“Mr. Biden’s plan would, among other things, distort labor incentives, decrease productivity, and kill jobs“– Paul Ebeling
Wharton School analysts concluded that Mr. Biden’s proposed wild spending binge would actually lead to a smaller economy in Y 2022.
Here is why.
Mr. Biden’s pitch for his $1.9-T COVID-19 aid/relief/stimulus and relief spending proposal is of no long term benefit to the economy, he will tell the voters just the opposite.
The legislation includes $1,400 relief checks, a further 6-month expansion of “temporary” super-generous unemployment benefits that often pay more than work, $350-B for bailouts for state and local governments, partisan provisions like a federal $15/hr minimum wage, and lots of pork.
Economists Bruce WD Barren warns that the package is an economically unjustified plan that incentivizes slackers.
Yet Mr. Biden hopes to persuade voters and members of Congress that his aid/relief/stimulus proposal is necessary for long-term economic recovery.
The Wharton scholars’ study maintains just the opposite.
Scholars at the University of Pennsylvania’s Wharton School of Business analyzed the plan and found that the massive spending costs $13,260 per federal taxpayer would cause just a slight uptick in economic growth in Y 2021.
The analysts warned that this minor boost would just be instant gratification, and that the skyrocketing government debt caused by the legislation would undermine any economic gains in the medium-to-long term.
The existence of the debt saps the rest of the economy. When the government is running budget deficits, the money that could have gone to productive investment is redirected.
What he wants to do is take money from some people and giving it to other people for consumption purposes. That has value for social safety nets and redistributive benefits, but longer-term, it takes away from the capital that the country needs to grow the economy going forward.
Mr. Biden’s costly plan would explode the national debt. This would lead to a crowding out effect over the coming yrs as more loan money is taken away from productive business/private sector investments and instead is consumed by government debt.
As a result, the analysts find that workers would see a small decline, not an increase in their hourly wages by Y 2022 and a slightly larger decline in their hourly wages by Y 2040. In Y 2022, the overall number of hrs worked would fall due to Mr. Biden’s plan.
The Wharton study concludes
Mr. Biden’s spending binge would actually lead to a smaller economy in Y 2022. How about that for a Democrat stimulus?
Also, consider the other elements of Mr. Biden’s plan that would sabotage the economic recovery, like the inclusion of a federal $15/hr minimum wage.
This partisan provision would eliminate millions of jobs, devastate struggling small businesses, and lead to higher consumer prices.
The Big Q: Why would anyone support a stimulus effort that offers only small short-term gain in exchange for long-term economic detriment?
The Big A: It is due to a flaw in policy thinking that focuses on the seen benefits while ignoring the unseen costs.
Mr. Barren notes that his fatal flaw of policymaking is revealed in economist Frédéric Bastiat essay, “What Is Seen and What Is Not Seen in Political Economy.”
“A law gives birth not only to an effect but to a series of effects,” Mr. Bastiat wrote. Only the first effect is foreseen by naïve policymakers who fall victim to this fallacy, while the many second-order consequences remain unseen.
“It almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse,” he wrote. “Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come—at the risk of a small present evil.”
It’s fair to say that in this case, Mr. Biden and his advisers thinking only politicians aimed at buying votes.
They know that the short-term benefits of the proposal like $1,400 checks in many peoples’ mailboxes will be seen and felt by millions of voters who will directly credit him for it.
Yet the vast and diffuse costs imposed on people by the plan over time will most likely never be directly traced back to the legislation. Instead it will be observed only by economists who analyze broad economic data and trends.
So, Mr. Biden’s proposed aid/relief/stimulus would if passed into law simultaneously be an economic net-negative and a political winner.
The loser in this political grandstanding will be the average American citizen.
Have a healthy weekend, Keep the Faith!