Bidenomics Is Good Marketing, Confused Policy

President Joe Biden and his team insist that “Bidenomics” — a term they’ve embraced — is more than a mere bundle of policy initiatives. They say it’s a coherent, comprehensive and transformational program that marks a clear break not just with conservative “trickle down” orthodoxy but also with the decidedly smaller ambitions of previous Democratic administrations.Ambition is admirable, and so are the administration’s goals. But delivering the intended results won’t be easy. Execution is everything — and this is where overweening aspiration can prove a liability.Despite the compromises needed to get its plans through Congress, the administration’s initiatives have been huge and far-reaching. They encompass generous income support during and after the pandemic, massive outlays on clean-energy and other infrastructure, and measures to advance resilience and self-sufficiency. According to the White House, Bidenomics aims to “fundamentally change the economic direction of our country.” As the president might say, it’s a big [expletive deleted] deal.It’s not just about scale. Core principles tie the parts together. Climate change is an existential threat that needs to be confronted more urgently. Prosperity and national security demand a revival of critical domestic manufacturing. Empowering workers is an essential part of building the economy “from the middle out and the bottom up.” In each of these areas, according to the administration, free markets can’t be relied on and the guiding hand of government is indispensable.This last point is where Bidenomics is at greatest risk of failing. In confronting challenges such as climate change, sluggish productivity growth and rising inequality, the government’s strategic role is indeed crucial — but its capacity for effective micro-management is far more limited than the president seems to think. In the simplest terms, success depends on recruiting not supplanting market forces.Take climate change. Using carbon pricing to confront consumers and producers with the costs of emissions, then letting them find efficient ways of adapting, is more likely to succeed than placing taxpayer-supported bets on particular suppliers or technologies. Yet the Inflation Reduction Act enacted or expanded 22 separate tax credits intended to encompass a huge array of green-energy initiatives, with eligibility requirements specified in exacting detail (and padded with unrelated preferences, such as domestic-content provisions). Follow-up regulations will grant the administration even more control over business activity in relevant industries.These are well-intentioned efforts, but markets have an unmatched capacity for sifting such information and guiding investment productively; in this, bureaucrats just can’t compete. To avoid wasted effort and resources, the administration should be cautious in deciding when to substitute its own judgment.The risk of needless cost goes up when multiple goals collide and priorities aren’t clear — which, unfortunately, is the hallmark of Bidenomics. The fight against climate change will go better and faster if international competition is allowed to spur efficiency and cut costs in production of solar panels, electric-vehicle batteries and other clean-energy technologies. Using subsidies and domestic-sourcing rules to override market signals and spur domestic manufacturing will raise costs both directly (if the necessary inputs are in short supply or components can be sourced more cheaply abroad) and indirectly (by undermining the liberal trading order).Witness the flailing Chips Act, another effort with a worthy goal (ensuring a stable semiconductor supply for national-security purposes) but lamentable implementation. Not content with mere subsidy, the administration has layered on accommodations for union labor, child-care provision, “prevailing wages” and so on. All this will add further to costs and entrench the need for subsidy long-term. These subsidies will sooner or later have to be paid for with higher taxes, displacing output and employment elsewhere in the economy.The desire to cast Bidenomics in the most grandiose terms is understandable, and it might even be good politics. But the administration shouldn’t be deluded by its own rhetoric. Governments are bad at micro-management and they can’t have it all. In the abstract, each of Biden’s aims makes sense. As a practical matter, he’ll fail without clearer priorities and regard for the genius of market forces.More From Bloomberg Opinion:

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The Editors are members of the Bloomberg Opinion editorial board.

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