The Biggest Challenge Facing Joe Biden’s New Economic Team

Traditionally, Democratic Presidents have tended to appoint eminent figures from Capitol Hill or Wall Street to senior economic roles, along with some prominent macroeconomists. The economic team that Joe Biden’s transition announced on Monday is more diverse, and it reflects the evolution of the Democratic Party. That’s not to say there won’t be any people with ties to Wall Street. Brian Deese, a former Obama aide who is set to head the National Economic Council, and Adewale (Wally) Adeyemo, the prospective Deputy Secretary of the Treasury, have both worked for BlackRock, the biggest asset manager in the country. Both are key jobs. But, if confirmed, Janet Yellen, the former chair of the Fed, will be Adeyemo’s boss and the first female Secretary of the Treasury. Cecilia Rouse, a highly regarded economist at Princeton, would be the first African-American to lead the White House Council of Economic Advisers. Neera Tanden, the president and C.E.O. of the Center for American Progress, a liberal think tank, would be the first Indian-American head of the Office of Management and Budget.

Ultimately, what matters most isn’t the background of Biden’s appointees but what policy measures they promote. The new team consists largely of people who have advocated a vigorous response to the coronavirus pandemic and a longer-term emphasis on raising wages, reducing inequality, and fostering greener, more inclusive growth. (Not coincidentally, these are all key elements of the “Build Back Better” platform that Biden laid out during the election campaign.) In her four years running the Fed, from 2014 to 2018, Yellen stressed the importance of maintaining a tight labor market for raising the living standards of workers, particularly low-skilled ones. Rouse, a labor economist who served on the Council of Economic Advisers in the Obama Administration, is an expert on education, and she is also the co-author of a famous paper that showed how blind orchestra auditions led to the hiring of more female musicians. Her colleagues on the new Council include Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities who has frequently co-authored editions of the State of Working America, an essential annual guide to economic trends, including wages and inequality, and Heather Boushey, the head of the Washington Center for Equitable Growth and the author of “Unbound,” which examined how inequality holds back the economy.

Tanden, a former aide to Hillary Clinton, has spent a good deal of time tangling with supporters of Bernie Sanders on Twitter. In terms of policy, though, her views have moved with the center-left consensus. Earlier this year, she published a think piece arguing that corporate governance should be reformed so that “the mission of companies is to focus on workers and their communities, as well as shareholders”—a position also advocated by Elizabeth Warren. Deese, a Yale Law School graduate, worked at the White House throughout the Obama Administration. He helped negotiate budget deals with Republicans and the U.S. entry into the 2015 Paris climate accord.

Reversing Donald Trump’s withdrawal of the United States from the agreement is something that Biden will be able to get done early in his Administration. The great question hanging over his new economic team, for all its promise and expertise, is what kind of more ambitious aims it will be able to achieve, now that the G.O.P. has won fifty seats in the new Senate and is favored to win at least one of the two runoff races in Georgia. In this potentially constrictive political environment, advisers to Biden have been advocating other policies that aren’t hostage to congressional approval, such as taking steps to reduce prescription-drug prices and forcing federal contractors to pay a minimum wage of fifteen dollars per hour. But the Biden economic team is also keenly aware that many of its policy proposals will likely have to go through, or around, Mitch McConnell, the Senate Majority Leader.

Even in advance of Biden taking office, some of the President-elect’s advisers are hoping that McConnell will agree to a new coronavirus spending bill—possibly as early as next week, when it could be attached to a continuing spending resolution that is needed to fund the rest of the government through the New Year. Before Thanksgiving, Biden publicly called on Congress to “come together and pass a Covid-relief package.” In an interview with NPR, Bernstein emphasized the urgency of the situation. “Composition is important,” he said. “Size is very important. But speed is so essential right now.” This warning came as economists at JPMorgan Chase predicted that G.D.P. growth would turn negative in the first quarter of next year.

The problem is that the two sides on Capitol Hill are still very far apart. Earlier this year, the House Democrats passed a three-trillion-dollar Covid-relief bill, the HEROES Act. In October, Senate Republicans tried and failed to pass a “skinny” bill worth five hundred billion dollars. More recently, McConnell has argued that the encouraging news about forthcoming vaccines has reduced the need for a bigger package. Biden and his team are wary of antagonizing Nancy Pelosi, the House Speaker, and Chuck Schumer, the Democratic leader in the Senate. But, with the virus spreading alarmingly, jobless claims rising, and the widespread availability of a vaccine at least several months away, they are quietly encouraging the Democratic leaders to come to terms with McConnell on a compromise deal that doesn’t satisfy all of their demands. Such a deal might include extending unemployment benefits, the Paycheck Protection Program for small businesses, and moratoriums on evictions for renters, and also provide some more help for stricken states and municipalities.

Many independent experts agree that this type of action is essential to prevent another downward lurch in the economy and more human suffering. “We need at least one more large relief package to sustain the unemployed, small businesses, and state and local governments,” Ernie Tedeschi, a former Treasury Department economist who works at the advisory firm Evercore-ISI, told me. “Any deal of a trillion dollars or more would be enough to sustain us until the second half of next year. And the bigger the package the faster the recovery will be.”

At about five per cent of the G.D.P., another trillion-dollar spending deal would be one of the biggest stimulus packages that the U.S. government has introduced outside of wartime. Given the scale of the shock that Covid-19 represents, spending on this scale is entirely appropriate. But getting such a package through the Senate would involve a compromise from McConnell, and so far there is no sign of him shifting. After his well-documented efforts to sabotage the Obama Presidency, many Democrats are understandably wary of the Majority Leader. “If McConnell controls the Senate, he’s going to block the kind of relief package that we need,” Jon Ossoff, the Democratic candidate in one of Georgia’s runoff elections, told the Washington Post’s Greg Sargent, on Monday. “And that means not just short-term, direct economic relief, but also the kind of infrastructure-jobs-clean energy program necessary to support long-term recovery.”

The Biden team is hoping that this analysis is too pessimistic. In addition to getting a Covid-relief bill passed before the end of the lame-duck session, the incoming Administration needs the next Congress to pass a spending bill devoted to some longer-term priorities, such as infrastructure and an expansion of tax credits for working families with children. But Biden’s advisers are under no illusions about the scale of the political challenge ahead. If the Republicans win just one of the Georgia runoffs, the filibuster will definitely remain in effect, and the new President will need to get sixty votes to pass any major legislation.

In some circles, there have been suggestions that Biden could circumvent this problem by courting a few Republican senators and authorizing new spending programs through the budget-reconciliation process, which requires only fifty-one votes. The Biden team is too experienced to take this possibility seriously. Under the Senate rules, reconciliation requires a prior budget resolution, which would have to be authorized by McConnell, as the Majority Leader. “McConnell is the one who controls whether or not there are reconciliation bills that only need fifty-one votes,” Tedeschi explained. “And it’s very unlikely that he would let a reconciliation bill come to the floor that wouldn’t have got a majority of Republican voters anyway.”

If McConnell doesn’t budge, which seems the most likely outcome, Democrats’ only option will be to go around him and win over enough Republican senators to get sixty votes. Tedeschi, for one, doesn’t think such an outcome is out of the question. Many of Biden’s infrastructure proposals, such as weatherizing buildings, installing solar panels, and improving transport hubs, would deliver tangible benefits to political districts all across the country, he pointed out. “While that may not necessarily be decisive to all Republican senators, it will go a long way toward warming them up to some sort of scaled-back infrastructure proposal from the Biden Administration,” Tedeschi said. “It also helps that there are a lot of elements of the 2017 Republican tax cut that are expiring next year or the year after.” Biden could propose making permanent some of the expiring provisions, which include several tax breaks that businesses highly value, including enhanced deductibility for interest payments and full expensing of capital investments. “It would have to be a quid pro quo, of course,” Tedeschi added.

Cattle trading of this nature is far from what Biden had in mind last summer, when he laid out his economic program, which also included proposals to raise the national minimum wage to fifteen dollars, strengthen the bargaining position of workers, advance racial equity, add a new public option to Obamacare, and fund more research and development in areas such as clean energy and biotech. That was a different time, when Democrats could still hope of controlling both houses of Congress. After the mixed results of the election, the political calculus has changed. Now the goal of the incoming Administration is to achieve as much as it can and prevent McConnell from blocking progress.