Even for the casual reader, it’s hard to miss the sweeping ideas behind US President Joe Biden’s economic agendas that were laid out in his speech to a joint session of Congress last week. It casts a wide net in all segments of society and the economy, which is to be expected from policies aimed at emerging from the deep end of the crisis.

But its real significance lies in the attempt to reset and introduce a new paradigm in the way the United States approaches its economic policy. What the paradigm is can be best understood from the perspective of what it is against, which in popular parlance is known as neoliberalism.

It is a loaded and difficult term to define which traces its intellectual origin to the eminent ideologues and the self-proclaimed “neoliberals” Friedrich Hayek and Milton Friedman. But for at least five decades, since ideas received political backing from former US President Ronald Reagan and UK Prime Minister Margaret Thatcher, it is the dominant ideology that has shaped our economic system.

There are small variations depending on the national context, but it is essentially a system that puts its faith in the free market and the doctrine of small government. It promotes the idea that the solution to economic and social problems lies in the invisible hand of the economy. So the less government intervention, the better.

Even in areas that may require government intervention like unemployment and low wages, neoliberal proponents would argue that the market should be left alone to find its own balance in solving the problem. Consequently, the privatization of public services has become the dominant feature of the economy; deregulation complements government initiatives so that businesses can continue to operate unhindered and taxes remain low, with the understanding that this accelerates economic growth.

Within this framework, social protection and social security programs were seen as a burden on the state because they, in theory, discouraged people from working and created a culture of dependency.

Through international institutions such as the World Bank and the International Monetary Fund, this economic paradigm has been promoted with missionary zeal and implemented as dogma throughout the developing world.

Because the alternative was socialism, neoliberal ideas became ideological. Thus, any attempt to deviate from economic orthodoxy was deemed apostatic.

Following the implementation of neoliberal policies in the 1980s, the United States appears to have led a good decade. Income and productivity grew exponentially throughout the 1990s. Whether this has anything to do with deregulation or a low tax regime and cuts in social spending is a subject of considerable debate.

But the wall of neoliberalism began to crack at the dawn of the new millennium. Despite all the prescriptions of the free market, the economy failed to grow, private investment declined, and adult workers actually spent fewer hours working, defying the theory that corporate tax cuts. income would encourage people to work more.

In the meantime, inequalities have widened. According to the US Federal Reserve, the richest 1% of Americans now control more than US $ 34 trillion, or 30% of all household wealth, while the

the bottom 50% hold only US $ 2.1 trillion (1.9%).

The loophole of neoliberalism was exposed in 2008 when the entire Western financial system collapsed, costing the economy more than US $ 15 trillion. Policymakers were unanimous in saying that deregulation was at the root of the crisis.

Many believed that the global financial crisis would be the starting point for the United States to move away from the specter of the “free market”. However, it took more than a decade, the Covid-19 pandemic and a mild-mannered 78-year-old leader for the country to wake up and realize that there was something wrong with the way its government was functioning. economy.

Biden strikes at the heart of neoliberalism. It proposes a series of capital and high income tax increases, with the highest paying up to 43% in taxes. This will effectively reverse the unequal tax structure that favors the rich over the middle class, and usher in what he calls a fairer tax system that redistributes disproportionate income at the top to a larger segment of society.

The revenue from these taxes will be funneled into larger green infrastructure development programs, the creation of a care economy to create hundreds of thousands of care jobs for the disabled and the elderly, and an allowance for potentially permanent child up to $ 3,600 per year. The former may be common to governments around the world, but the latter two – home care jobs and cash transfers to children – will technically transform the US government into a guarantor of jobs and a provider of a basic income. universal for families.

For Scandinavians, there is probably nothing to cry about. But for observers of American capitalism, Biden’s economic plan, in its current form, is equal in breadth and depth to Franklin Roosevelt’s New Deal and Reagan’s neoliberalism. Barring ideological opposition, this will be the third act of the United States after 1933 and 1981 to introduce a new economic paradigm that will radically change the economic and social trajectory for many decades to come.

Nazim Rahman works in private equity