If Biden goes big now, he may have to go small later

Although President Joe Biden's $1.9 trillion aid and stimulus package now appears likely to pass, the current state of the economy suggests that a much smaller program would suffice. Vaccines are on the way, many state budgets are in OK shape, household balance sheets are robust including many for the poor, real estate is booming and retail sales are above where they were a year ago.

Make no mistake: A faster and better public health response is imperative, both to save lives and to drive a recovery. It is not necessary, however, to "juice the economy" at the scale being proposed. Both Lawrence H. Summers and Olivier Blanchard, two of the best Keynesian macroeconomists in the world, have said so. But in the current debate, they are not being refuted so much as dismissed because they are not left-wing enough.

There are, to be sure, arguments for such a large package. But they do not represent the best economic advice.

The first principle of economics is opportunity cost, namely that any policy should be compared with possible better alternatives. Under this analysis, the current plan falls short. It has far too much for consumption, and not nearly enough investment. Major plan components include a $1,400 cash transfer, a lot more unemployment insurance, aid to schools, paid leave provisions, aid to state and local governments, and temporary transfers to families.

A lot of this cash will be saved, diminishing its effect as stimulus. There is also the risk that distributing goodies will become a periodic vote-buying mechanism, a practice that will be abused but would never be popular if the public had to pay for it upfront. At the very least, some elements of this package should be linked to future economic conditions.

Nonetheless, after the failures of the response to the Great Recession more than a decade ago, the notion of spending almost $2 trillion, much of it on the poor, represents a kind of catnip for progressives. It is so geared to their natural inclinations that they cannot help but support the proposal.

Leave aside the political question of how aggressively to pursue an agenda of a larger, more activist government (and keep in mind that I am more libertarian than many of the participants in this debate). Take a Big Government as a given. History shows that consumption still ought not be the priority.

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First, wise public sector investments are better for the poor than one-time wealth transfers. The U.S. is still reaping the benefits of the great public health and public works achievements of the 20th century. Second, the most enduring and beneficial government-transfer programs, such as Social Security, have been built on sustainable majorities.

Progressive societies are fundamentally based on a valorization of investment — in physical structures, in software, in sustainable policies. This argues against a "Let's grab this policy win while we can" attitude, no matter how popular that stance may currently be on social media. It's foolish to think that no other policy combination is politically feasible, and if the president's advisers and supporters really believe that, they are in for a long and unsatisfying four years.

It's not as if there aren't obvious candidates for alternative investment: green energy, broadband and public health infrastructure for the next pandemic, to name a few. Yes, I am familiar with the argument that spending the extra trillion or so now will make it possible to spend more trillions later, including on such policies.

But whatever kind of complicated political story you might tell, the basic laws of economics have not been repealed. Increasing current expenditures does, in fact, involve foregone future opportunities.

Another possible direction would be to rework Sen. Mitt Romney's proposed child support plan and turn it into an enduring policy. It is an expensive idea, but at least it would represent a greater investment in America's future than mere one-off cash transfers.

The defenders of the president's plan argue that inflation and an overheated economy are not major risks. Maybe so, maybe not — but that is not the crucial issue. Instead, ask yourself this question: Does this program, or this rhetoric, recognize the paramount importance of investment, whether public or private? If not, you needn't look much further.

(COMMENT, BELOW)

Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "The Complacent Class: The Self-Defeating Quest for the American Dream."

Previously:
• 01/12/21 Covid improved how the world does science
• 12/07/20 How to make sure your complaint is heard
• 10/27/20 It's getting better and worse at the same time
• 09/14/20 How to be happy during a pandemic
• 09/04/20 Trump is winning the vaccine debate with public health experts
• 07/01/20 Why Americans are having an emotional reaction to masks
• 05/20/20 Covid-19 will expose the ghosts in the U.S. economy
• 05/07/20 Are aliens visiting us? US military seems to think so
• 05/06/20 America's reopening will depend on one thing --- trust
• 04/22/20 How the covid-19 recession is like World War II
• 04/15/20 America is returning to 1781
• 04/08/20 Covid-19 is is upending everything for status seekers
• 03/17/20 The coronavirus will usher in a new era of entertainment
• 01/28/20 Social Security isn't doomed for younger generations
• 01/08/20 Why 2020 is harder to predict than 2019 was
• 12/02/19 Equality is a mediocre goal so aim for progress
• 11/25/19 Inflation inequality creates winners and losers
• 11/09/19 OK kids. This boomer has had enough
• 10/20/19 Would you bet against Trump in 2020?
• 09/25/19 The right industrial policy for America
• 09/24/19 Harvard's legacies are nothing to be proud of
• 09/02/19 Yes, the Fed could still stop a recession
• 08/20/19 A trade deal with China wouldn't change much
• 07/29/19 How your personality traits affect your paycheck
• 07/16/19 Internet 101 should be a required class
• 05/28/19 How Dems actually are the ANTI-immigrant party
• 04/23/19 Want to help fight climate change? Have more children
• 03/22/19 America isn't as divided as it looks
• 03/12/19 The Twitter takeover of politics: You ain't seen nothing yet
• 03/04/19 How to tell which Dem dreams won't come true
• 02/07/19: Now the Dems want to end America's nuclear first strike option. How clueless is that?
• 01/29/19: The shutdown hit a lot of government workers --- hard. But, ultimately, who is responsible for their unfortunate circumstances?
• 12/12/18: The West is abusing its legal power to punish people or institutions that do things it doesn't like. It better stop
• 10/23/18: The US needs Saudi Arabia, and vice versa
• 10/19/18: The right finds the perfect weapon against the left
• 07/24/18: The drive for the perfect child gets a little scary
• 06/04/18: Side effects of the decline of men in labor market
• 05/14/18: Proving Marx's theories right
• 05/08/18: Holding up a mirror to intellectuals of the left
• 05/01/18: Virtual reality will make lives better ... mostly
• 04/16/18: It's hard to burst your political filter bubbleIt's hard to burst your political filter bubble
• 04/09/18: The missing key to grasping why American politics seems to have become more polarized, with no apparent end in sight
• 04/05/18: Two American power centers are about to clash
• 03/22/18: We fear what we can't control about Uber and Facebook
• 03/08/18: How to stop the licen$ing insanity
• 01/10/18: Polarized Congress needs to bring back earmarks
• 12/27/17: The year when the Internet collides with reality
• 11/07/17: Would you blame the phone for Russian interference?
• 10/23/17: North Korea is playing a longer game than the US
• 10/12/17: Why conservatives should celebrate Thaler's Nobel
• 08/02/17: Too many of today's innovations are focused on solving problems rather than creating something new