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    Ahead of Midterms, Yellen Embarks on Economic Victory Tour

    DEARBORN, Mich. — Emerging from months of inflation and recession fears, the Biden administration is pivoting to recast its stewardship of the U.S. economy as a singular achievement. In their pitch to voters, two months before midterm elections determine whether Democrats will maintain full control of Washington, Biden officials are pointing to a postpandemic resurgence of factories and “forgotten” cities.The case was reinforced on Thursday by Treasury Secretary Janet L. Yellen, who laid out the trajectory of President Biden’s economic agenda on the floor of Ford Motor’s electric vehicle factory in Dearborn, Mich. Surrounded by F-150 Lightning trucks, Ms. Yellen described an economy where new infrastructure investments would soon make it easier to produce and move goods around the country, bringing prosperity to places that have been left behind.“We know that a disproportionate share of economic opportunity has been concentrated in major coastal cities,” Ms. Yellen said in a speech. “Investments from the Biden economic plan have already begun shifting this dynamic.”Her comments addressed a U.S. economy that is at a crossroads. Some metrics suggest that a run of the highest inflation in four decades has peaked, but recession fears still loom as the Federal Reserve continues to raise interest rates to contain rising prices. The price of gasoline has been easing in recent weeks, but a European Union embargo on Russian oil that is expected to take effect in December could send prices soaring again, rattling the global economy. Lockdowns in China in response to virus outbreaks continue to weigh on the world’s second-largest economy.In her speech on Thursday, Ms. Yellen said the legislation that Mr. Biden signed this year to promote infrastructure investment, expand the domestic semiconductor industry and support the transition to electric vehicles represented what she called “modern supply-side economics.” Rather than relying on tax cuts and deregulation to spur economic growth, as Republicans espouse, Ms. Yellen contends that investments that make it easier to produce products in the United States will lead to a more broad-based and stable economic expansion. She argued that an expansion of clean energy initiatives was also a matter of national security.“It will put us well on our way toward a future where we depend on the wind, sun and other clean sources for our energy,” Ms. Yellen said as Ford’s electric pickup trucks were assembled around her. “We will rid ourselves from our current dependence on fossil fuels and the whims of autocrats like Putin,” she said, referring to President Vladimir V. Putin of Russia.The remarks were the first of several that top Biden administration officials and the president himself are planning to make this month as midterm election campaigns around the country enter their final stretch. After months of being on the defensive in the face of criticism from Republicans who say Democrats fueled inflation by overstimulating the economy, the Biden administration is fully embracing the fruits of initiatives such as the $1.9 trillion American Rescue Plan of 2021, which disbursed $350 billion to states and cities.At the factory, Ms. Yellen met with some of Ford’s top engineers and executives. During her trip to Michigan, she also made stops in Detroit at an East African restaurant, an apparel manufacturer and a coffee shop that received federal stimulus funds. She dined with Detroit’s mayor, Mike Duggan, and Michigan’s lieutenant governor, Garlin Gilchrist.Detroit was awarded $827 million through the relief package and has been spending the money on projects to clean up blighted neighborhoods, expand broadband access and upgrade parks and recreation venues.Although Ms. Yellen is helping to lead what Treasury officials described as a victory lap, some of her top priorities have yet to be addressed..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-ok2gjs{font-size:17px;font-weight:300;line-height:25px;}.css-ok2gjs a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.The so-called Inflation Reduction Act, which Congress passed last month, did not contain provisions to put the United States in compliance with the global tax agreement that Ms. Yellen brokered last year, which aimed to eliminate corporate tax havens, leaving the deal in limbo. On Thursday, she said she would continue to “advocate for additional reforms of our tax code and the global tax system.”Despite Ms. Yellen’s belief that some of the tariffs that the Trump administration imposed on Chinese imports were not strategic and should be removed, Mr. Biden has yet to roll them back. In her speech, Ms. Yellen accused China of unfairly using its market advantages as leverage against other countries but said maintaining “mutually beneficial trade” was important.Ms. Yellen also made no mention in her speech of Mr. Biden’s recent decision to cancel student loan debt for millions of Americans. She believed the policy, which budget analysts estimate could cost the federal government $300 billion, could fuel inflation.Treasury Department officials said Detroit, the center of the American automobile industry, exemplified how many elements of the Biden administration’s economic agenda are coming together to benefit a place that epitomized the economic carnage of the 2008 financial crisis. Legislation that Democrats passed this year is meant to create new incentives for the purchase of electric vehicles, improve access to microchips that are critical for car manufacturing and smooth out supply chains that have been disrupted during the pandemic.“There will be greater certainty in our increasingly technology-dependent economy,” Ms. Yellen said.But the transition to a postpandemic economy has had its share of turbulence.Ford said last month that it was cutting 3,000 jobs as part of an effort to reduce costs and become more competitive amid the industry’s evolution to electric vehicles. The company also cut nearly 300 workers in April.“People in Michigan can be pretty nervous about the transition to electric vehicles because they actually require by some estimation a lot less labor to assemble because there are fewer parts,” said Gabriel Ehrlich, an economist at the University of Michigan. “There are questions about what does that mean for these jobs.”Republicans in Congress continue to assail the Biden administration’s management of the economy.“Inflation continues to sit at a 40-year high, eating away at paychecks and sending costs through the roof,” Representative Tim Walberg, a Michigan Republican, said on Twitter on Thursday. “While in Michigan today, Secretary Yellen should apologize for being so wrong about the inflation-fueling impact of the Biden administration’s runaway spending.”Ms. Yellen will be followed to Michigan next week by Mr. Biden, who will attend Detroit’s annual auto show.The business community in Detroit, noting the magnetism of Michigan’s swing-state status, welcomed the attention.“We’re about as purple as it gets right now,” Sandy K. Baruah, the chief executive of the Detroit Regional Chamber, a business group.Noting the importance of the automobile industry to America’s economy, Mr. Baruah added: “When you think about blue-collar jobs and the transitioning nature of blue-collar jobs, especially in the manufacturing space, Michigan has the perfect optics.” More

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    Money Market Funds Melted in Pandemic Panic. Now They’re Under Scrutiny.

    In March 2020, the Federal Reserve had to step in to save the mutual funds, which seem safe until there’s a crisis. Regulation may be coming.The Federal Reserve swooped in to save money market mutual funds for the second time in 12 years in March 2020, exposing regulatory shortfalls that persisted even after the 2008 financial crisis. Now, the savings vehicles could be headed for a more serious overhaul.The Securities and Exchange Commission in February requested comment on a government report that singled out money market funds as a financial vulnerability — an important first step toward revamping the investment vehicles, which households and corporations alike use to eke out higher returns on their cashlike savings.Treasury Secretary Janet L. Yellen has repeatedly suggested that the funds need to be fixed, and authorities in the United States and around the world have agreed that they were an important part of what went wrong when markets melted down a year ago.The reason: The funds, which contain a wide variety of holdings like short-term corporate debt and municipal debt, are deeply interlinked with the broader financial system. Consumers expect to get their cash back rapidly in times of trouble. In March last year, the funds helped push the financial system closer to a collapse as they dumped their holdings in an effort to return cash to nervous investors.“Last March, we saw evidence of how these vulnerabilities” in financial players that aren’t traditional banks “can take the existing stress in the financial system and amplify it,” Ms. Yellen said last month at her first Financial Stability Oversight Council meeting as Treasury secretary. “It is encouraging that regulators are considering substantive reform options for money market mutual funds, and I support the S.E.C.’s efforts to strengthen short-term funding markets.”But there are questions about whether the political will to overhaul the fragile investments will be up to the complicated task. Regulators were aware that efforts to fix vulnerabilities in money funds had fallen short after the 2008 financial crisis, but industry lobbying prevented more aggressive action. And this time, the push will not be riding on a wave of popular anger toward Wall Street. Much of the public may be unaware that the financial system tiptoed on the brink of disaster in 2020, because swift Fed actions averted protracted pain.Division lines are already forming, based on comments provided to the S.E.C. The industry used its submissions to dispute the depth of problems and warn against hasty action. At least one firm argued that the money market funds in question didn’t actually experience runs in March 2020. Those in favor of changes argued that something must be done to prevent an inevitable and costly repeat.“Short-term financing markets have been driven by a widespread perception that money funds are safe, making it almost inevitable the federal government provides rescue facilities when trouble hits,” said Paul Tucker, chair of the Systemic Risk Council, a group focused on global financial stability, in a statement accompanying the council’s comment letter this month. “Something has to change.”Ian Katz, an analyst at Capital Alpha, predicted that an S.E.C. rule proposal might be out by the end of the year but said, “There’s a real chance that this gets bogged down in debate.”While the potential scope for a regulatory overhaul is uncertain, there is bipartisan agreement that something needs to change. As the coronavirus pandemic began to cause panic, investors in money market funds that hold private-sector debt started trying to pull their cash out, even as funds that hold short-term government debt saw historic inflows of money.That March, $125 billion was taken out of U.S. prime money market funds — which invest in short-term company debt, called commercial paper, among other things — or 11 percent of their assets under management, according to the Financial Stability Board, which is led by the Fed’s vice chair for supervision, Randal K. Quarles.One type of fund in particular drove the retreat. Redemptions from publicly offered prime funds aimed at institutional investors (think hedge funds, insurance companies and pension funds) were huge, totaling 30 percent of managed assets.The reason seems to have its roots, paradoxically, in rules that were imposed after the 2008 financial crisis with the aim of preventing investors from withdrawing money from a struggling fund en masse. Regulators let funds impose restrictions, known as gates, which can temporarily prohibit redemptions once a fund’s easy-to-sell assets fall below a certain threshold.Investors, possibly hoping to get their money out before the gates clamped down, rushed to redeem shares.The fallout was immense, according to several regulatory body reviews. As money funds tried to free up cash to return to investors, they stopped lending the money that companies needed to keep up with payroll and pay their utility bills. According to a working group report completed under former Treasury Secretary Steven Mnuchin, money funds cut their commercial paper holdings by enough to account for 74 percent of the $48 billion decline in paper outstanding between March 10 and March 24, 2020.As the funds pulled back from various markets, short-term borrowing costs jumped across the board, both in America and abroad.“The disruptions reverberated globally, given that non-U.S. firms and banks rely heavily on these markets, contributing to a global shortage of U.S. dollar liquidity,” according to an assessment by the Bank for International Settlements.The Fed jumped in to fix things before they turned disastrous.It rolled out huge infusions of short-term funding for financial institutions, set up a program to buy up commercial paper and re-established a program to backstop money market funds. It tried out new backstops for municipal debt, and set up programs to funnel dollars to foreign central banks. Conditions calmed.A primary concern is that investors will expect the Federal Reserve to save money market funds in the future, as it has in the past.Stefani Reynolds for The New York TimesBut Ms. Yellen is among the many officials to voice dismay over money market funds’ role in the risky financial drama.“That was top of F.S.O.C.’s to-do list when it was formed in 2010,” Ms. Yellen said on a panel in June, referring to the Financial Stability Oversight Council, a cross-agency body that was set up to try to fill in regulatory cracks. But, she noted, “it was incredibly difficult” for the council to persuade the Securities and Exchange Commission “to address systemic risks in these funds.”Ms. Yellen, who is chair of the council as Treasury secretary, said the problem was that it did not have activity regulation powers of its own. She noted that many economists thought the gates would cause problems — just as they seem to have done.Of particular concern is whether investors and fund sponsors may become convinced that, since the government has saved floundering money market funds twice, it will do so again in the future.The Trump-era working group suggested a variety of fixes. Some would revise when gates and fees kicked in, while another would create a private-sector backstop. That would essentially admit that the funds might encounter problems, but try to ensure that government money wasn’t at stake.If history is any guide, pushing through changes is not likely to be an easy task.Back in 2012, the effort included a President’s Working Group report, a comment process, a round table and S.E.C. staff proposals. But those plans were scrapped after three of five S.E.C. commissioners signaled that they would not support them.“The issue is too important to investors, to our economy and to taxpayers to put our head in the sand and wish it away,” Mary Schapiro, then the chair of the S.E.C., said in August 2012, after her fellow commissioners made their opposition known.In 2014, rules that instituted fees, gates and floating values for institutional funds invested in corporate paper were approved in a narrow vote under a new S.E.C. head, Mary Jo White.Kara M. Stein, a commissioner who took issue with the final version, argued in 2014 that sophisticated investors would be able to sense trouble brewing and move to withdraw their money before the delays were imposed — exactly what seems to have happened in March 2020.“Those reforms were known to be insufficient,” Ben S. Bernanke, a former Fed chair, said at an event on Jan. 3.The question now is whether better changes are possible, or whether the industry will fight back again. While asking a question at a hearing this year, Senator Patrick J. Toomey, Republican from Pennsylvania and chair of the Banking Committee, volunteered a statement minimizing the funds’ role.“I would point out that money market funds have been remarkably stable and successful,” Mr. Toomey said.Alan Rappeport More

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    Bidenomics 101: Inside the White House’s Plans to Bring Jobs Back

    Credit…Rose WongFeatureBidenomics 101: Inside the White House’s Plans to Bring Jobs BackIn public and private, Biden and his advisers have signaled some dramatic interventions to revive U.S. manufacturing. Will they really happen?Credit…Rose WongSupported byContinue reading the main storyFeb. 11, 2021, 5:00 a.m. ETListen to This ArticleAudio Recording by AudmTo hear more audio stories from publishers like The New York Times, download Audm for iPhone or Android.Anyone searching for an economic road map to the Biden presidency might find hints of one in a 40-page research paper written, appropriately enough, by the United Automobile Workers union. The document, originally published in 2018 and titled “Taking the High Road: Strategies for a Fair E.V. Future,” argued that even in the face of foreign competition, the American automobile industry could continue to provide well-paying manufacturing jobs — but only if the government invested huge sums in electric vehicles. The technology highlighted in the report, like prismatic cells for storing electrical charges, was cutting-edge, but the economic thinking behind it was decidedly old-school. Some passages, in their America First-ness, read as if they could have appeared in a Ross Perot ad from 1992 — or, for that matter, a Trump ad from 2016. The U.A.W.’s researchers insisted, for example, that critical parts like batteries must be produced at home, not by rival industrial powers. “The economic potential of E.V.s will be lost if their components are imported,” they wrote. “Advanced vehicle technology should be treated as a strategic sector to be protected and built in the U.S.”Last spring, the document drew the attention of Joe Biden’s presidential campaign. Biden had begun his run with fewer sweeping economic proposals than his rivals: His would in many ways be a return-to-normalcy campaign, offering to take voters back to some vague status quo ante, when the steady hand of the Obama administration guided the country. Then the pandemic struck, and millions were fired or furloughed. By last April, the economy was in free fall, and Biden’s policy ambitions were growing. He wanted a plan that felt big enough for the moment. Campaign aides began to spitball. Biden had already suggested initiatives in areas like infrastructure, claiming that spending on highways and broadband would lift the economy. Now they wondered: Should he continue in this vein? Emphasize longstanding concerns like working families? The middle class? Before long, Ron Klain, a senior adviser and now President Biden’s chief of staff, intervened to urge that they focus primarily on jobs. Trump’s approval rating on the economy had stayed improbably high even as the pandemic raged, and Klain believed that a jobs plan would allow Biden to attack Trump’s perceived strength. Biden agreed and instructed his team to think both expansively and practically. In Zoom call after Zoom call, he pleaded with them to identify jobs in manufacturing and energy that would not require workers to undergo years of retraining or uproot their families. When aides eventually described the ideas in the U.A.W. paper, Biden became animated. The notion that spending billions to upgrade plants and subsidize car-buying could save the livelihoods of today’s workers — not merely create jobs for their kids — excited him. It promised a marriage of present and future. “His view matched up so well with the U.A.W. paper,” says Gene Sperling, a former top White House economic adviser who helped Biden develop his economic plan. “It fit his view that a ‘jobs of the future’ strategy had to include retooling factories and giving current workers a path to keep working.” In the end, the paper’s ideas weren’t just endorsed by Biden. Its ethos came to suffuse the entirety of his broader economic agenda, known as Build Back Better. This plan, unveiled by the campaign last July, called for $400 billion in government procurement to go to American-made equipment and $300 billion for research and development, with hundreds of billions more in subsidies to promote the making and purchase of domestic products. “I do not buy for one second that the vitality of American manufacturing is a thing of the past,” Biden said in his speech introducing the agenda.After the election, it became clear that these themes had been more than mere campaign flourishes. One of Biden’s first high-profile meetings of the transition included Mary Barra, the chief executive of General Motors, and Rory Gamble, the U.A.W. president. “He took a very strong position on electric vehicles,” Gamble told me. “He said we had to keep manufacturing in this country. I was really happy to hear that.”If Gamble sounded pleasantly surprised, it was for good reason. The prospect of using the government to bring about a major economic transformation is something of a departure for Biden. Throughout his career, he has kept to the center of the road. News coverage and political opponents alike have long noted the way he stakes out positions that are overwhelmingly popular within the Democratic Party. As the party has moved to the left on economic issues since the Obama era, so has Biden, putting forward a gigantic pandemic-relief bill, for example, and a call for a $15-per-hour minimum wage. But resolving to invest vast amounts in American industries isn’t an exercise in difference-splitting, like positioning yourself halfway between those who would spend $1 trillion and $3 trillion. For that matter, it isn’t even an obvious lurch to the left. It’s a shift toward the kind of economic nationalism that has, over the decades, found support across the ideological spectrum. What Biden wants to do represents a rethinking of the country’s economic posture: seeking to promote certain sectors — like green-energy production and the manufacture of wind turbines, say — so as not to cede them to competitors in Europe and Asia. It is a deviation from the free-trade gospel that the two most recent Democratic presidents preached and that Biden embraced at earlier points in his career. It is a form of chauvinism in some ways more ambitious than Trump’s, as manifested through haphazard tariffs and trade wars. “The package that they put together is the closest thing we’ve had to a broad industrial policy for generations, really,” says Scott Paul, the president of the Alliance for American Manufacturing, a trade association founded by the United Steelworkers union and a handful of large manufacturers.The approach is far from riskless, even within Biden’s own base: A focus on building up American industry can conflict with other progressive priorities, like addressing climate change more immediately or reining in corporate power. And it might encounter resistance from some of Biden’s own advisers and much of the party’s policymaking elite, who tend to consider such economic nationalism counterproductive and passé. Biden’s new Treasury secretary, Janet Yellen, said just last year that the manufacturing diaspora has been a major boon for the global economy. As one of few people to both lead Treasury and serve as the chair of the Federal Reserve, she is likely to exert enormous influence, both through her public utterances and her private recommendations. But if Biden and his more activist advisers are able to make good on their promises, the White House’s economic policy over the next four years will look very different from that of the most recent Democratic administration. They hope to modernize key industries and counter an economic threat from China, swiftly emerging as the world’s other superpower. They may even scramble political coalitions at home. “There are a lot of areas of potential overlap,” says Oren Cass, a former Republican policy aide and the founder of American Compass, which pushes to make conservatism more worker-friendly. Cass, whose research and advocacy group has argued for rebuilding manufacturing and reducing Wall Street’s influence over the economy, adds: “There’s a hypothetical governing majority to be drawn around the things we’re talking about that doesn’t exist within either party.”Janet Yellen, Biden’s new Treasury secretary, was previously the Federal Reserve chair.Credit…Getty ImagesRelief and recovery. They sound vaguely synonymous, but in the months since Biden and his aides began using them to describe their economic agenda, they have invested each term with a distinct meaning. Relief refers to the money Biden has proposed to spend in order to end the pandemic and tide over the millions of people suffering through it. Recovery describes the administration’s hopes for transforming the economy after the health crisis so that it is cleaner and more equitable than before.The phrasing goes back at least to President Franklin D. Roosevelt, who promoted a similar agenda of relief and recovery during the Great Depression. (He included a third variable in his equation: “reform.”) The terms as Biden deploys them hint at a distinction that runs deeper than just short-term versus long-term: They signify two very different philosophies of government. Biden’s relief plan, an opening offer in the current legislative negotiations, is largely an expression of modern liberalism, which holds that the federal government must spend more and expand its influence during times of acute need. The proposed plan, which totals $1.9 trillion, allocates money to fight the pandemic and its depredations in various ways: to accelerate vaccinations; to increase access to testing, health care and child care; to help schools reopen safely; to prop up small businesses; to enable the hardest hit to stay in their homes; and to make unemployment benefits and food stamps more generous. (The plan also includes a few unorthodox ideas, like hiring 100,000 public-health workers.)Seen in that light, it is mostly the size of Biden’s Covid-relief plan that is truly remarkable. Back in 2009, President Barack Obama proposed to address what was then the worst economic crisis since the 1930s with a relief plan less than half as large as what Biden has asked for. Yet even many Democrats at the time worried about its effect on the deficit. Two of the top figures on Obama’s economic team, Treasury Secretary Timothy Geithner and Office of Management and Budget Director Peter Orszag, urged Obama to demonstrate, after its passage, that he was reducing the deficit.Today, while it’s likely that Congress will shave money from Biden’s relief package, there is broad agreement in his party and among a wide range of economists that there is little risk from running a substantially larger deficit to end the crisis. “Fiscal room is not the constraint,” says Jason Furman, an economics professor at Harvard and former White House aide, using economist-speak to mean deficit concerns. “I was always in favor of more stimulus in 2009. I don’t think fiscal space was a constraint then. But it was more of a constraint then than now.” (Furman’s White House colleague Lawrence Summers recently said in a column that Biden should consider shrinking his relief bill to avoid the risk of inflation, though Summers agrees that a large bill is helpful.)After the relief, however, the Biden team will put forward a recovery plan that includes some uncontroversial ideas, like fixing roads and bridges, but also contains elements that go beyond the comfort zone of many center-left economists. The sticking point is what’s known as industrial policy, meaning large-scale efforts to build up particular industries or sectors. While industrial policy is by no means foreign to the United States — any federally subsidized or managed expansion of an industry might qualify (think military contractors) — the caricature that comes to mind, even for many liberals, is Soviet-era central planning. The term carries with it a whiff of stigma. The prospect of using industrial policy to shrink the economy’s carbon footprint has circulated for years as a kind of theoretical ambition. The phrase “Green New Deal” has been around since at least 2007, when the New York Times opinion columnist Thomas L. Friedman used it to describe a hypothetical “huge industrial project” to slow climate change. The Obama administration took a modest first step, spending about $90 billion on green-energy projects in its 2009 stimulus package. But in recent years, the notion has gathered momentum on the left flank of the Democratic Party. In early 2019, Representative Alexandria Ocasio-Cortez of New York introduced a resolution calling for a Green New Deal that would put the economy on a path to zero net greenhouse-gas emissions while investing in the “industry of the United States” and creating “millions of good, high-wage jobs,” though it was vague on details. Later that year, a plan from Senator Elizabeth Warren of Massachusetts, then a presidential candidate, said the government should spend $1.5 trillion over a decade to buy American-made clean-energy technology. The same day, Biden announced a climate plan that referred favorably to the Green New Deal, although it was not as focused on manufacturing and jobs.That such proposals migrated, in the span of less than a year, from the party’s left to its centrist nominee underscores how quickly Biden’s economic philosophy has been evolving. They are also somewhat controversial, even on the left, unlike the relief portion of his agenda. In part, that’s because these provisions would most likely increase the price of clean technologies, which can be imported more cheaply from abroad. “My view is, if you think climate change is the biggest challenge facing the country, you’d want to have the most efficient and cheapest infrastructure to deal with it,” Furman says. “You should want to make sure a lot of solar and wind energy is produced in the United States. You shouldn’t care nearly as much where panels and turbines are produced.”When mainstream economists question the idea of singling out particular businesses, sectors or industries, as a widely cited 1990 paper by the economist Anne O. Kruger did, they argue that government intervention is likely to prop up companies that can’t otherwise justify such investment or to pad the margins of those that can succeed on their own. Yet recent research — a study of government support for British manufacturers, for example, or a study of government support for Chinese industries like plastics and computers — has found that subsidies can make industries healthier or more productive even over the long term.“Manufacturing has an outsize contribution to overall innovation and productivity,” says Dani Rodrik, an economist at Harvard. He is part of a small group within the profession’s mainstream that clashed for decades with fellow economists by detailing the drawbacks of free trade and the benefits of industrial policy. A growing body of evidence on the harm done to workers by a trade agreement with China, which other economists played down at the time, has increasingly vindicated him. The idea of spending government funds to preserve or create domestic manufacturing jobs has a well-documented political appeal, especially among blue-collar workers, even as economists insisted that it was futile or self-defeating. But now, Rodrik says, even some economists are more open-minded: “Lo and behold, people start to do research on Chinese policy, and it turns out some of it is quite effective.” Brian Deese, Biden’s top economic aide, was previously Obama’s senior adviser on climate and energy policy.Credit…Getty ImagesAs a rising political star in the 1980s, Biden sometimes channeled the self-consciously centrist thinking that was then coming into vogue among Democrats like Gary Hart. He warned about the risks of micromanaging the economy and chided unions that defended the status quo. But even when he aligned with the new centrists — Biden and Hart shared a political strategist — Biden retained a distinctly blue-collar sensibility. He called for a “new era of American economic nationalism” in the speech that framed his 1988 presidential campaign. He derided fundamentalist beliefs in free trade and proposed using tariffs on imports to fund retraining for workers. He consistently backed pro-union legislation. “If you came into our waiting room in 1973 or 1978,” says Ted Kaufman, Biden’s longtime Senate chief of staff, “you’d see a group of people from the A.F.L.-C.I.O. on one side of the room and a group from the Chamber of Commerce on other side.”In the 2000s, as globalization coincided with significant job losses and the decline of industrial towns in the United States, Biden’s populist sympathies appeared to gradually supplant the centrist instincts that had led him to back — albeit without much passion — the major trade agreements of the Clinton era. “Everybody who was involved in business or government in the 1980s or 1990s has seen some of the promise of globalization come through, but a lot of the harm has been unexpectedly broader, sharper, deeper,” says Senator Chris Coons of Delaware, a longtime Biden friend and ally. “He believes we need to change direction on trade.” That view now appears to be ascendant, if not yet the consensus, among the Democrats’ policymaking class. Indeed, one lingering divide within the party is between those who have undergone a similar evolution as Biden and those who have not; Biden’s economic advisers come from both camps.Gene Sperling exemplifies those who have, like Biden, moved left. As President Bill Clinton’s top economic adviser in the late ’90s, he shared Clinton’s view that free-trade deals would benefit the country if accompanied by worker training and a more generous safety net. After Republicans largely rejected such spending, Sperling and Clinton believed it was still worth expanding trade with China, as long as the deals included ways to protect against floods of cheap imports. But when it became clear in the 2000s that the rise in Chinese imports was producing “such devastating impacts,” as Sperling writes in a recent book, he changed his position.As Obama’s top White House economic adviser, Sperling began making the case in 2011 for directing support to manufacturers through government subsidies. In 2016, he encouraged Hillary Clinton to campaign in opposition to the Trans-Pacific Partnership, the 12-country trade deal that the Obama administration had spent years negotiating, later saying on television that Clinton wanted to “put T.P.P. in the rearview mirror” and prioritize “clear job-creating measures.” “I got a lot of [expletive] for that,” Sperling says, alluding to the reaction of his former White House colleagues. While Sperling has not joined the Biden administration, he has been a mentor to several senior economic aides who have.One of them, also in what might be called the more nationalist camp of advisers, is Brian Deese; he now fills the role that Sperling did for Obama, as the top economic aide in Biden’s White House. Deese got his start in Democratic policy circles as an assistant to Sperling in the early 2000s. As a member of Obama’s auto-industry task force in 2009, he was responsible for establishing a program that would help hundreds of suppliers threatened by the looming collapse of the American auto industry. “I got to see up front what the stakes were,” Deese says. “If you let go of this industrial company, it directly employs about 50,000 hourly employees. But you also have more than one million jobs and a bunch of spillover economic benefits at stake.” He helped persuade Obama to save Chrysler over the opposition of some of the president’s economists.When Deese became Obama’s senior adviser on climate and energy policy in the final years of the administration, it began to dawn on him that two of his interests were merging: government support for manufacturing, and forestalling the climate apocalypse. “Some of the biggest opportunities,” he says, “were at the intersection of strategic procurement, what some people would call straight-out industrial policy, and the work we needed to do as a country to scale markets for clean-energy innovation.” A number of Biden’s advisers have arrived at similar positions. Jennifer Granholm, who was the governor of Michigan during the auto bailout and who has close ties to both organized labor and manufacturers, is Biden’s pick for energy secretary. Katherine Tai, Biden’s choice for U.S. trade representative, helped negotiate the stricter worker protections in the revision of the North American Free Trade Agreement that passed Congress last year, a priority for labor. Stef Feldman and Jared Bernstein, two current White House officials who helped shape the campaign’s economic proposals, worked for Biden during his days as vice president, when he oversaw the implementation of Obama’s stimulus package and had close contact with unions. The other camp of Biden advisers, though, seems to be more sanguine about the benefits of globalization and more skeptical about indulging populist economic ideas. Wally Adeyemo, for example, who is Biden’s pick for deputy Treasury secretary, helped negotiate a provision in the Trans-Pacific Partnership and was defending the pact even as Sperling was panning it on TV in 2016. Adeyemo, who started in the Obama administration as an aide to Geithner at Treasury before rising to become a top White House official, made the rounds in Washington that year arguing the benefits of free trade and raising concerns about protectionism. He has appeared to shun the idea of the government investing directly in domestic industries: “It’s critical that the private sector play the leading role in deciding how to allocate capital,” he said at a forum in 2016. Still, Adeyemo has also worked for Elizabeth Warren and, colleagues say, has close relationships with figures on the left.One early answer to the question of where Biden will come down on these issues is his promise to tighten rules requiring the government to buy American-made goods. In January, he signed executive orders directing his administration to review the waivers that let agencies to do business with foreign suppliers and contractors. The most consequential of these loopholes, known as the trade-pact waiver, is one that allows federal agencies to essentially treat companies in dozens of countries as American suppliers if they have trade relations with the United States. When the U.S. government buys cars from Japan or washing machines from Mexico, for example, it is satisfying current federal Buy American requirements.Those who support revoking the waiver — which could create a backlash among many allies who see the move as a form of protectionism — are cheered by Biden’s initial action but worry that he might lose his nerve, at a moment when the government is about to spend trillions of dollars. “This is a fine first step: It lays out the right vision,” says Lori Wallach, a trade expert at the liberal group Public Citizen. “But it would be a huge policy problem and political liability to offshore a chunk of the Covid stimulus because of the Buy American trade-pact waiver.”Wally Adeyemo, Biden’s deputy Treasury secretary, was previously a top White House official.Credit…Getty ImagesThe fear that Biden might recoil from more activist policies dates back to the campaign. Last spring, when aides became concerned that Biden might get sticker shock from the price of the economic plans his advisers were floating, one of them had an idea: He reached out to the most recent Federal Reserve chair, Janet Yellen, and asked her what she thought about spending a few trillion dollars to prop up the economy, end the health crisis and ignite a recovery. She answered promptly. “What I told the campaign,” Yellen recalled to me recently, “was this is something we can afford, and in a way, we can’t afford not to do it.” Biden was reassured. Yellen, a former economics professor at the University of California, Berkeley, and the first woman to serve as either Fed chair or Treasury secretary, is in some respects a typical Biden appointee: acceptable to both the establishment and liberal wings of the party, admired for her competence and experience. Unlike many of her colleagues, however, she often inspires genuine enthusiasm across the ideological spectrum. Hedge-fund managers concerned about the overall lack of financial-market experience on Biden’s team were effusive in praising her to me. At the same, she also warms many hearts on the left, a rarity in a Treasury secretary, whose job is to oversee areas like tax policy, bank regulation, the sale of government debt and economic ties with other countries. “You had to have somebody in the Treasury role who could look the American people in the eye as an incredibly esteemed, gravitas-wielding macroeconomist,” says Felicia Wong, the president of the Roosevelt Institute, a progressive nonprofit. She has also, Wong notes, “done a lot to try diversifying the economics profession.”Yellen may even be the rare technocrat with feminist-icon meme potential, in the tradition of Ruth Bader Ginsburg (“Notorious R.B.G.”) and Elizabeth Warren (“Nevertheless, she persisted”). A few days after Yellen’s Senate confirmation hearing, a “Hamilton”-esque tribute by the rapper Dessa premiered on public radio; it has since been played online more than 200,000 times. (“She’s 5-foot-nothing, but hand to God/She can pop a collar, she can rock a power bob.”) The comparison with Warren is instructive. Just as Warren, from her perch atop a congressional panel overseeing the Wall Street bailout in 2008 and 2009, second-guessed the insiders who ran the banks, Yellen has made her reputation partly through dissenting from the groupthink of the financial establishment. A few years earlier, at the Fed, where she ran its West Coast regional bank, Yellen pointed out to colleagues that the housing boom looked increasingly like a mania. “One of the reasons she actually had a much better ability to see what was happening was that she was in San Francisco; she was an outsider; she was not in the Washington bubble,” says Dennis Kelleher, the chief executive of Better Markets, a Wall Street watchdog group. Warren appeared to recognize a fellow traveler when, in 2013, she led a group of senators who publicly urged Obama to elevate Yellen to the Fed chair over Lawrence Summers. She also backed Yellen’s appointment to Treasury last fall. In this way, Yellen has become the most visible edge of Warren’s personnel-based strategy of nudging the party leftward; she has quietly lobbied to place sympathetic policymakers in key administration positions, often with former Warren aides serving beneath them. (Neera Tanden, a former Hillary Clinton aide who is Biden’s pick for budget director, is also a sometime Warren ally; Yellen has hired a former Warren aide as a deputy chief of staff.) The efforts of politicians like Warren have been abetted by a network of increasingly vocal groups — including the Roosevelt Institute and the Revolving Door Project — clamoring for progressive nominees over more business-friendly choices.The way Yellen has used her bully pulpits over the years suggests that her priorities overlap with Warren’s, even if her views are not quite as populist. In one of her early speeches as Fed chair, a position Yellen held from 2014 to 2018, she dwelled on the topic of rising inequality and “whether this trend is compatible with values rooted in our nation’s history.” The speech prompted criticism from a prominent House Republican, who accused Yellen of “sticking your nose in places that you have no business.” But like many center-left economists, Yellen tends to emphasize the struggles of those near the bottom more than the excesses of the 1 percent. When I spoke with her in January, she riffed at length about policies like training that could help workers without a college degree, but she didn’t mention raising taxes on the wealthy, a major goal of progressives. (Yellen, who earned more than $7 million giving speeches to large banks and other businesses as a private citizen over the past two years, appeared during her confirmation process to embrace Biden’s proposal to raise taxes on investment income for those making more than $1 million.) Yellen has struck a similar stance — that of the reformer rather than the revolutionary — when it comes to regulating Wall Street. In 2017, she was in her third year as Fed chair, and Trump said he was considering reappointing her to a second four-year term. If she was intent on keeping the job, it might have suited her to muse publicly about a possible rollback of Obama-era financial reforms, which the Fed played a central role in implementing — and which Trump had derided. Yellen leaned mostly in the opposite direction instead, arguing in a speech that the reforms had made the financial system much safer. Still, Yellen has stopped short of championing certain progressive causes, for example resisting calls from the left to break up large banks. But the issue on which Yellen has arguably been most out of step with both the left and her new boss is globalization, particularly the questions of whether to subsidize the building of domestic factories or to let American firms outsource their manufacturing needs to workers abroad. At an event with the World Bank president in February 2020, Yellen, a self-proclaimed free-trader, worried that a populist backlash was threatening the benefits of globalization and said that “the growth of trade that we have seen over the last 50 years in development of global supply chains has been one of the most important factors boosting growth all around the world.” Biden has essentially called for slowing this 50-year trend, so it’s easy to imagine a rift opening between them that could deprive him of Yellen’s greatest asset as Treasury secretary — her ability to confer credibility on his main economic initiatives, both with financial markets and among wavering legislators.Even as she has risen in the world of government, Yellen has retained a distinctly academic sensibility. She speaks in the language of medians and distributions and will refer to investment returns that are “far in excess of” zero (as opposed to, you know, “high”). She is not a professorial prude, however, oblivious to shifting realities. One topic that consumed her days as the chief economist in the Clinton White House was the Kyoto Protocol, the 1997 global agreement to reduce greenhouse-gas emissions. At the time, many economists were concerned about how much it would cost to lower emissions as quickly as environmentalists recommended and were skeptical about committing to formal targets. Clinton’s own Treasury Department was initially resistant. But Vice President Al Gore and Clinton himself were enthusiastic about the agreement, and Yellen was eager to make the economic case. “I definitely saw the need to do it,” she told me. “There were debates about what was the right pace.”When I asked Yellen whether she had concerns about Biden’s Buy American agenda, which didn’t seem to square with her opinions about international trade, she emphasized views that were more in line with the president’s. “The trend toward globalization has resulted in losses for workers, and the time has come to really remedy that — the impact has been simply so negative on such a large share of the population,” she said. “The focus needs to be on inequality and low-wage workers and improving their lot.”And what about the sort of industrial policy that would entail large government backing for, say, making electric-car batteries domestically? “One would want to look at the specifics of any particular proposal,” she said, “but generally, I think there is a case for it.” Katherine Tai, Biden’s choice for U.S. trade representative, helped negotiate stricter worker protections in the revision of NAFTA. Credit…Getty ImagesIn the days after the Democrats clinched control of Congress by winning two Senate seats in Georgia, Representative Peter DeFazio of Oregon, the powerful chairman of the transportation committee, exchanged several texts with Steve Ricchetti, who would soon be a top Biden White House aide. Biden’s team had spent the transition gaming out legislation, but the exercises had an air of unreality as long as Republicans appeared likely to control the Senate. Now the plans were suddenly viable, and DeFazio wanted to gauge the timetable that Ricchetti and his colleagues had in mind. “I originally said, ‘I can be ready to go by March or April,’” DeFazio recalls. “He said, ‘We want to go faster than that.’”DeFazio is one of a small handful of lawmakers who will have an outsize influence on what Biden is able to accomplish economically. To call him a supporter of far-reaching economic legislation would be an understatement. He was one of the few members of Congress who voted against Obama’s stimulus package because he found it too timid, and last year he helped shepherd a $1.5 trillion bill through the House that included large pots of money for rail, broadband internet, zero-emission buses and charging stations. (It did not pass the Senate.) As big as that price tag was, he was not averse to increasing it. When I pointed out that Biden’s campaign proposal appeared to call for spending more on equipment like electric vehicles, he quickly proclaimed himself open to the amount. But powerful allies invariably have their own priorities too, and DeFazio is no exception. He rhapsodized to me about new bridges and tunnels and talked up the benefits of pedestrian-friendly streets. Then he added this pitch: For less than $10 billion, the U.S. Postal Service could convert its delivery vehicles to an all-electric fleet. “The fleet is decrepit, dirty, falling apart,” he said. “It’s over 30 years old.” With Democrats in control of Congress, the problem for Biden may not be passing some version of his economic agenda so much as sorting through the sheer volume of asks suddenly pouring in from hundreds of members and industry groups. Representative Ro Khanna of California, for one, has introduced a bill that would spend $100 billion over five years to fund research in industries like quantum computing, robotics and biotechnology and to situate tech hubs in areas hit hard by deindustrialization. Most of “the top 20 universities in the world are American — places like the University of Wisconsin, University of Michigan, which are dispersed across the country,” says Khanna, who represents parts of Silicon Valley and was a co-chair of Bernie Sanders’s presidential campaign. “There’s no reason we can’t see innovation and next-generation technology in these communities.” Wind-turbine manufacturers, whose supply chain goes through Europe, Asia and Canada, are seeking tax breaks for domestic production. So is the solar industry, which currently imports most of its assembled panels from Malaysia and Vietnam. The semiconductor industry has lobbied for tens of billions of dollars to upgrade production facilities and build new ones, on the grounds that semiconductors are a foundational technology — sort of like mechanically engineered stem cells that power everything from 5G mobile networks to autonomous vehicles and the internet of things. John Neuffer, the chief executive of the Semiconductor Industry Association, says supply shortages during the pandemic have focused minds in Washington on the importance of domestic production. Many of these proposals — and dozens more, like money to manufacture medical equipment, to buy e-scooters and other “micromobility” vehicles, to build “smart” pavement that can digitally connect cars to roads — made cameo appearances in Biden’s campaign, and the administration has expressed interest in pursuing them.Deese, who has been overseeing Biden’s economic plans, told me that the priority when it comes to industrial support will be those areas where subsidies can encourage companies to spend money on factories and technology in the near term that they might not otherwise spend for years — “pulling forward” their investments, as he puts it.Rodrik, the Harvard economist who is sympathetic to industrial policy, says the practice should really be seen as a way to ensure that American companies continue to innovate, more than as a means of vastly increasing employment. But Deese argues that the transition to a cleaner economy — installing solar panels, plugging abandoned oil wells, retrofitting buildings to make them more efficient — will generate lots of new jobs, even if manufacturing equipment doesn’t produce as many as desired. And he adds that we shouldn’t underestimate the job-creation potential of new equipment either.As a rough model, he points to a Senate bill, based partly on the U.A.W. electric-vehicles paper, that would spend some $400 billion over a decade on cash rebates for consumers who buy U.S.-assembled electric or hybrid cars. The bill, proposed by Senators Chuck Schumer of New York and Debbie Stabenow of Michigan, would also spend close to $50 billion funding the construction of charging stations nationally and provide nearly $20 billion in subsidies to help manufacturers build new plants and upgrade existing ones. “It’s the basic theory of the case,” Deese says. “Significant consumer incentives coupled with retooling for factories and a build-out of infrastructure.” The deal for manufacturers would become still more compelling with regulations mandating lower vehicle emissions and a commitment by the government to buy clean energy and clean equipment — a process Biden initiated with an executive order he signed in late January. Or, put another way, the Postal Service may soon be in luck. “It’s the largest fleet operator in the federal government,” DeFazio says. “It would be a huge boost to get production going on made in America, from the little delivery vans up through the semis.”Jennifer Granholm, Biden’s energy secretary, was the governor of Michigan during the auto bailout.Credit…Getty ImagesEven as Biden emphasized “unity” at the very start of his presidency — he used the word eight times in his inaugural speech, precisely seven times more than his predecessor on the same occasion — he has been prepared all along to pass his agenda on a party-line vote if necessary. David Kamin, now a White House aide, spent time during the campaign figuring out how to enact key economic plans through a maneuver known as reconciliation, in the event that Democrats came to control the Senate. This allows spending- and tax-related legislation to pass the chamber with a simple majority, rather than the 60 votes needed to overcome a filibuster. (It is a quirk of Senate nomenclature that “reconciliation” expressly does not require a party to make nice with the other.) Still, as Biden knows well from his decades as a senator, it would almost certainly behoove him to expand the coalition beyond his partisan ranks. Given the party’s threadbare margin — which literally comes down to Vice President Kamala Harris’s tiebreaking vote — it’s far from assured that he can secure his agenda with only Democratic support. It’s not hard to spot the possible defections. On the left, Biden may face grumbling from environmentalists who favor a more aggressive timetable for reducing emissions, which would mean importing a large supply of solar panels and car batteries from abroad, not the more pedestrian pace that would allow American manufacturers to scale up. “It’s a very real tension,” says Jason Walsh, a former Obama Energy Department official who now leads the BlueGreen Alliance, a coalition of unions and environmental groups that advocates a low-carbon economy that also increases the number of union workers. “You’re describing my job.” Even with electric cars, the problem is clear: Schumer’s bill provides the bulk of its incentives for vehicles assembled in the United States, even if the battery — the most valuable component — comes from abroad. That’s partly out of necessity, because it could take years to build up the capacity of domestic battery plants. A growing number of progressives have also been focusing, in recent years, on reining in corporate giants like Google and Amazon; their position is that these companies abuse their market power to kneecap competitors and take advantage of consumers. Some of the activists and politicians involved in this effort are skeptical that industrial policy will amount to much more than funneling taxpayer money to wealthy corporations. “I worry about it,” says Matt Stoller, the research director for the American Economic Liberties Project, an antimonopoly advocacy group. “I hope when they put this together, they’re not just giving money to monopolists.” Stoller concedes that industrial policy can be effective, but only if designed and implemented correctly. He cites the successful creation of coronavirus vaccines as an example. In that case, the pharmaceutical companies that produced a viable vaccine stood to earn far bigger profits than those that didn’t. “The government didn’t just write checks to Pfizer,” Stoller says. “It told seven companies: ‘Go develop a vaccine — it’s a competition. Compete.’”And then there is the near-inevitability that one or two senators will use their decisive vote to dictate the terms of a bill — most likely when a conservative Democrat balks at the cost. By contrast, says Rahm Emanuel, who served as Obama’s first chief of staff, the possibility of passing legislation with Republican votes shifts power back into Biden’s hands. “If they think you’re assembling something bigger,” Emanuel says, “you slightly dilute their leverage.”There is a pool of Republicans who, at least in theory, may support investments in emissions-reducing technologies. Several Republican senators hail from states that would directly benefit, including Kansas and the Dakotas, located in one of the largest wind corridors in North America. And as fossil-fuel companies continue losing wealth and stature, their influence over the Republican Party may recede. For the moment, it’s much easier to imagine Republicans backing industrial policy that steers clear of climate change. Several Republicans have partnered with Democrats on legislation that promotes other fields, like robotics and biotechnology, including Khanna’s research-and-development funding bill. Last year, Schumer, now the Democratic majority leader, worked with Republicans to add a measure to the annual military spending bill in order to create multiple programs that will invest in advanced semiconductors. The amendment passed 96 to 4, though the government has yet to allocate money to the new programs, which would cost tens of billions to fund fully. “The idea of keeping America No.1 in cutting-edge technology does not have a partisan division,” Schumer told me. “It’s sort of like the old days on defense.”Neera Tanden, Biden’s budget director, was previously a Hillary Clinton aide.Credit…Getty ImagesThe analogy is even more apt than he suggests. When Republicans think about American industry, they tend to invoke a single geopolitical adversary: China. “The emergence of China as an economic power, as well as a military and geopolitical power, is perhaps the greatest issue we face in this decade and the next one,” Senator Mitt Romney of Utah told me in late January. “We innovate; they steal innovation. We play by the trade rules; they play by their own rules.”A handful of other Republican senators, including Tom Cotton of Arkansas, Josh Hawley of Missouri and Marco Rubio of Florida, have taken similar positions. At times they have made statements and put out reports that, with only minor alterations, could have been issued by an industrial union. Two years ago, the Senate’s small-business committee, which Rubio led, produced a report arguing that manufacturing jobs are better-paying and more stable than the service-sector alternatives for typical workers, and that manufacturing brings greater economic benefits to communities. Romney and other Republican hawks on China tend to tell a story about American passivity. There is data that supports their view. From 2001 to 2007, the number of U.S. manufacturing jobs, which had hovered near 18 million for more than a generation, dropped by more than three million. According to a 2012 paper titled “The Surprisingly Swift Decline of U.S. Manufacturing Employment,” the plunge was most likely a result of the U.S. decision to permanently normalize trade relations with China in 2000. This allowed the Chinese to ramp up production of export goods without fear that they would be abruptly locked out of American markets.Many economists argue that the so-called China shock was a historical anomaly, driven by the rapid industrialization of a very large and very poor country, and that it was mostly over by the early part of the last decade. “Since then, one also sees that trade growth slowed down considerably, at the same time as in the U.S. the loss of manufacturing jobs basically ended,” says David Dorn, an economist at the University of Zurich. But that doesn’t mean Chinese companies can’t continue to seize market share from their American rivals. A 2012 book by the Harvard business professors Gary Pisano and Willy Shih made the case that when it comes to manufacturing, strength yields strength, and weakness yields weakness. They showed that the offshoring to Asia of the consumer-electronics industry, which executives believed was becoming too commoditized to be worth keeping entirely in the U.S., had weakened America’s so-called industrial commons — the ecosystem of research, engineering and manufacturing know-how that creates innovative products. In effect, getting out of the business of making stereos and TVs in the 1960s and ’70s made it harder for American manufacturers to produce more sophisticated technologies like advanced batteries. The Chinese, of course, took the other side of the bet — gaining know-how by starting with simpler products, which then led to the making of more sophisticated ones. That’s partly why the China shock started with exports of products like textiles and steel and eventually included smartphones. Rubio has noted with alarm that the Chinese government is now poised for far more ambitious conquests — robotics, electric vehicles, biotech — through a program called Made in China 2025. In his committee’s report, Rubio referred to this as “a foreign actor’s plan for the domination of critical commercial sectors at the expense of American industries.” A RAND study describes the Chinese effort to compete with companies like Boeing by partnering with suppliers to develop rival products that Chinese customers are then required to buy. “They have the ability to pressure Chinese airlines, which are state-owned, into buying the COMAC product,” Shih says, referring to the state-owned airplane maker.Biden has raised similar concerns about China’s industrial ambitions, while Yellen, at her confirmation hearing, called out China’s “illegal subsidies to corporations,” among other practices. And yet the response favored by Biden and even some Republicans is not so different from the subsidies that Yellen denounced. China is effectively forcing other countries to adopt some of its own industrial policies, because a free market in which only one side plays by the rules isn’t so much a market as a sucker’s game. “In a world of state competition for valuable industries, a domestic policy of neutrality is itself a selection of priority,” Rubio’s report concluded.There is good reason to doubt whether these bipartisan concerns will result in cooperation on actual policy. It may be revealing that in my correspondence with Rubio’s office, his aides showed no interest in commenting on the substantial overlap between Biden’s extensive manufacturing agenda and their boss’s.Still, after decades of free-market orthodoxy in which protectionism became taboo among both parties’ elites, it is the rise of China, above all else, that is bringing nationalistic management of the economy back into the political mainstream. “Twenty years ago, we would have had a huge ideological fight that this was ‘industrial policy,’” Chris Coons told me, referring to Biden’s economic agenda. “Today our No. 1 competitor globally is — look up ‘industrial policy’ in the dictionary: It’s a unitary, state-controlled economy.”Noam Scheiber is a Chicago-based reporter for The Times who covers labor and the workplace. He is the author of “The Escape Artists,” a book about Barack Obama’s first term.Headshots: Mark Wilson/Getty Images; Alex Wong/Getty Images; Chip Somodevilla/Getty Images; Jim Watson-Pool/Getty ImagesAdvertisementContinue reading the main story More

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    What Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus Talks

    AdvertisementContinue reading the main storySupported byContinue reading the main storyWhat Is 13-3? Why a Debate Over the Fed Is Holding Up Stimulus TalksThe Fed’s emergency lending authorities are a key part of its job. Republicans want to curb them. Democrats are pushing back.Senate Republicans are trying to make sure that emergency programs backed by the Federal Reserve cannot be restarted after they expire on December 31.Credit…Anna Moneymaker for The New York TimesDec. 18, 2020Updated 7:49 p.m. ETAs markets melted down in March, the Federal Reserve unveiled novel programs meant to keep credit flowing to states, medium-sized businesses and big companies — and Congress handed Treasury Secretary Steven Mnuchin $454 billion to back up the effort.Nine months later, Senate Republicans are trying to make sure that those same programs cannot be restarted after Mr. Mnuchin lets them end on Dec. 31. Beyond preventing their reincarnation under the Biden administration, Republicans are seeking to insert language into a pandemic stimulus package that would limit the Fed’s powers going forward, potentially keeping it from lending to businesses and municipalities in future crises.The last-minute move has drawn Democratic ire, and it has imperiled the fate of relief legislation that economists say is sorely needed as households and businesses stare down a dark pandemic winter. Here is a rundown of how the Fed’s lending powers work and how Republicans are seeking to change them.The Fed can keep credit flowing when conditions are really bad.The Fed’s main and best-known job is setting interest rates to guide the economy. But the central bank was set up in 1913 in large part to stave off bank problems and financial panics — when people become nervous about the future and rush to withdraw their money from bank accounts and sell off stocks, bonds and other investments. Congress dramatically expanded the Fed’s powers to fight panics during the Great Depression, adding Section 13-3 to the Federal Reserve Act.The section allows the Fed to act as a lender of last resort during “unusual and exigent” circumstances — in short, when markets are not working normally because investors are exceptionally worried. The central bank used those powers extensively during the 2008 crisis, including to support politically unpopular bailouts of financial firms. Congress subsequently amended the Fed’s powers so that it would need Treasury’s blessing to roll out new emergency loan programs or to materially change existing ones.The programs provide confidence as much as credit.During the 2008 crisis, the Fed served primarily as a true lender of last resort — it mostly backed up the various financial markets by offering to step in if conditions got really bad. The 2020 emergency loan programs have been way more expansive. Last time, the Fed concentrated on parts of Wall Street most Americans know little about like the commercial paper market and primary dealers. This time, it reintroduced those measures, but it also unveiled new programs that have kept credit available in virtually every part of the economy. It has offered to buy municipal bonds, supported bank lending to small and medium-sized businesses, and bought up corporate debt.The sweeping package was a response to a real problem: Many markets were crashing in March. And the new programs generally worked. While the terms weren’t super generous and relatively few companies and state and local borrowers have taken advantage of these new programs, their existence gave investors confidence that the central bank would prevent a financial collapse.But things started getting messy in mid-November.Most lawmakers agreed that the Fed and Treasury had done a good job reopening credit markets and protecting the economy. But Senator Patrick J. Toomey, a Pennsylvania Republican, started to ask questions this summer about when the programs would end. He said he was worried that the Fed might overstep its boundaries and replace private lenders.After the election, other Republicans joined Mr. Toomey’s push to end the programs. Mr. Mnuchin announced on Nov. 19 that he believed Congress had intended for the five programs backed by the $454 billion Congress authorized to stop lending and buying bonds on Dec. 31. He closed them — while leaving a handful of mostly older programs open — and asked the Fed to return the money he had lent to the central bank.Business & EconomyLatest UpdatesUpdated Dec. 18, 2020, 12:25 p.m. ETLee Raymond, a former Exxon chief, will step down from JPMorgan Chase’s board.U.S. adds chip maker S.M.I.C. and drone maker DJI to its entity list.Volkswagen says semiconductor shortages will cause production delays.The Fed issued a statement saying it was dissatisfied with his choice, but agreed to give the money back.Democrats criticized the move as designed to limit the incoming Biden administration’s options. They began to discuss whether they could reclaim the funds and restart the programs once Mr. Biden took office and his Treasury secretary was confirmed, since Mr. Mnuchin’s decision to close them and claw back the funds rested on dubious legal ground.The new Republican move would cut off that option. Legislative language circulating early Friday suggested that it would prevent “any program or facility that is similar to any program or facility established” using the 2020 appropriation. While that would still allow the Fed to provide liquidity to Wall Street during a crisis, it could seriously limit the central bank’s freedom to lend to businesses, states and localities well into the future.In a statement, Senator Elizabeth Warren, Democrat of Massachusetts, called it an attempt to “to sabotage President Biden and our nation’s economy.”Mr. Toomey has defended his proposal as an effort to protect the Fed from politicization. For example, he said Democrats might try to make the Fed’s programs much more generous to states and local governments.The Treasury secretary would need to have the Fed’s approval to improve the terms to help favored borrowers. But the central bank might not readily agree, as it has generally approached its powers cautiously to avoid attracting political scrutiny and to maintain its status as a nonpartisan institution.Fed officials have avoided weighing in on the congressional showdown underway.“I won’t have anything to say on that beyond what we have already said — that Secretary Mnuchin, as Treasury secretary, would like for the programs to end as of Dec. 31” and that the Fed will give back the money as asked, Richard H. Clarida, the vice chairman of the Fed, said Friday on CNBC.More generally, he added that “we do believe that the 13-3 facilities” have been “very valuable.”Emily Cochrane More

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    In Praise of Janet Yellen the Economist

    It’s hard to overstate the enthusiasm among economists over Joe Biden’s selection of Janet Yellen as the next secretary of the Treasury. Some of this enthusiasm reflects the groundbreaking nature of her appointment. She won’t just be the first woman to hold the job, she’ll be the first person to have held all three of the traditional top U.S. policy positions in economics — chair of the Council of Economic Advisers, chair of the Federal Reserve and now Treasury secretary.And yes, there’s a bit of payback for Donald Trump, who denied her a well-earned second term as Fed chair, reportedly in part because he thought she was too short.But the good news about Yellen goes beyond her ridiculously distinguished career in public service. Before she held office, she was a serious researcher. And she was, in particular, one of the leading figures in an intellectual movement that helped save macroeconomics as a useful discipline when that usefulness was under both external and internal assault.Before I get there, a word about Yellen’s time at the Federal Reserve, especially her time on the Fed’s board in the early 2010s, before she became chair.At the time, the U.S. economy was slowly clawing its way back from the Great Recession — a recovery impeded, not incidentally, by Republicans in Congress who pretended to care about national debt and imposed spending cuts that significantly hurt economic growth. But spending wasn’t the only issue of debate; there were also fierce arguments about monetary policy.Specifically, there were many people on the right condemning the Fed’s efforts to rescue the economy from the effects of the 2008 financial crisis. Among them, by the way, was Judy Shelton, the totally unqualified hack Trump is still trying to install on the Fed board, who warned in 2009 that the Fed’s actions would produce “ruinous inflation.” (Hint: They didn’t.)Even within the Fed, there was a division between “hawks” worried about inflation and “doves” who insisted that inflation wasn’t a threat in a depressed economy, and that fighting the depression should take priority. Yellen was one of the leading doves — and a 2013 analysis by The Wall Street Journal found that she had been the most accurate forecaster among Fed policymakers.Why did she get it right? Part of the answer, I’d argue, goes back to academic work she did in the 1980s.At the time, as I’ve suggested, useful macroeconomics was under attack. What I mean by “useful macroeconomics” was the understanding, shared by economists from John Maynard Keynes to Milton Friedman, that monetary and fiscal policy could be used to fight recessions and reduce their economic and human toll.This understanding didn’t fail the test of reality — on the contrary, the experience of the early 1980s strongly confirmed the predictions of basic macroeconomics.But useful economics was under threat.On one side, right-wing politicians turned away from reality-based economics in favor of crank doctrines, especially the claim that governments can conjure up miraculous growth by cutting taxes on the rich. On the other side, a significant number of economists themselves rejected any role for policy in fighting recessions, claiming that there would be no need for such a role if people were acting rationally in their own interests, and that economic analysis should always assume that people are rational.Which is where Yellen came in; she was a prominent figure in the rise of “new Keynesian” economics, which rested on one key insight: People aren’t stupid, but they aren’t perfectly rational and self-interested. And even a bit of realism about human behavior restores the case for aggressive policies to fight recessions. In later work Yellen would show that labor market outcomes depend a lot not just on pure dollars-and-cents calculations, but also on perceptions of fairness.All this may sound abstruse, but I can vouch from my own experience that this work had a huge impact on many young economists — basically giving them a license to be sensible.And it seems to me that there’s a direct line from the disciplined realism of Yellen’s academic research to her success as a policymaker. She was always someone who understood the value of data and models. Indeed, rigorous thinking becomes more, not less important in crazy times like these, when past experience offers little guidance about what we should be doing. But she also never forgot that economics is about people, who aren’t the emotionless, hyperrational calculating machines economists sometimes wish they were.Now, none of this means that things will necessarily go well. The race is not to the swift, neither yet bread to the wise, nor yet success to policymakers of understanding, but time and chance happen to them all. Trump’s cabinet was a clown show — possibly the worst cabinet in America’s history — but it wasn’t until 2020 that the consequences of the administration’s incompetence became fully apparent.Still, it’s immensely reassuring to know that economic policy will be made by someone who knows what she is doing.The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram. More

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    Markets Throw a Welcome Party of Sorts for Biden

    A day after the Trump administration effectively acknowledged the election of Joseph R. Biden Jr., investors showed their relief by pushing the two major stock market indexes to all-time records on Tuesday.It was a welcome party of sorts for Mr. Biden, but what investors were really embracing was the end of uncertainty. President-elect Biden has vowed to push for more stimulus to bolster the economy. His selection for Treasury secretary, Janet L. Yellen, is well known from her days as Federal Reserve chair. And several new coronavirus vaccine candidates mean that the pandemic could be under control in the months ahead.President Trump, who on the campaign trail had warned that Mr. Biden’s election would lead to stock market armageddon, on Tuesday implied that the day’s highs were his own doing, making an unscheduled stop at a White House briefing to play up the latest gains in the Dow Jones industrial average.“The stock market’s just broken 30,000 — never been broken, that number,” said Mr. Trump, who has often used the markets as a barometer of his presidency. “That’s a sacred number, 30,000; nobody thought they’d ever see it.” He added: “I just want to congratulate all the people within the administration that worked so hard. And most importantly, I want to congratulate the people of our country, because there are no people like you.”Mr. Trump, who spoke for about 65 seconds, ignored questions from reporters about whether he would concede to Mr. Biden.On Wall Street, the S&P 500 stock index rose 1.6 percent to a new high of 3,635.41, while the Dow rose 1.5 percent, closing above 30,000 for the first time.“We have an enormous amount of certainty that we didn’t have just a few months ago,” said Kristina Hooper, chief global market strategist at Invesco, an investment management firm.The last few months have been a volatile stretch for investors. After hitting a peak on Sept. 2, the S&P 500 began to fall, and — except for a brief uptick the following month — remained roughly 9 percent below the peak until the end of October.One sign of investor anxiety was the volatility displayed in the VIX, an index widely known as Wall Street’s “fear gauge.” The VIX spiked by more than 50 percent in late October as the virus picked up again and the election approached. A meltdown of technology stocks added to the uncertainty. In the last week in October, stocks fell 5.6 percent, the biggest weekly drop since March. Still, stocks were up for the year at the end of last month.And in the weeks since the election stocks have climbed steadily, primarily because of encouraging vaccine news. Pfizer, Moderna and AstraZeneca have all announced that their vaccine candidates showed favorable results in trials. The S&P 500 has risen roughly 8 percent since the election. Some investors believe that with Mr. Biden in the White House, and Republicans likely to retain control of the Senate, they could count on political gridlock to block tax increases that could roil the markets.“You have a Biden administration likely governed by a split Congress and a conservative Supreme Court so it eliminates some of the most extreme policies either on the right or left,” said Michael Arone, chief investment strategist at State Street Global Advisors. “So markets are celebrating that.”The good news about vaccines has bolstered stocks that had been hit hard by the outbreak. Stocks of airlines and oil companies have soared this month. United Airlines, American Airlines and Delta Air Lines have all climbed by more than 30 percent. The oil giant Chevron is up nearly 38 percent. The Russell 2000 — an index of smaller capitalization companies heavily influenced by the shorter-term outlook for the U.S. economy — is up more than 20 percent this month alone.But many analysts believe that the market could have done even better without the political uncertainty about the outcome of the election. The president’s baseless claims that there was fraud in the election and that he would ultimately win a second term helped keep a lid on gains by injecting uncertainty into the markets.The decision on Monday by Emily W. Murphy, the administrator of the General Services Administration, to allow the presidential transition process to move forward made investors feel confident that the election was finally over, Ms. Hooper said. “I think that was creating a significant overhang and raised questions about how long this would drag on,” she said.Markets also appeared to welcome the return of politics as usual under a future Biden administration, and were reassured by the news that Ms. Yellen will be Mr. Biden’s nominee to head the Treasury Department. She is a known quantity on Wall Street, well respected for her steady leadership at the head of the central bank, from 2014 to 2018.“There had been some fear that Mr. Biden would pick a Treasury secretary with a strong anti-Wall Street bias,” wrote analysts with High Frequency Economics in a client note on Tuesday. “Janet Yellen isn’t that.”The markets performed well under Mr. Trump for the most part. Since his election in 2016, the S&P 500 has returned more than 80 percent — including dividend payments. Most analysts credit the administration’s tax cuts — signed into law in 2017 — for a significant part of the gains.But the last four years have also been a volatile period for markets, with multiple sharp, sudden downturns often linked to policies pushed by Mr. Trump, such as his trade war with China, which helped push stocks to a 6 percent loss in 2018.This year, the more than 11-year-old bull market collapsed in March, as the S&P 500 dove nearly 34 percent in a matter of weeks as the virus raged around the globe, before eventually climbing to new highs.Mr. Trump’s style was often at odds with Wall Street’s preferences.He broke with the tradition of virtually all other recent presidents in using the power of the bully pulpit to browbeat individual companies — including Boeing, Amazon, Ford and General Motors — for decisions he disliked, often sending their shares reeling in real time.Even those on Wall Street who might have supported some of the president’s policies often said they could do without his constant Twitter missives weighing in on the markets. (Since his election in 2016 the president has tweeted or retweeted roughly 200 messages on the markets.)“It always bothered me that the president tweeted about the markets,” said Paul Schatz, who manages roughly $90 million in assets for clients largely in New York, Connecticut and Florida. “As an investment adviser in charge of taking care of people’s money, I would rather the president would not wade into those waters.”Michael Crowley contributed reporting. More