Economy 02-04-2024 10:01 9 Views

Assessing Bidenomics: The Fatal Conceit of National Commercial Policy

Storefront of an abandoned department store in Sandusky, Michigan.

The advantage of being an economist is that I am utterly disinterested in partisan politics. I am, however, very interested in sound economics and respect for the limited federal powers enumerated in the US Constitution. In the past, I have chided both the Trump administration and the Biden administration for their shenanigans.

The Economist recently ran a piece about the prospects for four more years of Bidenomics. Should Joe Biden win a second term, Bidenomics could take one of two faces, depending on the congressional majority. I will set aside the politics, and the likelihood of President Biden’s re-election and control of one or both houses – and thus the expected magnitude of Bidenomics over the coming years. 

Regardless of November 2024, Bidenomics is already with us. On the fiscal side, the three big bills — the Infrastructure Investment and Jobs Act of 2021, the Inflation Reduction Act of 2022 ($900 billion) and the CHIPS Act of 2022 — have contributed to pushing the national debt above 130 percent of GDP. 

But the bigger damage of Bidenomics comes from the regulatory side, and the federal government’s continuing run for the “commanding heights” of the economy. That expression comes from a 1922 speech, in which Lenin called for Communist party control of key industries (then heavy manufacturing, energy, and transportation) in the new Worker’s Paradise. 

The goal remains the same, even if the industries have changed:  today, they are healthcare, education, housing, with the recent addition of manufacturing and the green industry.

Bidenomics has five pillars:

1.      Strengthening workers, especially through unions and regulation. President Biden was the first sitting president to join a picket line, and his Department of Labor is working aggressively to restrict the gig economy, by classifying certain contractors as employees.

2.      Increasing social spending, especially on early childhood education.

3.      Stricter enforcement of antitrust laws.

4.      Federal investment in strategic areas, especially infrastructure and the environment.

5.      Increased taxes on corporations and “the wealthy” to finance it all.

There are three basic problems with Bidenomics: (1) it is unconstitutional, (2) it is misguided, and (3) it is self-defeating.

First, the Constitution. I probably sound like a broken record, as I constantly harp on about constitutional authorization in everything I write. But I think advocates of economic freedom must repeat this over and over again. The US constitution enumerates only about a dozen legislative powers to Congress in article I, section 8. The legislature passes the laws, and the executive enforces them. Even with a generous reading of the patent clause in article 1, section 8, the Constitution does not give Congress — and much less the President — the authority to engage in national commercial policy.

Second, basic economics. Bidenomics is an example of what economist F.A. Hayek called “the fatal conceit”, or the notion that the state can engineer the economy. Prices, through the market process, signal relative scarcity, and allow for rational allocation of scarce resources among competing wants. State efforts are doomed to failure. And, yet, at its base, Bidenomics is a claim that the White House can do better than the free market. Every dollar controlled by Washington is a dollar that is not controlled by entrepreneurs and consumers, with their local knowledge and incentives for proper stewardship. As of 2023, the federal government spent about 24 percent of GDP, with state and local governments spending another 15 percent. If we add to that the estimated 10 percent of GDP spent on regulatory compliance, roughly 50 cents out of every dollar of economic activity in the US is controlled by a government, rather than an entrepreneur, consumer, or investor. That is bad news for efficiency and growth. It’s also bad news for liberty.

Third, Bidenomics is self-contradictory. Countries with more economic freedom grow faster than countries with less; yet Bidenomics claims that it can magically stimulate the economy with bigger government. Bidenomics preaches greater competition, while also suffocating the economy with increased spending, more regulation, and greater union power. Bidenomics would double down on a half century of failed federal investment in K-12 and higher education by increasing federal involvement in early-childhood education. And the architects of Bidenomics seem to forget that the market solves social problems well before the Feds muck things up. Poverty in the US had been declining rapidly after the war economy and the worst excesses of the New Deal, well before LBJ’s Great Society (and has not fallen since). Air in the US was already getting cleaner before the Clean Air Act. Markets solve problems.

To these three problems, we can add a fourth: Bidenomics relies on a buffet of lies for marketing purposes. Three examples are most notable.

First, Bidenomics would finance its folly by raising taxes, so that “the wealthy” pay their fare share. But the top 1 percent of taxpayers already pay 42 percent of total tax revenue; the top 5 percent pay 63 percent, and the top 10 percent pay 74 percent of total revenue. Setting aside the economic distortions of higher taxes, Americans with higher income are already paying more than their “fair share.” 

Second, a key claim of Bidenomics is a decreased deficit; while this is technically true, it’s not quite accurate… federal debt is still increasing, if at a (slightly) decreasing rate. 

Third, the White House website gloats that “more people are working today than at any point in American history.” But, the Bureau of Labor Statistics reports something different. As of December 2023, the labor force participation rate (the percentage of the able-bodied, adult, civilian population actually working) stood at a mere 62.5 percent. From 2003 to 2009, it was about 66 percent. The rate started dipping with the Great Financial Crisis, down to about 63.3 percent in February 2020. Then COVID hit, and the country hit a low of 60.1 percent in April 2020. In sum, the labor force participation rate is still below pre-COVID numbers. The Biden administration is probably cooking the numbers by focusing exclusively on the numerator (the number of people working), whilst ignoring the denominator (including increases in population and those who have given up looking for work). 

Speaking of fudging, economist Bill Shugart pierces the statistical veil of the latest jobs report. The sector with the most growth is the health sector, because of an aging population and government subsidies that inflate demand. Number 2 is government (federal, state, and local). At best, such jobs are a zero-sum game that simply redistributes resources; at worst, they are a negative-sum game, as busybody bureaucrats gum up the economy through regulation. Much as Bidenomics is singing its own praises, one is reminded of the economist Frédéric Bastiat’s warning of what is seen, and what is not seen:

You compare the nation to an arid land and tax to bountiful rain. So be it. But you should also ask yourself where the sources of this rain are, and if it is not taxes themselves that absorb the humidity from the earth and dry it out.

You ought to ask yourself as well if it is possible for the earth to receive as much of this precious water through rain as it loses through evaporation.

Bidenomics is bad news for the American economy and constitutional system. It is not just old-fashioned tax-and-spend policy, but an attempt to reshape the economy entirely. 

It is high time for friends of liberty to stand athwart national commercial policy and yell STOP!

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