America Doesn’t Need Biden's New Deal to Revive the Economy
Many have praised President Biden’s flurry of trillion-dollar policy proposals, likening him to historical giants like FDR. Biden has claimed to have inherited an economy like a “house on fire” and insists that his myriad of American ‘fill in the blank’ plans are necessary to turn the tide. But the truth is, the economy is well on its way to recovery and was so before the president even proposed any of these plans, let alone passed one of them. If a robust economic recovery is what Biden is after, channeling FDR won’t get him there.
The problem with FDR’s Keynesian-style economics is that it yields only temporary results. There is no real growth or consistent wealth creation underpinning the short-term economic activity it generates.
For example, despite spending billions and creating a dizzying array of new government programs, the unemployment rate actually increased under FDR’s leadership. The unemployment rate at the start of the depression was 16.3 percent — after two FDR terms, it rose to 17.2 percent. Up until that point in American history, U.S. depressions typically lasted no more than four years. FDR’s misguided fiscal policy, however, bogged down the recovery and made the depression last for a decade.
This type of fiscal policy focuses on increasing demand by pumping cash to consumers, but at the same time it punishes supply by raising taxes. Sound familiar?
Now consider the nearly $6 trillion in government spending Biden has proposed. Each program goes well beyond its advertised purpose, pumping trillions into systems plagued by waste and down avenues that have led to failure before. And he aims to pay for it by raising taxes.
The $1.9 trillion American Rescue Plan, only 8.5 percent of which will actually be spent on direct Covid relief; the $2.25 trillion American Jobs Plan, $1 trillion of which one would have to do mental gymnastics to define as infrastructure; and the $1.8 trillion American Family Plan that further expands entitlement programs by, for example, establishing free preschool and two years of free community college — Biden’s programs might be good politics, but they aren’t good economics.
This runaway spending risks triggering inflation and slowing long-term economic growth. In fact, Penn Wharton’s budget model predicts the American Jobs Plan alone would ultimately decrease GDP by nearly $2 trillion in 2050.0.8 percent by 2050. And inflation is already here. According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers rose 0.8 percent in April, after increasing 0.6 percent in March. As the Great Depression demonstrated, reckless fiscal policy like this coupled with easy monetary policy is a recipe for ruin.
Even respected figures of Biden’s own party recognize how badly this could turn out. Former Obama economic advisor Steven Rattner warned, “[I]f it fails . . . I think it will set back the cause of progressivism for several more decades.”
Biden has claimed that this spending is necessary to deliver us from the pandemic-induced recession, and claims credit for the positive economic signs evident all around us. Of course, every president gets more credit than they deserve for the economic situation they find themselves presiding over, but Biden’s assertion that the recovery we’re experiencing now is the result of his policies is objectively untrue.
The economy grew by almost 6.5 percent in the first quarter of 2021, with real GDP nearing its pre-pandemic peak of 2019. At the height of the gangbuster economy prior to the pandemic shutdowns, the unemployment rate had fallen to a historic low of 3.5 percent, the metric’s lowest level since 1969. Unemployment today is trending in the right direction, down to 6.1 percent from its high of 14.8 percent in the thick of the pandemic.
Oddly, however, we find ourselves in the peculiar situation of an economy not operating at full employment while managing to have a shortage of labor. The most recent disappointing job numbers demonstrate this phenomenon. 266,000 jobs were added in April, while 8.1 million jobs remain open in the U.S.
This is possible because by extending the additional $300 federal unemployment benefits, the federal government has created a perverse incentive to not work—a clear example of government intervention doing more harm than good and prolonging the crisis it aims to alleviate. This is the first blow to our economic recovery, with many more to come if Biden’s other trillion-dollar plans come to fruition.
The economic turmoil of the 1930s was largely brought on by inflationary monetary policies and prolonged by stifling fiscal policy. Whereas, the pandemic-induced recession of 2020 was largely the result of government mandates — measures taken in the name of public health and safety that forced businesses to close their doors and kept consumers locked up at home. The economy is recovering today because it was healthy to begin with. The president need not intervene.
Ultimately, Biden has it wrong. He and his trillion-dollar proposals are not necessary to revive the economy. And the sad irony is, he could be laying the groundwork for another great depression by pursuing a mix of inflationary monetary policy and Keynesian fiscal policy. Biden might have campaigned on building back better, but in reality, his policies will make America dependent again.
Kat Dwyer is a Young Voices contributor and co-host of the Whiskey Bench podcast. Her writing has appeared in the Washington Examiner, The Hill, and others. Follow her on Twitter @KatJDwyer.