In their popular 2012 treatise, The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics, political scientists Bruce Bueno de Mesquita and Alastair Smith offer a cogent explanation of what it takes to be a successful politician. Coincidentally or by design, one can see echoes of their theory in the renewed stimulus effort from President-elect Joe Biden.
In brief, the “selected” (their term, because the book applies to all government forms) who wish to keep their jobs must pay special attention first to the “essentials.” These are people who are critical to their selection. They must provide important benefits next to the “influentials” (other people who matter a lot in the process) and never forget the less-critical “interchangeables.” In America’s case, these are citizens who vote but who, individually, are not critical because there are so many of them.
Parts of Biden’s proposed, mammoth $1.9 trillion spending plan seem to recognize this three-part advice. But because the economy is already overloaded with cash from past relief efforts and seems primed to jump when the virus lets up, the full Biden plan may be far more than the economic situation calls for. More on this in a bit.
First, let’s look at some essentials, influentials, and interchangeables.
Any politician who wins national office in the United States knows the swing-voting middle class is essential. Biden certainly seems to. His plan calls for them to share in a round of $1,400 checks that, combined with the most recently initiated $600 checks, could bring $2,000 to households earning between $50,000 and more than $200,000 annually. I note that in 2019, U.S. median household income was $68,703. The politically essential middle class should feel good.
What about the influentials? In Biden’s “Build Back Better” plan, he makes it clear that organized labor is favored. Indeed, unions appear to be an important part of his overall support, perhaps not essential but certainly influential. So what’s in the Biden plan for them?
There is a proposed $15 federal minimum wage. This permanent law change has no direct impact on the federal budget but will place low-union, high-growth states (like many in the industrializing southeast) at a competitive disadvantage. That thereby gives a relative advantage to highly unionized, older industrial states where wages and living costs are higher.
Unfortunately for the employment prospects of the lowest wage earners, those now severely affected in the hotel, food service, and travel sectors, a higher minimum wage will challenge them to somehow become more productive in order to keep their jobs. (In 2019, 1.6 million workers, or 1.9% of all hourly paid workers, were paid the current federal minimum wage or less.)
For influential state and local government leaders and their public employees, union and otherwise, there is a one-time $350 billion shot of money that can assist with education, healthcare, and also COVID-19 relief. And, because money is fungible, it may bolster anything else local politicians seek to do.
As for the interchangeables (who individually matter less, but taken together matter a lot), there are temporary increased unemployment benefits, expanded food stamp and child care benefits, and a hold on evictions for nonpayment of rent. And thanks to increased earned income tax credits, the truly lower-income households will receive a larger federal government check.
In Dictator’s Handbook terms, Biden’s plan suggests that middle-class voters form the bedrock essential group. Unions are influential and get a permanent shot in the arm. Influential state and local politicians and workers also receive a large benefits package. Other, less critical interest groups receive sizable transfers — enough, perhaps, to inspire them to rise up and call his name blessed.
But is it all necessary?
Biden’s proposed $1.9 trillion spending increase comes on top of an additional $900 billion approved in December. No doubt about it: $2.7 trillion is a mammoth amount of money. But, other than taking the critically important step of beefing up pandemic-related actions and assisting genuinely hard-hit workers, is it really necessary? Most likely not, and certainly not for the middle-class and union benefit pieces of the package.
Since the run-up in federal payments to households, businesses, and individuals, vast amounts of money have been tucked away in savings and other bank accounts instead of spent, and a large amount of credit card and other consumer debt has been paid off.
According to Federal Reserve data, in January 2020, total U.S. demand deposit balances stood at $1.6 trillion. In January 2021, the level is $3.2 trillion, up $1.6 trillion. In January 2020, the total amount in savings was $9.8 trillion. In January 2021, the level stood at $11.1 trillion, an increase of $1.3 trillion.
Why so much savings? Maybe fear of later COVID-19 troubles, perhaps reduced spending opportunities, and maybe uncertainty about future tax increases to pay off the rising debt.
And credit card debt? In January 2020, credit card and other consumer revolving-credit balances stood at $840 billion. In January 2021, it was down to $744 billion. Sure, there are lots of people hurting, and we can find them and offer assistance, but the bulk of consumers seem to be stoked and ready to go.
Do current and future taxpayers really need to be sent another $1 trillion or so when much of it will likely be tucked in an already-stuffed mattress? Do we really need to raise the $7.25 federal minimum wage to $15 when 30 states have already adjusted their wages upward (in most cases reflecting local market conditions), others have significantly lower living costs, and the rest could do the same if the voters in their states so wished?
Maybe it really is politically necessary to take care of the essentials and to pay off the influentials. Or maybe we could concentrate on dealing directly with COVID-19 and providing immediate aid to that part of our population who are truly in a bind.
Bruce Yandle is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business & Behavioral Science. He developed the “Bootleggers and Baptists” political model.
