Joe Biden's Economic Agenda: An Early Appraisal: Could he be even more anti-market than Donald Trump?

• Author: Lemieux, Pierre

President Joe Biden's economic agenda, as it was revealed before and shortly after his inauguration, is not surprising. It is what should be expected from the contrary trends within his party, his campaign promises, the constituencies he needs to please as an astute politician, and the zeitgeist of our times.

Biden himself is known as a moderate. But moderate Democratic economic policy has moved left since the presidency of Bill Clinton (and toward interventionism generally), and Biden has followed. The shape of his economic agenda will be better known by the time this article is published and he will have entered his third month in office, but its outlines were already visible when these lines were written in late January. Here is an initial appraisal.

DEFICIT AND DEBT

Last September, the Committee for a Responsible Federal Budget (CRFB), a nonpartisan think tank focused on fiscal policy, forecasted that Biden's campaign promises and position papers implied an increase in the accumulated federal deficit of some $5.6 trillion (middle estimate) over the coming decade. That wasn't much different than the estimate for his election rival, incumbent Donald Trump. Trump intended to cut taxes and support his heavy spending by borrowing (or creating) money, while Biden intends to raise taxes and borrow (or create) money to support his even heavier spending. Under either candidate, annual deficits of $1.6 trillion would become the norm, compared with the $1 trillion deficit Trump reached before the pandemic and the $3.1 trillion deficit in fiscal year 2020 (October 1, 2019 to September 30, 2120).

The CRFB forecasts assumed that Biden would remain as "moderate" as what he had promised up to that point in his election campaign. For example, the annual deficit of $1.6 trillion assumed that he would not adopt any major expansion in government health care spending beyond a public health insurance option and that he would not embrace the Green New Deal favored by some Democrats on the left. If he yields to his party's more extreme voices and uses the pandemic crisis as an opportunity for still more government growth, the current $3 trillion deficit could become routine, resulting in a much larger public debt than the Congressional Budget Office was already predicting.

Continuous stimulus expenditures could also lead to higher deficits. Biden is a more enthusiastic Keynesian than Trump was, although both men have only a fuzzy idea (to be charitable) of the macroeconomic theory originated by John Maynard Keynes in 1936. Biden and his entourage don't question the strange idea that just by transferring or creating money, political authorities can increase "aggregate demand," leading to more production and prosperity. Nineteenth-century French economist Jean-Baptiste Say correctly criticized Voltaire's claim that Louis XIV's "superb edifices," such as his Palace of Versailles, were no burden for his subjects because his expenditures made money circulate and land in their pockets. In some ways, Keynes just reformulated that idea.

So, how will Biden's increased expenditures be financed? He claims, or hopes, that higher taxes on "the rich" will finance a large part of his new expenditures. "The rich" include households now earning more than $400,000 a year. Part of Trump's reduction of the corporate tax rate will also be reversed. However, corporations don't pay taxes any more than, say, rocks do: if the government were to tax rocks, the actual incidence of the tax would fall on some flesh-and-blood individuals. In the case of corporations, those individuals are some combination of shareholders, employees, and consumers. Such tax increases would dampen and perhaps threaten any economic recovery.

What is not financed by new taxes will be shifted to future taxpayers through increased government borrowing. Or it will be paid by current taxpayers through inflation generated by money creation. Other forms of "financial repression" (indirect transfer of resources to the government) have occurred before and could occur again; think of caps on interest rates for bank accounts, for example. The inescapable reality is that flesh-and-blood individuals will have to pay for the resources diverted to government programs. These net payers cannot be only the super-rich because there is not enough of them. The payers also are unlikely to be members of the governing class because, on net, they will in fact increase their perks, authority, and relative incomes.

THE LURE OF CENTRAL PLANNING

Central planning has long been in style in Washington, but Biden is sure to ramp it up. He is beholden to the illusion that government allocation is more efficient...