Matthew Lynn

After Afghanistan, the economy is the next Biden catastrophe

Prepare for the Biden bust

After Afghanistan, the economy is the next Biden catastrophe
Joe Biden speaking at the White House last week (photo: Getty)
Text settings
Comments

The debacle in Iraq. The fall of Saigon at the end of the Vietnam War. The failed 'Bay of Pigs' invasion of Cuba. You can debate where exactly the collapse of Afghanistan ranks in the list of American military and foreign policy disasters. But one point is surely certain. It is a major setback, and one that will undermine the credibility of the United States for years to come. Here is the real problem, however. It is not going to end there. The economy will be the next major catastrophe of Joe Biden’s increasingly chaotic presidency.

It may well have been a mistake for the US, and of course Britain, to imagine it could ever rebuild Afghanistan by force. Even so, the shambolic exit from the country, handing power back to the Taliban in a matter of days, could hardly have been handled more ineptly. The markets won’t care much about what happens to Kabul over the next few days: Afghanistan is insignificant in the global economy. Nevertheless, the chaotic withdrawal reveals a White House that is weak, ineffective, and incoherent. And, more importantly, President Biden’s economic policies are just as unrealistic.

Just take a look at some of the evidence. Spending has been pushed to unheard-of levels. Right after taking office, the President launched a $1.9 trillion (£1.4 trillion) stimulus package, sending free money to every American citizen, and pushing up a deficit that was already dangerously high under Donald Trump. He has followed that with another $1 trillion (£720 billion) — those trillions really start to add up after a while — for infrastructure projects. Some of these projects may be worthwhile, but many will run into the cost overruns and delays that typically accompany a spending blitz.

Meanwhile, the Biden administration is rushing into a drive for green energy which, while perfectly worthwhile in itself, is likely to cripple America’s industrial base with rising costs, while leading to massive over-supply of products such as batteries. In a half-hearted attempt to pay for it all, and to score some points with the left of his party, he is raising taxes on the wealthy — as well as on companies, to levels way above most of America’s main competitors. (It will be the same rate as France’s, but with fewer rebates). Internationally, Biden’s plan for a global minimum tax creates a straitjacket that will force rates to be increased across the world. Meanwhile, the most competitive American firms — the tech giants which have more or less single-handed sustained US growth over the last two decades — are facing a sustained regulatory assault based purely on size, and regardless of whether they actually restrict competition or not.

There is a common theme to all this. The Biden administration has embarked on a drive for a bigger and bigger state, with more government control over every aspect of the economy and society. In itself, that was already worrying. A bigger state is — who could have guessed — not usually a more effective one. But the Afghanistan fiasco has illustrated that the people running it are completely inept, with poor intelligence, little planning, and not much sign of leadership. Sure, there is a temporary boom, as the country bounces back from Covid, and stimulus cheques land in bank accounts. But there will be a Biden bust before long. It won’t be as dramatic as the fall of Kabul. But it will be every bit as damaging — and probably more so.

Written byMatthew Lynn

Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’

Comments
Topics in this articleInternationalEconomicsMoney