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Economics Update February 2021 - "Bidenomics": Light and shade of a Keynesian economic policy

Bad Homburg, 02/01/2021
by Axel D. Angermann, FERI
  • Boost from expansionary fiscal policy: US economy grows by more than 5.5% in 2021
  • Active industrial policy produces winners and losers
  • Redistribution in favour of lower income groups

The new US president's economic policy will differ from that of his predecessor in key respects. The core of "Bidenomics" will essentially be a debt-financed stimulation of aggregate demand, combined with an active industrial and distribution policy. The first priority is to combat the Corona pandemic: the vaccination campaign is to be accelerated and better coordinated so that the number of infections falls quickly and sustainably. After what is expected to be a weak first quarter, the US economy could then take off again from the spring onwards. Biden wants to spend an additional 1.9 trillion US dollars to stimulate the economy. Tax checks of $2,000 per household and increased unemployment benefits of $400 per week are classic elements of Keynesian fiscal policy: together with the $940 billion in spending already approved for the end of 2020, this fiscal stimulus will primarily boost private consumption. Since the demand generated in this way will meet scarce production capacities in many places, investment will also pick up significantly. Overall, the US economy is thus expected to grow by more than 5.5 percent in the current year - about one percentage point more than would have been expected without the economic stimulus package. Because inflation will remain moderate for the time being and monetary policy will remain expansionary, the stock markets have recently adjusted their earnings expectations upwards and reacted accordingly euphorically.

Structural change through active industrial policy

However, "Bidenomics" will not be limited to a huge spending program to stimulate the economy. Massive investments in infrastructure, research and development, renewable energies and alternative drive systems for private transport are intended to contribute to climate protection, but in principle they are also likely to create jobs. One may assume that the Biden administration will tend to give preference to the latter over the former in the event of a conflict of objectives. The structural change triggered or intensified in this way will - like any structural change - also produce losers.

Paradigm shift in tax policy

Finally, "Bidenomics" contains a clear distribution policy component: lower and middle income groups in particular are to benefit from the upswing. This differs not only from Trump's corporate tax reform, but also from the policies of Democratic predecessors in office such as Obama. Raising the minimum wage to $15 an hour is intended to serve this goal, as are strengthening union rights and raising taxes. While a reversal of Trump's tax reform is unlikely to be enforceable, nor will it really achieve its goals, members of the upper income brackets in particular will have to reckon with selective tax increases. The motive here is not to reduce the government deficit, but to reduce the significant social imbalances that have characterized development in recent decades and contributed significantly to the country's internal division. For corporate profits, this part of "Bidenomics" could be burdensome, a fact that does not seem to have played much of a role in the markets so far.

If Biden is able to implement the main parts of his program, the "Bidenomics" program leads us to expect a dynamically growing economy, a continued very high budget deficit, and a noticeably weaker US dollar.


About Axel D. Angermann

As Chief Economist of the FERI Group, Axel D. Angermann analyses the economic and structural developments of all markets that are important for asset allocation. This data forms the basis for the strategic orientation of FERI's asset investments.

Angermann has been responsible for the analyses and forecasts prepared by FERI for the overall economy and individual sectors since 2008. He joined the company in 2002 as an industry analyst. His professional career began at the Max Planck Institute for Economics and the German Chemical Industry Association. Angermann studied economics in Berlin and Bayreuth.


About FERI

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:  

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently have assets of EUR 40.8 billion under management. A total of EUR 9 billion of these assets are alternative investments. The FERI Group is headquartered in Bad Homburg and has offices in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.



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Katja Liese

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Corporate Strategy, Marketing and Communications

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D-61348 Bad Homburg

Axel D. Angermann
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Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
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Katja Liese
Member of the Management Board
Corporate Strategy, Marketing and Communications

T +49 (0) 6172 916-3192
F +49 (0) 6172 916-1192
presse@feri.de

FERI AG
Rathausplatz 8-10
D-61348 Bad Homburg

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