Biden’s First Act is Economic Insanity
Everyone wishes success to our incoming President. Unlike the crowd that hated Trump, Republicans will not be sitting with their voodoo dolls sticking pins into them in hopes of Biden falling on his face. As much as I would like to applaud Biden’s $1.9 trillion stimulus plan, it would be an act of economic insanity to do such. Let me explain why.
First and foremost, Congress just passed a $900 billion bill to stimulate the economy. Virtually none of that has been spent. Some people have received stimulus checks, but the vast majority of the law is still being dissected. Why would we commit an extensive amount of new funds when we have not even spent the recently approved funds? It is unclear that all the monies were spent from the Cares Act in March 2020. The answer is this is not really economic relief. This is a Democrat hodgepodge of a wish list along with union mollification. That is not for reasons of economics.
One would also expect that Biden’s economic team would have a handle on what is going on in our economy. The facts are common knowledge – they do not need to get transition briefings from the Trump team. Americans made $1 trillion more in the period of March through November 2020 than they did in the corresponding period of March through November 2019. Some of that was stimulus money, but many people are doing well.
Americans also significantly reduced their credit card debt by over $100 billion dollars. Part of this was that there were fewer places to spend money – no movies, baseball games, restaurants or concerts to attend. The other part was people used their stimulus checks to retire debt.
Americans bought homes at the highest rates we have seen since the 2007 crash of the real estate market. The homeownership rate is at a 15-year high. There is very little inventory of residential housing to sell.
There are certain areas of the economy that are suffering, but this bill does nothing to address them. Congress has already passed Save Our Stages Act, of which very few people are aware. Apparently, neither does the SBA because they have no program to get at the $15 billion offered which addresses problems with concert and play venues and their need to stay afloat while they are closed. The Biden bill does nothing to focus on other hard-hit areas of the economy.
Certainly two areas hardest hit are restaurants and hotels and neither is addressed here. But let us review some of the things that are addressed.
If you remember there was the Unity Task Force which this column analyzed in its entirety, a detailed six-part wish list. This bill is an amalgamation of all the ideas in that report. Many proposals are picked straight out of the report. Though the bill is stated at $1.9 trillion no one knows how much it really will cost.
For example, they want to hire 100,000 health care workers across the United States. Nearly every health care worker is actively employed; it will cost billions to train these people. The new employees will really work for local governments. How long will the Feds pay the cost of these employees before it is shifted to municipal governments? There is no explanation. The entire program is amorphous and has a questionable purpose.
New Stimulus Payments – This proposes another $1,400 per taxpayer and additional sums for children of taxpayers. Though this is limited to people with income below a certain level it still does not make sense. It is based on 2019 taxable income. We don’t know if people above the line had their incomes plummet in 2020 and they actually need money. And then there are people who received checks whose income went up. This program is based on outdated data which makes it significantly inefficient.
$15 national minimum wage – This is a payment to their union supporters who want to use this as a base for their next contract increases. There is no consideration of the fact that a large number of these employees are at restaurants that cannot even open because of government edict. Cities like Seattle and San Francisco lost a significant number of restaurants before COVID because of the $15 minimum wage. How well will this work in Peoria or Bangor with their lower cost structure? Also, many states have wage reductions for tipped employees. They want to trash that which makes no economic sense. The Congressional Budget Office has estimated the increase in the minimum wage would decrease employment by 3.7 million jobs. No wonder the Biden plan includes an increase in unemployment benefits and food stamps.
The rest of the proposals in the bill can be broken down as follows. Those available to average citizens – they must go to a governmental entity and plead for or jump through hoops to obtain. One program in the most recently passed bill is the Employee Retention Credit (ERC). The ERC was in the Cares Act but was ignored because it was a choice between a PPP loan or the ERC. That has been revised, but the calculation of the credit is so complex you must hire an outside consultant. There are many programs that look nice in this bill, but will only be available if you can wiggle your way through the maze.
Those going to unionized government workers who will do nothing to get the money and really don’t deserve it. They are getting the funds as payback for their support of the Democrats.
The second category has two programs in particular that are sizable and annoying.
There is the $130 billion to reopen public schools that don’t need that money. The schools’ primary reason for not opening is the public school teachers and their unions have refused to show up for work yet remain being paid. Private schools are open and parents are using other home-based means to educate their children. There are studies that show extremely small COVID exposure for the teachers or the students. This $130 billion will end up as a boondoggle and probably in teacher retirement funds. We will never know how the money is spent.
Second, there is $350 billion for state and local governments. It refers to keeping “front line public workers on the job,” but we all know funds are fungible. There are no stated requirements for these funds. Rest assured the governments will not have to jump through the same hoops as private businesses do to get funds because public employee unions will end up with the money. We do not even know if these governments have lost revenue.
Here is a suggestion. To get a second PPP loan businesses must show they have a 25% reduction of revenues in any one quarter from 2020 over 2019. Why don’t we have a similar test for the governments but do it on their annual receipts? If the state, county, or city has not had a 25% reduction in receipts from 2020 to 2019 then they cannot receive funding. The governmental entity will have to cut some of their non-essential workers (i.e., most). This is too good an idea, so it will never happen.
We can go on and on because there is so much here. It is a Democrat grab bag. If passed, many of these proposed ideas will likely be added to the next budget and make that annual budget even more out of whack.
Other than the money for vaccinations – which have been forestalled by incompetent or negligent state and local governments – not much is worthy of consideration here, especially with $900 billion still to be spent. Mayor Lightfoot of Chicago says it will take her 18 months to vaccinate the people of Chicago. Giving her more money will not make her more efficient.
This is just as effective as the Obama stimulus that wasted almost a trillion dollars. Can anyone say “shovel ready jobs”?
This article first appeared in Flash Report on January 20, 2021, and is reproduced by permission of the author.
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