This article uses last year's COVID spending to show that the Joe* plan is going to add too much debt while obtaining little to no economic benefits. IMO, the only effective way to improve the economy is to end the lockdowns.
Biden’s Stimulus Plans will Create Unacceptable Debt
President-elect Biden has made no secret of the fact that, once in office, he is ready and willing to support a lot of new spending. Last week, he made good on his pledge, unveiling a $1.9 trillion “relief” package less than a month after Congress had passed a nearly $1 trillion pandemic-related stimulus measure.
In a speech announcing the details of the new package, billed as the American Rescue Plan, Biden noted that it will include $400 a week in extended unemployment insurance, $1,400 “stimulus” checks for all but high wage earners, a $15 federally-mandated minimum wage, 14 weeks of paid family and medical leave, and rent forbearance—to list just a few.
Before we assess the reasons why adding trillions of dollars more debt to an already huge mountain of debt is wrong, we should be mindful of just how much the government has already spent on “relief/stimulus” measures over the past 10 months. Tallying up the Families First Act, the CARES Act, Paycheck Protection Program loans, and the Response and Relief Act, the federal government has allocated about $4.5 trillion, of which $3.42 trillion will be entirely deficit-financed.
This is the part about the lack of economic benefit. Recall that the return on investment of the Apollo Program was ~26:1 (largely due to the numerous civilian applications of the tech developed for the program) while the ROI for welfare payments is ~0.67:1.
The Myth of the Spending Multiplier
And for what? The calls for sustained spending during a recession—in the form of unemployment checks, individual stimulus checks, small-business grants, shovel-ready projects and payroll tax cuts—rest on the idea of an all-powerful federal spending multiplier, or the idea that if the government spends one dollar, the economy will grow by more than a dollar. This argument ignores recent empirical evidence that the costs of increased government spending far outweigh the benefits to the economy.
For starters, contrary to the claims of government spending proponents, economists have not reached a consensus about the actual return on government spending. While some economists find that a dollar spent by the government generates more than a dollar in return, others find that the return is less than one dollar. And yet others find that if you take into account the future taxes needed to pay for the dollar that’s spent and the resulting loss of capital for use in the private economy, the multiplier is actually negative, and the economy takes a hit.
Our recent review of the academic literature reveals that most of “the empirical literature on fiscal multipliers conducted since [2009] has found economic multipliers resulting from additional government spending ranging from a lower estimate of around 0.2 to an upper estimate of around 0.9.” We go on to explain that in “pulling the results from two dozen academic studies, we calculate an average multiplier at the low end of 0.31 and an average multiplier at the high end of 0.66.”
There are rare cases when government spending can stimulate the economy. But for that to happen, the environment in which the spending takes place, such as a situation involving sizable indebtedness, and the design and speed of the stimulus are important in its success. Unfortunately, the United States has the features of a country where stimulus by spending has little if any impact and, in fact, can have a negative impact on growth.
As so it was with the CARES Act. According to the Congressional Budget Office (CBO), the long-term cumulative growth resulting from each dollar of spending under the legislation was 58 cents. Not very stimulative. There is no reason to believe that the next round of spending, and the one after that, will be any different.