Martijn Konings is a professor at the school of social and political sciences at the University of Sydney and a 2021-22 Berggruen Institute fellow.
Lisa Adkins is the head of the school of social and political sciences at the University of Sydney.
Gareth Bryant is a political economist at the University of Sydney.
President Joe Biden’s reconciliation bill is a self-conscious response to the decline of the American middle class — the difficulty of breaking into it and the ease with which people drop out of it. It’s an ambitious plan, an attempt to create a social safety net in the style of the New Deal or even a European welfare state that provides government support “from the cradle to the grave.”
If it passes over Republican objections, the bill contains several policy proposals that will make the lives of many ordinary Americans a little easier. But there is little to suggest that it will be able to meet Biden’s goal of “rebuilding” the middle class, because the bill is largely silent on one of the key planks of middle-class status today: asset ownership.
The bill proposes investments in education to facilitate workers seeking new skills at different points in their careers to maintain employability, plus parental and sick leave entitlements for workers and various tax credits and direct payments. These would be significant accomplishments and would undoubtably take significant financial pressure off households.
But today, employment by itself is less often the ticket to middle-class status that it used to be, the result of a combination of stagnating wages and the rapid growth of asset values that have been such marked features of the past four decades in Anglo-capitalist societies.
Before the 1970s, property ownership was only one element of a lifecycle organized around stable, lifelong employment; since then, appreciating property prices have become key sources of income and financial security, the main way ordinary households could participate in asset inflation. However, this middle-class politics contains a built-in self-destruction mechanism: Over time, rising property prices make it more and more difficult for ordinary people, even those earning decent wages, to buy into it.
The Biden plan contains few measures that could change this dynamic. For one thing, asset inflation is, to a very large extent, driven by wider structural factors. The dynamics of the financial system here are central, in particular the increasing reliance on bailout-style interventions as a way to prevent or respond to financial instability — most notably quantitative easing, which has kept asset values rising since the global financial crisis. But even with an active role for fiscal policy, Biden’s plan does little to target key determinants of asset inflation. Despite nods in the direction of wealth taxation, most of the proposed tax reforms focus on taxing (high) incomes and (corporate) profits.
The issue here is not simply the disappointing lack of interest in taxing the 1%. The broader issue is that the general reluctance to tax wealth maintains a middle-class politics that is organized around the prospect of capital gains. And that politics is no longer able to deliver broad-based prosperity. Instead, a steadily shrinking class of asset owners can benefit from asset inflation at the expense of a growing class of non-owners — something that has been starkly revealed by soaring house prices during a dramatic economic downturn as the pandemic swept the globe.
Biden’s plan is best seen as a moment of transition between new realities and old solutions. The latter have captured the attention of progressive commentators and conservative critics alike, who have interpreted the plan in “welfarist” terms, as “an expansion of the American safety net” in the direction of European welfare states. Yet the plan shies away from the broader program of institutional reconstruction that would be required for this, and would need to include significant increases to the minimum wage and measures to dramatically improve the bargaining power of unions.
The idea that Biden is moving America towards a European-style social-democratic compromise has rhetorical value for conservative commentators, but those who are more progressively inclined should be cautious about accepting such a framing of the issues. The bill points towards a compromise of a different sort, one that expands social protection while maintaining and supporting the wealth positions of asset owners. It reflects an awareness that it cannot limit liquidity assistance to neatly delineated constituencies but instead needs to provide support more widely. In this sense, it is a response to the politics of the asset economy where staying “on payment” is critical.
Central here is the emphasis on automatic, direct payments to parents in ways that de-link government benefits from employment or income tax. The COVID crisis underlined the important role that such payments can play both in helping ordinary people deal with debt and in avoiding a wholesale deflation of asset values. This bill essentially seeks to make such payments permanent.
However, the amounts of financial assistance proposed are unlikely to be the difference when it comes to allowing people to participate in the economy of asset appreciation. Although it will provide welcome relief, the bill will do little to open up access to the asset-owning middle class.
But perhaps Biden’s proposals have opened a door that will be hard to close. The policy response to the COVID crisis has made a mockery of conservative claims that there are strict limits to government expenditure and that ignoring those limits will have dire consequences. The consequences of not observing austerity, it turns out, are entirely manageable. This is likely to fuel demands for an expansion of such policies and even universal basic income (UBI).
Unconditional payments are the endgame of the new world of asset inflation. While politically contentious, UBI is nonetheless synced to the distinctive logic of the asset economy in ways that more traditional forms of public assistance are not. It would provide ordinary citizens with some immunity from the deflation of their precarious wages, while at the same time reducing the systemic threat that widespread insecurity represents for asset values. In a similar way, something like a basic capital fund would provide everyone with an opportunity to gain a stake in the dynamics of asset appreciation.
Such ideas are still too radical to find significant traction in the political mainstream. But remember that there is no reason to think that Biden was planning to propose a major program of progressive reform until his hand was forced by radical currents in his own party. So, although the bill will not by itself save the American middle class, it’s a demonstration of the powerful catalyzing effect that can occur when energized political activism combines with a receptive executive branch.