Interview with Jonas Nahm (Senior Economist for Industrial Strategy on Council of Economic Advisers under President Biden)
Jonas Nahm was the Senior Economist for Industrial Strategy on the Council of Economic Advisers at the White House between 2023 – 2024 under President Biden. He is currently an Associate Professor at the Johns Hopkins School of Advanced International Studies (SAIS).
Interview conducted 10th December, 2024
Q: How would you characterise “Bidenomics”? What would you say are its objectives, and how would you say it has performed?
I think Bidenomics was something that evolved over time. The branding came after a lot of the policies, so I’m not sure if that’s a helpful way of thinking about it.
There was an attempt to reindustrialise in the Biden administration that was a shift from past administrations. You saw it in the Bipartisan Infrastructure Law (BIL), the CHIPS Act, the IRA, and a lot of trade policy. It was essentially an attempt to come up with an answer to the “middle of the country,” learning from the first China shock, the Trump election and the economic grievances people had.
Then the branding came – “from the bottom up, middle out”, “Bidenomics” — I don’t think that was necessarily super helpful because it didn’t describe what the policies were about. There was a problem of not selling the shift properly.
It’s really difficult to make your core economic policy an industrial policy for manufacturing in a context of an economy where only 7%–8% of the population work in manufacturing, and people don’t necessarily want to work in manufacturing. Why this shift is important and what changes it embodies needed to be sold in a way that is not just manufacturing and construction investment. That didn’t really happen successfully.
In terms of setting out to get manufacturing investment, it was successful. We’re just not seeing jobs results yet, and we may never see them. Reindustrialisation is working, but manufacturing has also changed a lot. There’s a nostalgic, Joe Biden element to all of this where the way people thought about it was the manufacturing of his youth, but it’s pretty automated now. It’s still important, but it may not yield the jobs impact that people were hoping for.
So, there’s the branding element, and then the actual shift and focus on reindustrialisation. The reindustrialisation part worked. The branding and “selling” didn’t go so well, and there were conceptual issues with how to think about manufacturing and what the expectations actually were that could have been communicated a little bit more clearly.
Q: What is the best economic case for the push on reindustrialisation?
I think the policy objectives were essentially to reverse a longstanding decline in domestic productive capacity and to address rising inequality in the domestic economy. There was an implicit criticism of corporate outsourcing and offshoring, and concern around at which point missing domestic manufacturing capacity also has an impact on the ability to innovate domestically. In other words, is the longstanding separation of production and innovation sustainable forever?
But the objectives also changed over time. “Build Back Better” was a lot more expansive than what actually came through reconciliation in these bills. I think, especially in Europe, there is an underappreciation of how constrained these bills were—how they were passed and were getting around the filibuster, what you could and couldn’t do in reconciliation. For example, labour provisions fell out of the IRA. That was part of these original objectives but didn’t make it into the final bill. In some ways, the IRA is also hamstrung by the political system.
It is worth separating out the objectives from what was politically possible. In drawing lessons [for other countries], keep in mind what those objectives were originally, rather than thinking this was the best possible bill—it was just the best possible bill that could be passed here at that particular time.
Q: Other than reindustrialisation, what goals were pursued to reduce economic inequality?
It was all over the portfolio. There was the environmental justice side, the energy-community side—a lot of place-based policy about redirecting investment to certain areas. There were things beyond those three core bills, but those were the core.
It’s also worth noting that there are different objectives for different pieces of the portfolio.
For semiconductors, it was about a national security objective that was part of the U.S.–China conversation. Reindustralisation and building domestic chips was part of the security agenda.
For the energy transition, there was huge concern that the transition would basically be a second China shock, losing a bunch of jobs in the transition to EVs, so these bills tried to ensure you would not have that negative economic impact.
Another objective was building political coalitions around climate policy that were economically based—anchoring climate in Republican districts. That’s more like a legacy objective, making these things sticky and trying a different path to decarbonisation to the carbon-tax path that was tried and unsuccessful in the US.
Q: What’s your view on the effectiveness of macroeconomic policy coming out of the pandemic? Did the American Rescue Plan Act get the quantum of investment right?
It’s the inflation trade-off, basically.
There was a lot of debate about this. People love to debate the relative impact of supply-chain constraints versus domestic spending.
I think in some ways it would have been helpful to communicate the trade-off differently: just say the way this works is there’s a trade-off between inflation and employment. We consciously made the choice that your eggs could be a little bit more expensive, but you’d have a job to pay for them.
That’s not how it was communicated. The White House basically said there was no inflationary impact from recovery spending, and then got into these arguments with folks like Larry Summers that from the outside were saying well there was an inflationary impact.
That wasn’t a helpful fight to have, maybe it would’ve been helpful to take the hit and explain why and not get bogged down in the arguments around whether it was 60% supply chain, 80%, 40%, etc. I don’t think politically that was a helpful argument to have. Economists will battle this out for a long time quantitatively, but the ship’s sailed now.
Q: How much do you think, in retrospect, the Biden administration’s narrative will be about macro management versus supply-side reforms?
These things were passed as they became possible. The macro stuff was anchored early and then you shifted to these micro bills, which no one thought were implementable initially. It was sequential; taking advantage of political opportunities.
How you judge the relative importance depends on who you’re talking to. Climate folks will focus on the micro; macro folks will focus on the macro.
The interesting part is that, despite running the economy hot with low unemployment and success on macro and micro dimensions, it didn’t really ring true to people.
There wasn’t this sense that the economy was doing well, which is an interesting conclusion across the board – regardless of which part you focus on, the people that you needed to vote based on this did not come out to vote. There was a bit of a dismissive attitude in the White House that people were not recognising these policy efforts. There was such a focus on economic inequality and White House people had felt like they had done the work. But people still felt it wasn’t working for them—both macro and micro.
Q: Did macroeconomic policy drive the strong resurgence of growth and dynamism after the 2020 recession, or was that a result of US economic fundamentals?
I’m not sure I have a good answer. There was a lot of money sloshing around, and part of the inflation issue was that there were not a lot of places to spend it. That may have played into business dynamism because there were customers to be earned at the time.
But there was also an incredibly stuck housing market, with people feeling squeezed by interest rates and high prices and an inability to move, so you had both. There was a sense from people that they were stuck in their house and unable to move and so this dynamism that was happening elsewhere they couldn’t necessarily take advantage of it because they couldn’t really change their situation.
It’s often always regional, too—even if there’s lot of housing and business creation in Houston, if you still own a house somewhere that you can’t sell or that makes you shift from a 2% mortgage to a 6% mortgage, that perceived experience is very different than if you are already in Houston you can actually leverage these economic gains. There’s always a regional dimension to the US that came out here as well.
Q: To what extent can we explain the U.S. growth over the past four years by policy decisions, and would the underlying strength of the U.S. economy have delivered a similar result regardless?
You can compare it to the Great Financial Crisis and the slow recovery back then. The fundamentals were not all that different: consumer spending was also just under 70 percent of GDP back then and consumers had less to spend so they didn’t recover as quickly. That’s probably a pretty clean environment to say the policy environment made a difference.
But if you compare it to the European situation, there are aspects brought out in the Draghi report that are helpful for the US. A lot of the differences are tech and tech has been in the US for a long time. There’s a tech infrastructure here that doesn’t exist in Europe that has grown out of the defence apparatus in the ’50s and ’60s in Silicon Valley. Tech and AI booming over the last three or four years – is that because of policies now or is it historic? The Draghi report is basically saying we’re missing this tech base and the US has it. Part of this is policy and part of this is layered investment over time by the government and the private sector going back over decades that you can harvest now. So that’s less directly “Bidenomics,” but also part of the story.
It’s also part of the inequality story— it’s not like the whole economy is having this breakout development. It’s certain sectors that are regionally very concentrated that are affecting the overall picture, but are experienced very differently. I’m in San Francisco right now, where people say the city’s dead while they’re drinking $16 lattes and making $500k in tech. I think your idea of catastrophe is very relative to the local situation.
There is an interesting comparison between the Europeans and Americans. The micro bills in the US weren’t strategic in the way that the Draghi report lays out a strategy. They weren’t very focused on particular sectors with a clear, underlying theory on which sectors could become competitive – how you would take away tariffs and subsidies at some point.
Because of the constraints of the bill, knowing this was a once-in-a-generation opportunity, there was support written into this for almost every clean energy sector. It wasn’t this fine-grained analysis looking at which sectors we do and don’t need to support. The Draghi report lays out a strategy for making those decisions. Europe has the opposite problem. The Americans have an industrial policy without a strategy, and the Europeans have a strategy without a pathway for implementation.
Q: Is that because Europeans were fiscally constrained in a way the US wasn’t?
That’s part of it, but we’re maybe overplaying them.
If you look at the NorthVolt situation, they received $20 billion in investment. So it can be done (though, in that case, it still failed). It is not like Europe cannot have these big projects—Airbus is an example where it did work.
Fiscal constraints are a little overplayed, and there are other ways of doing it.
In some ways fiscal constraints might force you to focus more, which can be helpful in restraint rather than the broad watering-can approach. It’s about figuring out where to invest and where there is a pathway to competitiveness without eternal subsidies.
This is less important in the US context but there is a political fallout from this because not all of these industries will be successful and so then eventually Bidenomics will be seen as having spent a lot of money on things that did not work.
It’s either that or we’ll double down and keep adding more tariffs so that these things will work and we’ll hide the fact that everyone is now paying a lot more for everything in order to keep these uncompetitive businesses alive.
Q: How innovative is the approach to place-based policy—CHIPS Tech Hubs, Engines, hydrogen hubs—compared to previous efforts?
In some ways, the U.S. is catching up to Europe’s structural investment approach that it has had for a long time.
In Europe, this is very systematically measured on relative local economic capacity. If you think about Portugal or Ireland or Poland, there are essentially entire countries that are built around place-based policy in Europe.
The U.S. never had such a thing – there’s never been large scale transfers based on that logic. The largest federal transfers are entitlement programs that give lots of funding to places like Florida where old people want to move based on taxes paid in the rest of the country.
There are very different place-based policies within the Biden administration.
There are ones very specifically targeting inequality or future inequality—like manufacturing conversion grants that try to bring battery manufacturing close to the existing auto manufacturing centres. We know people can’t move because of the housing market, so we need to find pathways for them to transition locally. In the same way, the energy community programs focus on certain places that need additional incentives for investment.
There is also creative repurposing of these place-based programs. When we didn’t have enough financial support for the offshore wind we rewrote the rules so that all ports are part of these energy communities to squeeze out additional tax credits for wind.
But other programs, like hydrogen hubs or semiconductor clusters, aren’t primarily about inequality; they’re about agglomeration economics and coordination challenges in these new industries. We don’t really have demand for hydrogen and we’ve invested a lot in supply. We also need to figure out the technological challenges around shipping it. So we need to create a hydrogen economy around certain centres of production.
These are chicken-and-egg problems that require place-based solutions but are not solutions to inequality necessarily. It’s important to separate out these different place-based policies and none of them have the systematic overarching objective like European structural investments that are driven on a continental scale by regional inequalities.
Maybe European investments are on a smaller scale – it’s less money than the US can spend – but they are certainly a different approach, much less ad hoc and much longer term.
Q: And looking at green industrial policy, has the administration simply resurrected moribund parts of the government, or is the bigger story one of entirely new policy mechanisms?
There is a general theme here that the U.S. does not have targeted state capacity for industrial policy investment.
It’s not like we’ve never done industrial policy, we’ve done it all the time, like the military, DOD etc. But we don’t have an industrial policy bureaucracy at the federal level.
There’s not a clear agency that is charged with this, there is no possibility for formalised feedback like Japan and Korea had with performance metrics and an agency in charge of collecting data and firms having to pay back funds or wouldn’t get more support if they didn’t meet those metrics. We don’t have that.
Instead, the theme is repurposing existing institutions. For instance, we used trade authorities from the 1960s and 1970s for tariffs on Chinese products. The formal mechanisms in the trade space are very old and we’re now repurposing them for the current moment. We used the Defense Production Act for green industrial policy.
The LPO was an existing institution, now repurposed as a manufacturing bank because we don’t have a Fannie Mae for manufacturing. Treasury guidance is supposed to be about IRS rules but is now becoming the key tool for adjusting industrial policy and making sure it actually works in implementation. All these things are capacities created for very different purposes that are being reworked now for industrial policy creation and implementation.
Q: Is there a risk that, if the US doesn’t have a dedicated capacity or a specific focus, it’s more likely to fail (as agencies end up juggling multiple objectives)?
“Fail” relative to what? It won’t fail compared to not doing anything. It’s going to be less efficient and targeted than if we had a whole different system, but we don’t.
In terms of drawing lessons for other countries it’s important to contextualise. Maybe in the UK you can’t do the fiscal stuff but you can do other things that aren’t possible in the US. You have the Crown Estate, you have out your own idiosyncratic institutions in the UK that you can repurpose.
Sometimes the conversation is so literal where people go, “OK should we also target green hydrogen”. That’s not really the conversation we should be having. Let’s do an assessment of all the crazy, weird, odd institutions we have and how we could pull them together for something new and important. That’s a more interesting and productive conversation.
There are real questions about policy stability in all of this where there are real trade-offs. We needed the Treasury guidance because in the bill you couldn’t get into that level of detail and, given how difficult it is to change legislation with these slim majorities in the US, you needed to have the ability to adjust policy somewhere. In this instance it was using Treasury guidance to redefine what a component is, what a raw material is, what domestic tax credits means for EVs and so on.
There is a pathway of changing that over time and if it turns out the local content requirement is so strict that no cars apply you can use Treasury guidance to change it without having to use the whole mechanism of Congress again which is basically impossible. It also makes it more likely for a future Trump administration to change the same rules to make most cars ineligible for the support.
But I still think the flexibility was important and maybe in the next Democratic administration we can change the rules again – so there is a trade-off between policy stability and flexibility, but in some cases the flexibility is so important that it is worth giving up some longevity to get it right in the moment when you do have some control.
Q: Is the Biden administration’s economic agenda coherent given apparent tensions between e.g. tariffs at net zero? Does it matter?
All of this is happening within the context of shifting attitudes in the US on China.
China is being used to motivate policies which don’t really have anything to do with China – for example we got the IRA as a strategic competitive bill within the context of competition. But yes we then also get tariffs that make things more expensive.
To some degree I think that is important. If you are going to make domestic investments in climate policy then you need to protect those investments to some degree.
Do I think we made smart decisions about tariffs? No. I think it could have been a lot more targeted. The tariff rates are random – why is it always 100 or 150 when the analysis shows it should be 38.5? There are very specific ways of determining tariff levels that you can see in the European Union where they have much more of a rules-based mechanism.
Am I worried that we’re over-protecting industries because politically it is very hard to take these things away? Yes. A strategic determination could also help us decide which sectors are protected or not. This dynamic of having lots of investments in lots of industries and no one wanting to be responsible for them going bust means that there’s likely going to be more tariffs even in a future Democratic administration.
It also would have been easier to make this argument if Biden had taken some of the tariffs away that were really unrelated to reshoring – we’re never going to make baby clothes and Christmas lights in the US, so why do we have tariffs on them? That sort of differentiation would have enabled the administration to make the case that we used tariffs instrumentally but we basically kept all of the Trump tariffs and then just added some.
It’s very hard to make the argument that the tariffs are strategic, you basically have to blend out all of the tariffs that we didn’t take the opportunity to lower or take away.
So, yes, it is incoherent in a way, but I think it all boils back to this central point that we didn’t start with a strategic document like the Draghi report and then adjusted everything around it. That’s just not how it happened. It’s also a symptom of the political situation where you needed to use the US-China competition to motivate a lot of the domestic policymaking. Then you have US-China competition built into this policy process, whether it’s helpful or not for actual implementation and reaching your goals.
Q: Do you think it was a mistake to claim there was such a thing as “Bidenomics”?
Speaking personally, if I go to Thanksgiving with family in Wisconsin, they can’t tell me what Bidenomics stands for and why this is helpful for them.
As a communication tool it certainly failed. It is a little bit disconnected in a way, this idea that we’re now dealing with regime change and paradigms rather than actually getting the work done and communicating with people what it’s doing for them. I don’t think most people want to talk about paradigm change. If your eggs are more expensive, people saying “Well we have Bidenomics” doesn’t relate to people’s concerns. It’s a very D.C. thing—people wanting to create an alternative to neoliberalism. Most people don’t know what neoliberalism is either.
There’s a fundamental decision about whether you want to brand policy approaches like that if that branding is not helpful to folks. I don’t think in general people think about the economy as a paradigm, they think about it as a series of prices they encounter in everyday life. But I’m not a communications specialist, I’m just watching this with my own personal views.
It’s a little bit “show don’t tell” – if you can show us where these policies have made things more affordable for people or made a difference in people’s lives that might be more real for folks than big statements about economics.
I also don’t think Biden was a great communicator. Maybe Obama could have pulled off the Bidenomics trick and laid out this grand narrative for it. Biden wasn’t laying out a grand narrative for anything. I think he would have been better off talking about concrete things. But I don’t know who came up with Bidenomics and haven’t done too much thinking about it.
Q: Given all we’ve discussed, how would you sum up lessons from the US experience over the past four years for an economy like the UK?
Search for institutional peculiarities and build on them.
Look at the industrial advantages you already have—don’t do a broad-brush “laundry list” of technology approaches that the US does. There’s a way to be much more strategic about what the impact should be.
Finally one thing that we didn’t talk about enough in the US but we should have talked about: if you have a fairly deindustrialised economy and your core economic argument centres on manufacturing, you’re not going to reach a lot of people. If you want jobs to get better for most people you have to have a services industrial strategy too.
In the US we didn’t really talk enough about how we’re going to improve the jobs we do actually have, rather than selling the prospect of jobs that weren’t going to be real in that term. There’ll be jobs next year, but given how long it takes to construct a plant we knew there wasn’t going to be a jobs miracle.
I think focusing on the service sector and having a service industrial policy would be helpful – whether that’s the financial sector, installation and maintenance – talking about good jobs in these other sectors is something that fell under the table here.
Q: If we were to take industrial policy tools and apply them to services, how might we do that?
We did a lot of pro-labour work, but the way we did it was all targeting manufacturing labour. There’s labour in other sectors too—so whether that’s minimum wages, other guarantees, training for high-skilled jobs, workforce development etc. There are a lot of parallels across sectors; it just depends on where you’re applying them.
Whether you’re talking about government procurement or low-cost loans – it doesn’t have to all be tied to production. It could be software in these sectors. Thinking a little more broadly in that sense would be helpful in a place like the US that has a diminished role of unions and a decline of the sectors that unions used to be strong in.
Q: What’s the major positive lesson from the past four years?
I think the stickiness is going to be helpful in the next administration, given that a lot of the investments went to Republican districts. That wasn’t a strategic decision since tax credits are neutral and this was not place-based policy. But in a House with a five-seat majority for the Republicans it’s hopefully going to be hard to pull a lot of that investment away. The strategy of switching to investment-based policy is not perfect but going to be better than alternatives. I’m hopeful that is how things are going to pan out.
ENDS