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May 21st, 2022

Insight

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

Tyler Cowen

By Tyler Cowen Bloomberg View

Published Feb. 10, 2020

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
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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

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