Don’t Call Biden’s Plan ‘Stimulus’ — It’s Just Another Keynesian Fantasy

I&I Editorial

Joe Biden’s promised stimulus is meant to boost an economy devastated by the Democrats’ national shutdown by handing out more checks and imposing a $15 national minimum wage. Sorry, it won’t work.

“We must act now, and we must act decisively,” Biden said.

Sounds good, but do we really? What he and Congress have proposed is an incoherent mess that will do the precise opposite of what he says it will. Even worse, it’s premised on the long-discredited idea that the government can stimulate the economy by spending more.

From false premises come bad policies that will hurt many low-income people and possibly end the Trump recovery now under way. And, make no mistake, Biden’s $1.9 trillion stimulus plan unveiled late last week contained a panoply of bad policies.

In a recent piece, the Foundation for Economic Education listed the bill’s main provisions:

• An additional $1,400 in “stimulus” checks sent to most Americans, raising the recently passed $600 payouts to $2,000.
• Renewal and increase of the expanded unemployment benefits that extend payouts to many new classes of workers through September 2021. Biden’s proposal would add $400 a week in federal payouts on top of existing state-level benefits.
• Expansion of the child tax credit and the Earned Income Tax Credit.
• An increase in food stamp benefits.
• A nationwide $15 minimum wage.
• Extension of the federal government’s eviction moratorium.
• $350 billion for local, state, and tribal governments.
• $160 billion for vaccine distribution and other COVID-19 health measures.
• Paid leave for millions of workers, much of which would be funded by taxpayers.

“It is $1.9 trillion, and it’s basically the Bernie Sanders wish list of spending on massive blue state bailouts,” including “$100 billion for schools, even though schools have been shut down for the last year,” said former Trump economic adviser Steve Moore.

And let’s be clear: The economy didn’t just suddenly go into recession for no reason; it did so because federal and state governments forced businesses to lock down in order to fight the COVID-19 pandemic, unnecessarily throwing millions out of work.

Most of Biden’s proposed stimulus agenda would kill economic growth, reduce job opportunities and shrink business investment — the engine of future growth and innovation.

For example, take the $15 an hour minimum wage. It’s the worst idea of all for making those at lower incomes better off. In fact, studies show it uniquely punishes minority and low-skill workers by pricing them out of the hourly labor market before they even get a chance to work, improve their skills and build experience.

That’s not stimulus.

Nor are one-time checks of $1,400, sent out indiscriminately. This is the kind of unfocused Keynesian stimulus that Democrats most like: Politicians harvest the votes of grateful check recipients, but you get handed the bill.

In a study released in August, “How Did U.S. Consumers Use Their Stimulus Payments,” the results were unequivocal:

“Most respondents report that they primarily saved or paid down debts with their transfers, with
only about 15% reporting that they mostly spent it,” the study said. On average, recipients saved about 40% of their checks.

History is replete with examples why this kind of Keynesian pump-priming fails, according to Hoover Institution Senior Fellows John F. Cogan and John B. Taylor.

“Since the mid-1970s, one-time cash payments to individuals to stimulate economic growth have been tried on at least five separate occasions,” they wrote in the Wall Street Journal. “Presidents Gerald Ford and Jimmy Carter promised that their stimulus checks would restore economic growth by inducing higher consumption. Yet in both instances the payments failed to deliver the promised results. Their impact on economic output was at best negligible and only temporary.”

More recently, one-time payments under President George W. Bush in 2008 and President Barack Obama in 2009 had little effect: “Their impact on economic output was at best negligible and only temporary.”

Meanwhile, the $2.8 trillion in new debt to pay for this largess will only add gasoline to an already roaring debt-and-spending fire.

The danger is, with nearly $30 trillion in debt and an estimated $4.8 trillion more expected over the next decade, “even a 1% increase in interest rates … would increase debt by more than $3 trillion over the next decade and almost 70% of GDP by 2050,” according to the non-partisan Committee for a Responsible Budget.

That will drain money from the highly productive private sector into the non-productive public sector, damaging America’s economic prospects for decades to come. And you’ll face much higher taxes to pay for it all. Better get ready.

As we noted recently, the good news is that the economy had already come roaring back under Trump, with record 33% third-quarter growth and 4.3% expected in the fourth quarter.

To keep it going, all Biden and the Democratic Congress need to do is get out of the way. That’s it. Just competently run the COVID-19 vaccine program, quickly reopen the nation’s stores, restaurants and shops, and send kids back to school. The economy would boom.

But they won’t do that. They believe in the long-since-debunked leftist fantasy that government spending drives economic growth. Sadly, their decisions will continue to be driven by class-warfare politics and neo-socialist policies, not real-world economics.

— Written by the I&I Editorial Board