One; he trips over a sandbag on stage to fall flat on his face when handing out diplomas at the US air force academy; he muddles his words with alarming regularity. It is easy to write off President Joe Biden as a senile, 80-year-old duffer. Yet he is already being regarded by many Democrats, and some Republicans, as significant a Democrat president as Franklin Roosevelt or Lyndon Johnson. He is dramatically changing the face of the US around Democrat priorities – reindustrialisation to support blue-collar jobs and wages, wholeheartedly fighting climate change, investing massively in science and education, doing more for the poorest and, not least, rejuvenating the US’s decaying public infrastructure.But, unlike his famous predecessors, he has never had their big majorities in Congress, and after November’s midterm elections he does not even control the House of Representatives. He has had to rely on guile, sheer political craft and reading the Washington runes better than any alive. For the last few months we were being warned of financial Armageddon, as an implacable Republican party forced the US to default on its debts, only to be avoided if the administration agreed to its demands for swingeing public spending cuts to avoid going through an artificial debt ceiling limit. Tomorrow was to be the witching day when default occurred and a financial crisis engulfed the world. Instead, last week the wily Biden again outfoxed his opponents, and struck a deal massively weighted in his favour that was voted for by overwhelming majorities. It was an extraordinary victory and, when invited to claim it as such, he replied: “You think that’s going to help me get it passed?” First rule in Washington politics, from which the affable Biden has never deviated: always allow the defeated to save face because you’re soon going to have to cut another deal with them.Yet what lay behind the Republican retreat is important not just for US politics but our own. The ever more ideological US right, so influential among British Tories, has been abandoning fiscal conservatism as a dead end for some time. It goes through the motions of bloodcurdling threats to cuts in public spending, but it does not have the bottle to face the political consequences – the decimation of social programmes beloved of its own base and which any Republican presidential nominee needs preserved to have a hope in 2024. Instead, the new terrain is the fight against “the woke” – from banning drag queen reading hours to penalising investment companies that invest on “environmental, societal and governance” principles – laced with traditional social conservatism fighting against abortion along with a dose of America-first nationalism. It is, in effect, Donald Trump’s politics. The ghastly cocktail might work in the US, although I doubt not enough to win national presidential elections. It certainly won’t work in Britain.Biden’s negotiating tactics were textbook. Publicly, he took seriously the threats of Kevin McCarthy, leader of the House of Representatives, to cut $4.5tn of spending over a decade, talking up the threat and flying back early from the G7 summit to negotiate, showing the depth of his concern. Privately, he knew the Republican would back off: cuts of that scale would mean that social programmes would be decimated, given that so much federal spending is on defence, which the Republicans did not want to touch. This was not 2011, when the Republicans used the same tactic and meant it, when their libertarian tax-cutting right were in control; now they are big spenders too.Biden read the mood swing well: he knows his opponents better than they know themselves. Taking over the key negotiations himself, I am told, he forced the realities home on McCarthy, who successively scaled back his demand to a headline cuts figure of $1.5tn, which helped him save face. But even that was vastly overstated because of a series of side, off-balance-sheet deals. Federal spending will end up by being reduced by 0.2%, if that, over the next 10 years, while all the huge spending programmes on chips, infrastructure and green investment that Biden has negotiated through are intact. A stunning victory.There are problems ahead: the US, accounting for 15% of world GDP, can comfortably afford spending on this scale, but it will just have to increase its tax base. The Internal Revenue Service has been hollowed out over the years. As a first step, Biden wants to build up its capacity to go after the scarcely taxed US super-rich – one area where McCarthy did get a spending cut, if not decisive. But before 2030 the US will have to raise taxes. This will not lower its growth: as the Institute of Government recently reported, there is little or no evidence that tax cuts have any impact on growth. But it will force a huge political battle into the open.Meanwhile, Bidenomics defines the new consensus, what US treasury secretary Janet Yellen describes as “modern supply side” economics, set out in perhaps the best statement of social democratic economic analysis ever to come out of Washington, the 2022 Economic Report of the President. In her recent trip to Washington, the shadow chancellor, Rachel Reeves, met the principal architects, including Yellen, all endorsing her own version of modern supply side economics she has been developing since getting the job in 2021. At its simplest, this is a commitment to ambitious public investment, particularly over net zero, in a deliberative partnership with business as the foundation for economic growth. It is working in the US. It will work in the UK.British Tories are in a parallel position to McCarthy’s Republicans. They may deplore public spending and the big state in principle, but they shrink from the consequences of putting their ideology into action. They find themselves giving aid to new technologies and supporting the green transition as political and economic necessities without believing in either – so their approach is tepid, ad hoc, unconvinced. They are tempted to follow the US right into the poisonous thickets of being anti-woke – but Britain is a much more liberal, easygoing society than the heartlands of the US midwest. And round the corner comes the spectre of having to raise, not cut, taxes. It may be that both Britain and the US will be in the throes of national elections in autumn 2024. For the first time in 40 years, not only does the liberal left have the better argument; with a following wind, they can go all the way. More