President Joe Biden‘s economic and social policies will reduce economic growth over time.
In a new National Bureau of Economic Research paper, professor Edward Lazear and his co-authors explain that the income benefits of economic growth spread to all segments of the national income distribution. Trickle-down economics works. In a growing economy, everyone benefits. Appropriate policy is to focus on economic growth, not income redistribution. Over time, countries that focus on redistribution become relatively poorer. This is most evident in the countries of the European Union, most particularly in the United Kingdom. In Great Britain, salaries for qualified registered nurses are down 20% in real terms since 2010. The typical worker in the United States makes significantly more than the typical worker in Great Britain or any other large population EU country.
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Biden is similarly wrong on trade unionism. Trade unions with economic power reduce aggregate employment and raise prices for the products or services they produce. And Biden is wrong on protectionism: tariffs against goods and services produced overseas. Only a handful benefit from trade barriers, while everyone else is harmed through higher prices or inferior goods, or both. The benefits of free trade are spread thinly but widely. This is economics 101. This is the law of comparative advantage. A prosperous country will focus on what it does best, not on everything.
Another problem?
Biden is wrong on tax policy. He wants to raise taxes on business and investment. Business invests and innovates. Today, almost all U.S. research and development spending is by the private sector, most particularly by the largest U.S. technology companies. The U.S. is the world leader in research and development spending. As a percentage of GDP, U.S. R&D spending is almost 40% higher than such spending in China. Among the top seven companies for R&D outlays, five are American, led by Amazon and Alphabet/Google, which Biden demonizes for not paying their fair share of taxes. This matters because investment drives productivity. Productivity is the key to long-term economic prosperity. When business has less money to invest, it will invest less, and productivity will suffer. Consequently, the country will be poorer.
Finally, Biden is wrong in his embrace of modern monetary theory. Modern monetary theory leads to higher deficits. Higher deficits crowd out investment by the private sector. Higher deficits perpetuate themselves through higher interest rates on servicing the federal debt. Biden needs to focus on growth. An economy that grows benefits everyone.
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
