American Democrats are haunted by a nightmare in which Joe Biden is the central figure. Faced with a collapse of the international financial system when he took office, President Obama handed his vice president, Joe Biden a poisoned chalice, an $831 billion stimulus package that Democrats believe proved too little, too late, to produce a rapid recovery. Result: the Great Recession.
Politicians who preside over policy failures – education reforms that don’t reform, housing programs that don’t provide sufficient housing, wars on poverty and on drugs that fail to eliminate either – always conclude that if only they had spent more, done more of what didn’t work, they would have succeeded.
Going Big On The Demand Side
No surprise, then, that Biden has decided to “go big”, as treasury secretary Janet Yellen puts it. Although the ink is barely dry on the so-called Covid-relief checks mailed to hundreds of millions of Americans, the needy and the unneedy alike, a new $3 trillion to $4 trillion package of spending and tax credits over the next decade is being planned. Never mind that jobless claims have fallen below the pre-pandemic high, Yellen sees a return to full employment next year, consumer confidence this month hit its highest level in a year, and that the American economy is already growing at an annual rate of more than 6%, bursting at the seams. Vehicle production is restrained by a shortage of computer chips (semiconductors), supply chains are broken, plastic sheeting for hospital gowns is difficult to come by, tents for vacationers with a taste for the outdoors, and for housing the flood of immigrants on the southern border are in short supply because of a shortage of fastening straps. There’s more, but you get the idea.
Worry not, says Jay Powell, Fed chairman, “A bottleneck is by definition temporary,” a statement coincidental with the announcement by Pat Gelsinger, Intel’s new CEO, that it will take two years to complete the two chip factories Intel is building in Arizona at a cost of $20 billion – if schedules and budgets hold. The shortage won’t seem “temporary” to chip-hungry manufacturers of every electronic device from iPhones to PCs, or to laid-off auto workers as production lines shut down.
For Biden, there can never be enough stimulus, never enough “stimmie cheques”, as they are now called. With demand exceeding supply in many sectors, and prices quite naturally rising, the splurge the Biden team labels “infrastructure” stimulates that demand and moves the economy’s temperature from hot to sizzling. The Fed has moved its growth forecast for this year to 6.5%, while Bank America forecasts 7%.
The Greening and Meaning of Infrastructure
The goal of the Democratic plan can be summarized as stimulating growth in a green, sustainable way. The overall unemployment rate is to be driven down to pre-pandemic levels next year, but that alone would not be taken as a sign the economy has recovered sufficiently to tighten monetary or fiscal policy. It is also necessary that the unemployment rate of specific populations fall, creating not only a recovery but a “gender-equitable recovery”, as the left-leaning Center for American Progress puts it.
Infrastructure, as the word is generally understood, includes building and repairing roads, bridges and waterways, adding the odd airport. In Bidens’s case, all wrapped in $2 trillion of green packaging.
But every initiative faces problems:
Rebuilding roads (one in every five miles, total 186,000 miles in poor condition) and bridges (231,000), for which $600 billion is ticketed. That makes driving easier and more pleasant, increasing emissions. A bad idea according to Biden’s green “progressives”.
Thousands of houses will be built, to high energy- efficiency standards. But that will strain resources needed by the private sector, so short of new homes for the 65% of millennials who supported Biden and now are of an age to be house-hunters that there are now more estate agents than there are homes for sale.
Electricity grids will be shored up with a view towards making renewable sources more accessible to consumers. But environmentalists oppose the construction of new transmission lines needed to bring the power to population centres.
Some 500,000 electric vehicle charging stations will be built, despite green activists’ preference for what Kevin DeGood, also at the Center for American Progress, describes as “a transportation system that doesn’t require people to drive to meet their daily need.” How such a system that favours public transit over vehicles accommodates the President’s favourite “union guy”, toting ladders and a heavy bag of tools, is unclear.
There’s more. Biden has a new definition of infrastructure — “expanding our concept of infrastructure to include human capital,” is how Thea Lee, president of the liberal Economic Policy Institute”, puts it. That includes billions for a long-standing liberal wish-list, including building child-care centres, modernizing schools in “the most economically underserved communities”, providing free kindergartens and community colleges, and paid leave. These issues might be presented as a separate bill from the one covering the more traditional understanding of “infrastructure”, which has considerable Republican and business support.
Tax and Spend
All or most of this is to be paid for with new taxes, although not the carbon tax that the vast majority of economists favors as part of any green package. Corporate taxes will go up, especially on overseas earnings, as will taxes on families earning more than $400,000 per year. The package is expected to produce an increased tax take in the neighborhood of $2.5 trillion, with borrowing covering any revenue shortfall. The Left is pressing for a wealth tax, a tax on financial transactions, and an increase in the capital gains tax, payable on unrealized as well as realized gains. Yellen and Biden, fearing the effects of these latter taxes on economic growth, and doubtful of their revenue potential, are unenthusiastic about those methods of plucking America’s geese, who might just hiss loudly when the 2022 elections roll around. Republicans, no slaves to economic consistency, have been trumpeting their worries that the economy is growing so fast that it will unleash inflation, but are now opposing the increased levies on the grounds that they will slow growth.
Biden the Unstoppable
Biden is on a roll, “throwing up epic spending plans at a bold, dazzling pace … transformational” according to David Brooks of the New York Times. Whether the transformation will prove effective in curing what ails the country is uncertain. Brooks is not alone in reserving judgement until we can see whether a transformation to huge spending and borrowing programs, the end of the era of the end of the era big government, and a major shift from relying on incentives for individuals to work and invest, to greater dependence on government direction of human and capital resources, can cure what its critics believe ails American capitalism.
Biden’s Left might be sullen but it is not mutinous, at least not yet and not openly, and there is little chance of effective opposition from shell-shocked Republicans on his right. Should they try to resist, Biden has made clear they cannot count on the filibuster as a weapon: it is en route to the dustbin of history, a fate then-senator Biden deplored, arguing as he led a filibuster that the end of the filibuster would “upset the Constitutional design [and] eviscerate the senate.”
We have not been advised whether Biden has simply forgotten using a filibuster to prevent its demise, or exercised his privilege of changing his mind. The media questioners selected by Bidens’s handlers in advance of his press conference were unwilling to risk their membership among the chosen by challenging him on that point, or when he announced the press would be denied access to border facilities until he completes construction of his Potemkin village there. That might have been the most worrisome of the revelations at the long-delayed press conference because, as Abraham Lincoln put it in 1858, “He who moulds public sentiment, goes deeper than he who enacts statutes or pronounces decisions.”