The tens of trillions of dollars Joe Biden wants to spend the next few years should mean roaring economic growth, right? Dumping all that money into the economy should rev up the engine of capitalism and get it humming, growing businesses and jobs.
That’s how it’s supposed to work anyway. But Biden is referring to “investments” and not spending. This kind of doublespeak has become common among Democrats who are sensitive about the charge of “big spender” on the campaign trail. It also suggests that the “investments” will pay off at some future date in America by growing smarter kids, building superior roads and bridges, driving lots and lots of electric cars, and developing “sustainable” agriculture.
Of course, there’s no proof pouring money into the coffers of teachers’ unions will make kids smarter. Or spending $3 trillion on building a decent wi-fi network and fixing bad roads and bridges will grow the economy. Or that subsidizing the purchase of electric cars will make the air cleaner and the planet cooler.
Biden’s spending plans are geared toward “equity.” Not stocks and bonds, but equality of outcomes. The trillions Biden wants to spend are not meant to grow the economy. They are to “right historic wrongs” or “level the playing field” or some other catchphrase used by social/economic/environmental justice warriors.
It will not be productive spending at all, largely because the government will be spending most of it. Put that money into the hands of doers and builders and makers and economic growth would skyrocket.
Alas, when Biden’s spending schemes take hold, we’re going to wish for the good old days of Barack Obama when 2.0 percent growth was the norm.
And whatever happened to “build back better”?
But the budget plan the White House unveiled on Friday projects economic growth of 2 percent or less per year for most of the next decade, after factoring in inflation. That’s not much different than the sluggish pace the U.S. endured in the decade after the financial crisis and Great Recession, a disappointing economic performance that damaged Barack Obama’s presidency.
So where is the “Build Back Better” economic revolution that Biden and White House officials have talked up in recent weeks in selling their plans to spend roughly $4 trillion on the infrastructure and on family programs?
“They clearly don’t understand the implications of what they’re putting out,” said Richard Bernstein, founder of investment advisory firm Richard Bernstein Advisors. “The 2 percent trend is real [after inflation] growth. So, if they think there’s only going to be 2 percent trend real growth with a $4 trillion spend, then they must believe either the $4 trillion will be impotent or will result in a lot of inflation and therefore substantial nominal growth instead of real growth.”
Slow or no growth with budgets exceeding $6 trillion per year and rising to $8.2 trillion by 2030? That is truly remarkable. And if we throw in ruinous 5-7 percent inflation, the impoverishment of the middle class will be complete. It will be the Jimmy Carter economy on steroids with low growth, high inflation, and high interest rates.
The underlying idea was that providing universal preschool, adding two years of free community college, and extending paid family leave and child tax credits — among other things — would increase productivity and drive more people, especially women, back into the labor force.
But the $6 trillion budget proposal released today doesn’t show much of a growth burst from all the proposed spending, including the infrastructure investments in the American Jobs Plan.
Instead, the sub-2 percent annual growth prediction is little different from current models like the one from the Congressional Budget Office. The CBO forecasts that after the bounce-back from the Covid-19 crash fades, growth will return to about 1.6 percent per year.
Anemic, to be sure. And middle class families are the ones who will be left behind.