We Can’t Breathe!

Innovators, the lifeblood of the American economy, are wilting from a lack of financial oxygen caused by Bidenomics. Only the recovery of those innovators can return America’s economy to robust health. The lucky thing is that no planning is needed for recovery, just removal of the policies restricting the free flow of funds to those willing to take calculated risks.

Bidenomics signifies economic policy by means of dismisinfoganda. Policymakers and their pundits-in-pocket dismiss some information, fail to rid their analysis of misinformation, spread disinformation, and use the tools of propaganda to push economic nostrums instead of the proven cure, not suffocating investors and innovators. Examples now abound in the economic policy arena. 

Here are a few key ones:

Dismiss information: Real wages, which are to say the purchasing power of people’s paychecks, have been declining for some time. Instead of focusing on that widespread pain, though, Bidenomists focus on the employment numbers because they seem stronger.

Misinformation: Bidenomists push ESG scores as if they actually relate to real world outcomes, even though they are just weighting formulas based on assumptions, not data and causal connections. For example, so-called green metrics do not take into consideration the fact that solar panels and wind turbines rely on fossil fuels in their production, transportation, and disposal.

Disinformation: Flip-flopping on the definition of recession might mean you are a thoughtful economist, but it probably means that you are a Bidenomist, trying your darndest to avoid the “R” word so you can ram through a tax hike under the guise of an inflation reduction bill. According to Big Daddy Keynes, governments should borrow and spend during downturns (call them what you will), not raise taxes. 

Propaganda: America has resembled an Orwellian hellscape regarding Covid for several years. No joke, people are beginning to sue over the government over the tactics it used during the pandemic. The Duckspeak has clearly spread to education and now economic policy. 

Innovators are already being crushed by the high cost of capital. Interest rates are increasing, as they must to combat inflation, but risk premia are also increasing. Investors, in other words, need a bigger spread between the presumed safety of Treasury bonds and other investments, especially the riskiest types of venture equity. My erstwhile colleague at NYU’s Stern School of Business, Aswath Damodaran, calls it “the retreat of risk capital.”

Four risks in particular are particularly salient: 

1. A second great inflation, i.e., an extended period of high inflation, as in the 1970s. This was once thought impossible because it was believed that central banks had learned the necessary lessons after the demise of the Bretton Woods gold-exchange standard. But as long as the Federal Reserve faces a dual mandate to keep unemployment and inflation low, and as long as it remains somewhat vulnerable to political actors, another long bout of inflation is possible. 
2. Another thing that wasn’t supposed to happen again, major power war, looks quite possible right now. How such a war would affect innovators depends on how it goes. Not well if riots break out across the nation after China seizes Taiwan, destroys a couple of U.S. aircraft carriers, and forces the closure of American military bases across the western Pacific. Great if America quickly eliminates China and/or Russia as a military threat. In a long slugfest, military innovators will make out at the expense of those focused on consumers. Especially in the third scenario, the national debt and/or inflation would soar.
3. The Great Reset isn’t a conspiracy theory, it’s the radical agenda of the World Economic Forum. It isn’t clear how much power that private group has, but its pronouncements are almost as scary as major power war and, as recent events in Sri Lanka illustrate, scarier than the worst climate change scenario.
4. Finally, investors and innovators have to be worried about the imposition of policies that are simply irrational and hence cannot be predicted as to timing or extent. There were many examples of such policies during the Great Depression, the 1970s, and thus far in the 2020s. 

Policy reforms that would quickly restore the free flow of financial oxygen to innovators, restoring them and the economy to health, include:

1. Getting rid of the Federal Reserve altogether or at least pruning it back to a single mandate, price level stability, while also endowing it with enough independence from political influence to have a good shot at keeping inflation low.
2. Deregulating finance. The global financial crisis of 2008, like most earlier financial crises, was rooted in regulation, not deregulation. The widespread claim that the repeal of Glass Steagall led to the crisis is misinformation at best, and likely a form of disinformation. The surest way to prevent a repeat is to ensure that those who benefit from risk on the upside can also lose on the downside. That means allowing investors and innovators to work matters out themselves, with no implied federal backstop.
3. Restoring the rule of law for all. Adam Smith was right that prosperity will follow where there is peace, easy taxes, and a tolerable administration of justice. Intolerable is using the coercive power of the state, directly or through coercion of mass media outlets, to punish political enemies for the same activities that others are lauded, or slapped on the wrist, for engaging in.

Such policies would lower risk premia and inflation and hence lower the cost of capital to levels that give innovators some room to breathe. True, most innovators fail in the best of times but only when they do not produce sufficient value, not because of the arbitrary decisions of some Bidenomist. When it comes to economic growth, ‘tis better to have tried to innovate and failed than to never have innovated at all.

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