The Biden economic plan is simple: go all-in on deficit spending. The president and his advisers think they can green paper over the structural problems in the U.S. economy. They’re wrong.
President Biden has already spent $1.9 trillion on a COVID-19 relief bill that provides hardly any funding for combating the virus. Now he wants to spend $2.3 trillion (only the first round, mind you) on an infrastructure bill that has a rather elastic understanding of what constitutes infrastructure. This sort of thing drives economists crazy. A global pandemic is a pretty good reason for the federal government to kick in some vaccine funding. Infrastructure decay is a pretty good reason for the federal government to reinvest in bridges, roads, and harbors. So of course both these bills are mostly about unrelated things. If you’re looking for truth in advertising, you won’t find it in politics.
Biden’s programs will do a great job of paying off useful interest groups. Never too early to start thinking about the midterms! But as an economic plan, it’s a flop. The administration is trapped in a Keynesian fever dream. Contrary to the musings of Biden and his defenders, spending alone doesn’t cause economic prosperity. Economic prosperity causes spending. No matter how many green pieces of paper you’ve got in your wallet, they won’t help you unless there are goods available to buy. The essential prerequisite of consumption is production.
By reversing this truism, the president is setting up the country for a rather rude awakening. It won’t come immediately, of course. The tragic thing is that a spending binge can make things look like they’re getting better. Naturally, the dumping trillions of dollars on the economy can create the appearance of prosperity! But appearances are often deceiving.
Every dollar the administration spends is a dollar diverted from more productive projects. Economic growth depends on allocating scarce investment capital to its highest-valued uses. That’s how we get increased productive capacity. The less profitable investment there is, the slower the economic tide rises. Under Biden, the federal government is absorbing capital like a sponge. Resources are getting sucked away from the private sector, where budgeting and return-on-investment matter. Instead, they’re being transferred to the public sector, where budgeting and returns on investment don’t matter so much. Admittedly, profit-seeking is an imperfect responsibility mechanism. But it’s a heck of a lot better than politics!
If Biden’s team really wanted to “Build Back Better,” they would’ve spent more on vaccines and vaccine distribution and less on everything else. They would have also proposed more spending for real infrastructure and less, preferably zero, on climate activism and woke boondoggles. But mostly they’re interested in building and keeping a winning political coalition, and they aren’t afraid to bankrupt the nation to do it. To the extent they care about economics at all, they stubbornly persist with demand-side fundamentalism despite mountains of evidence from the late 20th century that economies stagnate when policymakers neglect the supply side.
There’s no reason Democrats should oppose supply-side reforms. If the money’s going to be spent, better it go towards something that has a plausible link to economic productivity. But it won’t. The Left is more interested in caricatures than solutions. So we’ll get more spending we can’t afford on more contraptions we don’t need.
I’m not a Republican (in no small part because I actually care about unsustainable deficits and debt). But if I were, I would make sure swing voters know and understand that the president is trying to pull a fast one.
Alexander William Salter is an associate professor of economics in the Rawls College of Business at Texas Tech University, the comparative economics research fellow at TTU’s Free Market Institute, and a Young Voices senior contributor. Follow him on Twitter @alexwsalter.
