ANALYSIS/OPINION:
Joe Biden ran on a platform to Build Back Better — strengthen the economy and apply the dividend to social justice and equity issues — but it seems he’s given up on making America more competitive and adopted the Italian playbook — borrowing to buy off a restive left with social programs.
The Biden budget would boost government spending by about one-third but by its own admission and slow economic growth. The president wants to spend generously on infrastructure, industrial policies and education, but his social agenda would worsen the inefficiencies imposed by unions and burdensome regulation.
Despite devoting more than $1.3 trillion to investments in roads, rails, the Internet and training, the administration’s budget projects less than 1.9 percent growth after the jolt from COVID-19 stimulus spending wears off. It’s not hard to see why — so much money would be badly spent.
The federal government annually spends about $13 billion on public transit — mostly through the states and municipalities — but through COVID-19 relief, Presidents Trump and Biden added another $60 billion.
Why send more when the system is so moribund and inefficient?
Third World conditions on New York subways are legendary, and construction costs for tunneling are about six times those worldwide. The price tag for adding a new station is three times that of London. Without reforms to the Davis-Bacon Act, more infrastructure spending begets terrible waste.
Mr. Biden recognizes we need to spend more on high-tech — chip design and foundries, electric vehicles and green technologies — but all this is to be funded with draconian taxes on capital formation and even tougher unionization rules.
The Protecting the Right Organize Act would nullify state right to work laws and impose card check — unions could get recognized without elections by twisting workers arms in restrooms to sign a card. It would prohibit employers from making their case to employees during unionization campaigns, but organizers could educate workers as it pleased.
With all their resources, why did Toyota run circles around GM and Ford on hybrid vehicles and is Tesla now teaching them what is possible with electric vehicles? Simply, you can make exciting, innovative cars in North America or you can make cars with the UAW, but it’s tough to do both.
Mr. Biden’s infrastructure plan is laced with special social justice provisions. Many stand a decent chance of getting struck down in court but that will take years while those add costly overhead and inefficiencies on business.
Mr. Trump’s low-tax, low-regulation recovery accomplished about one-third more economic growth than the Biden budget’s projects and improved conditions for minorities and women.
The Biden budget shortchanges defense — significantly downscaling its share of slow growing GDP — at a time when China and Russia are muscling up. And its bulging deficits put the dollar’s status as the global reserve currency and America’s standing as global economic leader in great peril.
The budget projects that the national debt held by the public will grow to 117 percent of GDP in 2028 by assuming that inflation levels off to reasonably acceptable 2.3 percent annually, the 10-year treasury rate never rises above 2.8 percent — the 25-year pre-COVID-19 average was 3.8 percent — and unemployment falls to 3.8 percent.
The days of China sending us cheap labor through exports are over. Without that, tighter U.S. labor markets will cause a lot more inflation. Higher interest rates are inevitable from the Fed tightening or investors simply demanding higher rates to compensate for inflation. Either way, interest payments on the national debt will be much greater than the Biden budget projects.
Many of the taxes Mr. Biden proposes are non-starters even among Democratic constituents. For example, higher capital gains taxes, coupled with ending step-up valuations at death and estate taxes would imperil many moderate-sized businesses such as car dealerships, construction companies and minority consulting companies.
The Biden budget does not address the Social Security trust fund running out of cash by 2031, and the negative impacts on growth of new taxes to fix it.
The budget assumes we don’t have another financial crisis, pandemic or whatever — that’s akin to assuming Louisiana will never have another devastating hurricane.
The Biden budget projects long-term annual deficits of $1.3 trillion, but the above-mentioned factors imply something closer to $2 trillion. And a national debt held by the public between Italy’s pre-COVID 135 percent and post-crisis 160 percent.
The machinations of EU’s finances are complex, but Italy essentially gets along by borrowing from Germany. With a much larger population, our Pizza Dough Republic would have to look to China for a godfather.
• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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