The specter of inflation haunts Joe Biden’s presidency
Treasury Secretary Janet Yellen got into trouble Tuesday for telling the truth. That morning, at a conference sponsored by the Atlantic, she raised the possibility that one day the Federal Reserve may raise interest rates “to make sure our economy doesn’t overheat.”
Anyone with a basic understanding of economics knew what she was talking about. The combination of President Joe Biden’s gargantuan spending and the accelerating economic recovery may well lead to a rise in consumer prices and hikes in interest rates. But an end to the Federal Reserve’s program of easy money would hurt asset prices and possibly employment as well.
Which is not what most investors want to hear. When Yellen’s words reached Wall Street, the market tanked. By the afternoon she was in retreat, telling the Wall Street Journal CEO summit that she had been misunderstood. “So let me be clear,” she said. “That’s not something I’m predicting or recommending.”
No, of course not. But it still might happen anyway.
A specter is haunting the Biden administration—the specter of inflation. Past inflations have not only harmed consumers, savers, and people on fixed incomes. They have also brought down politicians. Among the risks to the Democratic congressional majority is a rise in prices that lifts inflation to near the top of voters’ concerns, coupled by the type of Fed rate increase that hits stocks and housing. Inflation is one more signpost on the road to Republican revival, along with illegal immigration, crime, and semi-closed public schools embracing far-left critical race theory.
The classic definition of inflation is too much money chasing too few goods. That might also describe America sometime soon—if not already. The economy has started its post-virus comeback. Jobs and growth are on the upswing. U.S. households sit on a trillion-dollar pile of savings. Over the last year, on top of its regular spending, the federal government has appropriated a mind-boggling amount of money: a $2 trillion CARES Act, a $900 billion COVID-19 relief bill, and a $2 trillion American Rescue Plan. And President Biden wants to spend about $4 trillion more.
Surging this incredible amount of cash into an economy that is rapidly approaching capacity may have unintended and harmful consequences. But the Biden administration is either unconcerned about inflation or afraid of bringing it up in public.
Why? Well, one reason is that earlier warnings, after the global financial crisis in particular, didn’t seem to come true. (The inflation may have shown up in the dramatic ascent in prices of stocks and bonds, as well as in odd places such as the market for high-end art.) Another reason is that some economists think a little bit of inflation would be a good thing. But the main explanation may be related to status-quo bias: Inflation hasn’t been a driving force in our economic and public life for decades, and so we blithely assume it won’t be in the future.
Which is why an experienced leader worries about repeating the mistakes of the past. And yet, for a politician who came to Washington in 1973, Joe Biden has a lackadaisical attitude toward inflationary fiscal and monetary policy. Was he paying attention? It was the great inflation of the ’60s and ’70s, caused in part by high spending, the Arab oil embargo, and spiraling wages and prices in a heavily regulated and unionized economy, that helped ruin the presidencies of Gerald Ford and Jimmy Carter.
Inflation led to bracket creep, with voters propelled into higher income tax brackets by monetary forces over which they had no control. And bracket creep inspired the tax revolt, supply-side economics, and the Reaganite idea that, “In this present crisis, government is not the solution to our problem; government is the problem.” The eventual cure for inflation was the painful “shock therapy” administered by Federal Reserve chairman Paul Volcker and what at the time was the worst recession since the Great Depression.
Why anyone would want to repeat this experiment in the dismal science is a mystery. Biden, however, is fixated not on inflation but on repudiating the legacy of the man known for describing it as “always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”
Milton Friedman, whose empiricism led him to embrace free market public policy, was the most influential economist of the second half of the 20th century. But Biden has a weird habit of treating Friedman as a devilish spirit who must be exorcised from the nation’s capital. For Biden, Friedman represents deregulation, low taxes, and the idea that a corporation’s primary responsibility is not to a group of politicized “stakeholders” but to its shareholders. “Milton Friedman isn’t running the show anymore,” Biden told Politico last year. “When did Milton Friedman die and become king?” Biden asked in 2019. The truth is that Friedman, who died in 2006, has held little sway over either Democrats or Republicans for almost two decades. But Biden wants to mark the definitive end of Friedman and the “neoliberal” economics he espoused by unleashing a tsunami of dollars into the global economy and inundating Americans with new entitlements.
The irony is that Biden’s rejection of Friedman’s teachings on money, taxes, and spending may bring about the same circumstances that established Friedman’s preeminence. In a year or two, the American economy and Biden’s political fortunes may look considerably different than when Janet Yellen blurted out the obvious about inflation. Voters won’t like the combination of rising prices and declining assets. Biden’s experts might rediscover that it is difficult to control or stop inflation once it begins. And Milton Friedman will have his revenge.
As slogans go, “build back better – which Joe Biden used to define his 2020 bid for the presidency – lags well behind “Happy Days Are Here Again,” “Make American Great Again,” and “I Like Ike” in clarity and vision. It’s not even close to “It’s the economy, stupid,” the unofficial campaign mantra of Bill Clinton’s successful run in 1992.
What Biden’s been doing during his first one hundred suggests even he didn’t understand what he meant. If he planned to create millions of new jobs – good jobs at good wages with good benefits as the Democrats used to say – the April jobs report indicates he’s failing.
What’s gone unreported is that jobs that are coming back – and there are some – are coming back as lockdowns are ending. The economic downturn that appears now to be ending was not the product of an expected downturn in economic activity but the direct result of state-by-state lockdowns that forced businesses to curtail operations or close as part of an ill-conceived effort to slow the spread of the coronavirus.
To supplement lost income, the Pelosi-led Congress joined first with Donald Trump and then with Biden to put the nation on relief. It’s no wonder, therefore, that business leaders are complaining they can’t find people to fill the jobs they have available once the Washington politicians incentivized joblessness instead of work by extending and enhancing unemployment benefits. It should be obvious that when you pay people not to work, they won’t work but somehow the experts in D.C. missed this.
Biden and the Democrats are nevertheless still all in. They said their $1.9 trillion “American Rescue Plan” would save the economy. Instead, it looks like it’s dragging it back down while inflation, a monster the U.S. Federal Reserve was thought to have tamed, is once again rearing its ugly head. The price of goods and services on which the American people rely are increasing, suddenly and sharply, as the impact of trillions in new spending during the pandemic comes home to roost.
Now, according to the Washington Post and other outlets, the Democrats are having trouble building support for their latest $4 trillion tax and spend program. Moreover, Democratic Congressional Campaign Committee Chairman Sean Patrick Maloney, D-N.Y., is now warning the White House its planned tax hike “could hurt vulnerable House Democrats up for re-election in 2022.”
It’s an important message for Biden – who’s apparently sending it back marked “Return to Sender.” The president, it seems, remains intent on raising taxes on as many people, goods, and services as he can convince Congress to accept.
Biden’s initial proposal to take the corporate tax rate from 21 percent to 28 percent landed with such a resounding “thud” he was forced to offer up 25 percent as a compromise. Even so, that would still move the United States back into an uncompetitive position with the world’s other industrialized economies. What is being omitted thus far from the discussion is that, when state-corporate levies are added in, the average U.S. combined national and subnational tax rises to 25.77 percent.
At 25 percent, what Biden has now put on the table, the combined rate would be 29.5 percent, higher than what is levied by China and higher than the average rate for countries in the OECD.
Moreover, says Americans for Tax Reform, a non-partisan group opposed to tax increases, “Workers, consumers, and shareholders will bear the burden of an increased corporate tax rate. Such a hike will cause businesses to invest less in the United States and more overseas, resulting in fewer job opportunities and lower wages for American workers:”
According to ATR:
–A Treasury Department study estimated that “a country with a 1 percentage point lower tax rate than its competitors attracts 3 percent more capital.” This is because raising the corporate rate makes the United States a less attractive place to invest profits.
–A 2012 Harvard Business Review piece by Mihir A. Desai notes that raising the corporate tax lands “straight on the back” of the American worker and will see a decline in real wages.
–A 2012 paper at the University of Warwick and University of Oxford found that a $1 increase in the corporate tax reduces wages by 92 cents in the long term. This study was conducted by Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini and studied over 55,000 businesses located in nine European countries over the period 1996-2003.
–Even the left-of-center Tax Policy Center estimates that 20 percent of the burden of the corporate income tax is borne by labor.
Biden’s insistence the corporate tax be raised, the cornerstone of his economic plan, will not create jobs, reduce debt, or bring increased revenues into the U.S. Treasury. It will however be a boon to almost every one of America’s competitors in the global marketplace.
Presidents who misremember history are doomed to repeat it
President Biden’s address to a joint session of Congress underscored this administration’s left turn. The speech was a laundry list of progressive priorities in domestic, foreign, and social policy with a price tag, when you add in the American Rescue Plan, of some $6 trillion. Biden’s delivery, heavy with improvisation, only slightly enlivened a prosaic and unoriginal text. Biden repeated lines from both Bill “the power of our example” Clinton and Barack “the arc of the moral universe” Obama. But it wasn’t just the words themselves that made me think of Biden’s most recent Democratic predecessors. The scope of his plans, increasing government’s role in just about every aspect of American life, also brought to mind the Democrats who tried to govern as liberals after campaigning as moderates.
I’m old enough to recall the last president who vanquished Reaganism. Obama spoke of “fundamentally transforming the United States of America,” and came to Washington in 2009 with the aim of changing the trajectory of the country just as Ronald Reagan had done three decades earlier. Shortly before his one hundredth day in office, he delivered a speech at Georgetown University where he promised to lay a “new foundation” for the country. His friends in the media hailed him as the second coming of Franklin Delano Roosevelt. “Barack Obama is bringing back the era of big government,” historian Matthew Dallek and journalist Samuel Loewenberg announced in the New York Daily News.
We know how that turned out. The GOP captured the House in 2010. By the time Obama left office, Republicans had full control of Washington and were dominant in the states. Reaganism survived. And now, 12 years later, the cycle is repeating. This time it’s President Biden who is likened to FDR. It’s Biden who is said to have interred the idea of limited government. It’s Biden who is marking his first 100 days in office with plans to spend trillions on infrastructure, green energy, health care, and elder and child care. The political setbacks of the Obama years didn’t temper Biden’s ambitions. They intensified his desire to leverage narrow congressional majorities into sweeping expansions of the welfare state.
Why does Biden think he can avoid Obama’s fate? Like a good lawyer, he has a theory of the case. It goes like this: Neither Bill Clinton nor Barack Obama spent enough money to ensure a strong economic recovery. They didn’t emphasize jobs above all else. Their caution was responsible for Democratic losses in the midterm elections. And all it takes is GOP control of one chamber of Congress to spoil a liberal revival. By opening the floodgates of federal spending, Biden hopes to deepen and extend the post-coronavirus economic boom. Growth and full employment will prevent a Republican takeover. And a second Progressive Era will begin.
The problem with this theory is its selective misreading of history. It wasn’t just the economy that sank the Democrats in 1994 and 2010. It was independent voters who turned against presidents who campaigned as moderates but governed as liberals. Nor did rising unemployment stop Republicans from picking up seats in 2002. And an economic boom didn’t save the House GOP in 2018. In every case, assessments of the president—among independent voters in particular—mattered more than dollars and cents. By committing himself to the idea that massive spending will safeguard the Democratic Congress, Biden may be inadvertently guaranteeing the partisan overreach that has doomed past majorities.
Biden doesn’t give enough credit to the record of his Democratic predecessors. The unemployment rate was 7.3 percent in January 1993 when Bill Clinton was inaugurated. By November 1994, it had fallen to 5.6 percent. Meanwhile, the economy grew by 4 percent in the third quarter of 1994. Nevertheless, the Republicans won control of the House for the first time in 40 years and the Senate for the first time in 8 years. Why? Because Republicans won independents 56 percent to 44 percent. Voters who had backed Ross Perot in 1992 swung to the GOP. Voters’ top priority in the exit poll wasn’t jobs. It was crime. And the failure of Clinton’s unpopular health plan didn’t help.
The 2010 midterm had similar results. The economy, while nothing to brag about, was nonetheless improving. Unemployment had been falling since October 2009. Growth, though anemic, had also returned. Republicans gained 63 seats in the House and 6 in the Senate because independents rejected President Obama’s governance. They backed Republicans 56 percent to 37 percent—an 8-point swing against a president they had supported in 2008. Why? Part of the reason was the economy. But the Affordable Care Act was also significant. Health care was voters’ second priority in the exit poll. A 48 percent plurality called for Obamacare’s repeal.
Biden’s theory also omits the contrary examples of recent Republican presidents. In November 2002 the unemployment rate was higher, and growth lower, than in November 2000. But the GOP had a good year anyway thanks to President Bush’s high post-9/11 approval ratings and a tough but effective campaign on national security.
The 2018 midterm is further proof that campaign results are not a direct function of economic performance. Democrats won control of the House despite full employment and sustained growth. Independents, who had narrowly backed President Trump in 2016, turned against him and voted for Democratic candidates by a 12-point margin. No mystery why: A 38-percent plurality of voters said they were voting to oppose Trump, whose strong disapproval rating was at an incredible 46 percent in the exit poll. Health care ranked as the top issue, with voters recoiling at the prospect of an Obamacare replacement that failed to cover preexisting conditions.
Not only do the data show that the economy is less important to the midterms than many assume, they are also a reminder that the first hundred days do not define a presidency. The fate of a president and his party depends more on his ability to maintain popularity and on his performance during unanticipated crises. While Biden’s approval ratings continue to be positive and his disapproval low, there are some warning signs: His approval among independents ranges between the mid- to high-50s, and a majority of voters disapproves of his handling of migration along the southern border. Focused on his grand plans for the economy, Biden might dismiss voter concerns over immigration, crime, and inflation until it is too late.
Sure, Biden might avoid making Barack Obama’s mistakes. But he has plenty of time to make mistakes of his own.
In anticipation of President Joe Biden’s first-ever speech to Joint Session of Congress, the Republican National Committee released a list of what it referred to as “failure after failure” to mark his first 100 days in office.
“Here is just a shortlist,” the RNC said, of what it had identified as Biden’s “many broken promises, disastrous policies, and dangerous proposals: on a variety of issues including:
Joe Biden’s first 100 days have been marked by failure after failure.
Here is just a SHORT list of his many broken promises, disastrous policies, and dangerous proposals:
Biden’s Open Borders Agenda Created A Border Crisis
1. Biden’s open borders agenda has created a border crisis.
2. Biden tried to suspend deportations, weakening immigration enforcement.
3. He has obstructed border wall construction, including through his budget request, which would eliminate all funding for the border wall. Experts say border walls work, and Biden’s construction obstruction is literally throwing the border wide open.
4. Border state Democrats warned Biden’s White House about a border crisis fueled by his polices but the administration ignored their warnings.
Biden’s Border Crisis Boomed
5. Now, experts estimate 1,000 illegal immigrants are escaping into the U.S. each day during Biden’s border crisis.
6. There were 172,331 border apprehensions in March, 5 times the number in March last year.
7. Nearly 19,000 unaccompanied children were taken into custody in March, the highest monthly total ever recorded.
8. Customs and Border Protection forecasts 184,000 migrant children will cross the border by the end of FY 2021, which would be the highest number ever.
9. There has been a 233% increase in fentanyl seizures at the southern border from this time last year.
10. Thanks to Biden’s border wall obstruction, smugglers are exploiting gaps in the wall that were previously set to be built.
11. Officials warn of a “boom time for gangs,” traffickers, and smugglers as they take advantage of Biden’s border crisis.
Biden’s Crisis Of Leadership On The Border
13. When Biden finally admitted there is a “crisis that ended up on the border,” the White House then insisted that is not their official position in a completely insane walk-back, and that “children coming to our border… is not a crisis.”
14. Biden still does not have any plans to visit the border.
15. Kamala Harris laughed when she was asked if she would visit the border, and still has not visited the border even after being named Biden’s crisis manager.
Border Officials Struggle To Cope With Biden’s Disastrous Agenda
16. The Biden administration is releasing some illegal immigrants caught crossing the border without a court notice, and sometimes without any paperwork at all.
17. Border facilities are “stretched beyond thin” because of the crisis.
18. The Donna, Texas facility, one of the few facilities exempted from Biden’s media blackout, is at more than 16 times its capacity. Even Dr. Fauci admitted that packed crowds of migrant children is a “major concern.”
19. To deal with the surge, the Pentagon was forced to approve multiple military bases to house unaccompanied migrant children.
Biden Is Doubling Down On His Border Failures
20. Biden is restricting media access at the border to hide the true extent of the crisis and dodge accountability. When asked why his administration is denying press access, Biden conceded he is purposefully waiting to provide transparency at border facilities.
21. Instead of reversing course, Biden has doubled down on his failing open borders policies.
22. Biden has even removed civil penalties for illegal immigrants for a “failure-to-depart.”
Biden’s Anti-Energy Agenda Is Destroying Jobs
24. On day one, Biden abandoned Keystone XL pipeline workers, forcing thousands into unemployment with the stroke of a pen. American workers and families effected by his job-killing decision are still struggling to get by.
25. We are still waiting for Biden to announce a plan for these workers. Psaki said she had “nothing more” when asked about how Biden plans to replace oil and gas jobs killed by his energy policies.
26. When asked about the workers forced out of work by Biden’s policies, administration officials have dismissed concerns, saying they need “different [jobs],” “different education,” and that there are “jobs that might be sacrificed.”
27. While Biden implements policies to kill American jobs, he is kowtowing to China and Russia so they cooperate with his environmental agenda.
28. Biden is blocking new oil and gas drilling on federal lands, which if kept in place threatens millions of jobs.
29. Biden nominated an Interior Secretary that believes oil and gas extraction on public lands should be permanently banned.
Biden Is Proposing Massive Job-Destroying Tax Hikes
31. Biden’s proposed tax hike would raise the combined tax rate on U.S. businesses to the highest of any country in the G7 or OECD.
32. Biden’s first tax proposals are already breaking his campaign pledge, “If you make less than $400,000, you won’t see one single penny in additional federal tax.”
33. According to reports, Biden is planning to propose even greater tax hikes, raising taxes on capital gains to over 43%.
34. According to administration officials, he is showing an increased openness to a carbon tax.
Biden’s Proposal Is Not An Infrastructure Package
35. Only 7% of the spending of Biden’s proposed “infrastructure” package is for roads, bridges, highways, airports, waterways, and ports.
36. His administration has lied about the job creation that’s possible under his infrastructure plan. Even CNN and The Washington Post called Biden out on misleading the American people on job predictions.
37. In terms of Biden’s broader Green New Deal agenda, The Washington Post and Associated Press have noted that many of Biden’s proposals will destroy more jobs than they create, and create jobs that pay less than the jobs they destroy.
39. The Biden administration is promoting a business that Energy Secretary Jennifer Granholm is actively invested in to the tune of millions of dollars. Granholm is set to profit off of the hundreds of billions of dollars of taxpayer money Biden wants to spend as part of his infrastructure package.
On Schools, Biden Has Put Special Interests First
40. Biden repeatedly campaigned with American Federation of Teachers boss Randi Weingarten, who is leading the anti-science charge to keep America’s schools closed. Now that Biden is president, he has refused to call out the group.
41. Biden has caved to Democrat special interest groups at the expense of millions of children and families across America, even though the science shows that keeping schools closed has devastating effects on the mental health, social and economic situation, and academic achievement of children.
42. His stimulus bill put special interests before schools. The $1.9 trillion wish list only spends $6 billion, 0.3% of the bill, on K-12 schools this fiscal year with NO REQUIREMENT that they reopen.
44. Biden has conceded he has no plan to open high schools.
Biden Is Refusing To Speak Out Against The Growing Anti-Police Rhetoric In The Democrat Party.
45. The Biden administration has refused to condemn anti-police comments from Democrat members of Congress.
46. Press Secretary Jen Psaki refused to condemn Maxine Waters’ inflammatory comments around the Chauvin trial that “we’ve got to get more confrontational.”
47. When Nancy Pelosi repeatedly defended Waters’ call for confrontation, Biden kept silent.
48. When every House Democrat voted to endorse Waters’ call for protestors “to get more confrontational,” Biden refused to speak out.
Biden’s Flip On Court Packing
49. Even though Biden criticized court packing for decades (check out these comments from 1983, 2005, and 2019), he has refused to speak out against House and Senate Democrats abandoning decades of bipartisan agreement by proposing court packing legislation.
50. He is even going a step further and actually establishing a court-packing commission.
Biden Says Goodbye To Bipartisanship & Hello To Extremism
51. Despite his campaign promises Biden is rejecting bipartisanship in favor of a hyper-partisan process to pass trillions in spending without Republican support.
53. He has resorted to governing through executive order, issuing far-left decrees at breathtaking speed.
55. Biden declared that “no amendment to the Constitution is absolute” when discussing the 2nd amendment.
57. Despite promising unity and compromise on the campaign trail, the only unity Biden has shown is with Xi Jinping and Vladimir Putin. He has spoken to Xi and Putin more times than Republican leaders Mitch McConnell and Kevin McCarthy.
Biden’s Georgia Boycott
60. Aided and abetted by misinformation peddlers like Stacey Abrams, Biden encouraged a boycott of Georgia.
61. Thanks to Biden’s lies about a law that actually expands voting opportunities, Georgia’s Cobb County is set to lose more than $100 million in tourism revenue.
62. What’s worse, Biden supported the boycott KNOWING it would hurt Georgia’s businesses and workers the most.
63. After Democrat Raphael Warnock admitted to spreading misinformation about the Georgia law, Biden is rallying with the senator in Atlanta tomorrow. Biden should apologize to Georgians instead.
Biden Backs The Democrats’ H.R. 1 Power Grab
65. By supporting H.R. 1, Biden is supporting a bill that would force states to allow paid party operatives to harvest ballots.
66. H.R. 1 would also threaten freedom of speech by turning the FEC into a partisan organization.
Biden Embraces Far-Left Spending Proposals & A Minimum Wage
67. Biden has dedicated trillions in wasteful spending for progressive pet projects.
69. Biden is backing a $15 federal minimum wage mandate, which the CBO says could eliminate up to 3.7 million jobs.
70. He is pushing defense cuts in his budget.
Biden Is Caving To America’s Enemies
71. Biden has refused to criticize Xi Jinping, even saying he didn’t “mean it as a criticism” when he called Xi undemocratic.
72. When discussing China’s human rights abuses, Biden downplayed those concerns, saying “culturally there are different norms.”
73. Biden is failing to confront China, with Psaki even saying Biden is “not in a rush” to counter China.
74. And in yet another broken campaign promise, Biden has not confronted China over COVID-19’s origins
75. In a patten of appeasing America’s enemies, Biden is caving to Iran.
Biden Is Now A Pro-Abortion Extremist
76. Biden rescinded the Mexico City policy, forcing American taxpayers to fund abortions overseas.
77. Biden’s HHS Secretary Xavier Becerra has a history of attacking religious freedom, and during his hearing, he refused to rule out using taxpayer funds to pay for abortions and defended his past votes supporting the horrific practice of partial birth abortion.
Obamacare & Biden’s Government Takeover Of Health Care
78. Biden has repeated Barack Obama’s “lie of the year” on health care, and now as president he is bringing those lies back to Washington by working to reinstitute Obama’s terrible health care polices.
80. In his time as president, he has worked to expand Obamacare as he proposes a further government takeover of healthcare. A Navigant study found that Biden’s health plan could threaten more than 1,000 rural hospitals across 46 states.
On Operation Warp Speed, He’s The Lying, Plagiarist In Chief
82. Thanks to the previous administration’s development and distribution plan under Operation Warp Speed, which Biden has falsely tried to claim credit for, millions of Americans have been vaccinated.
84. In September President Trump pledged: “Millions of doses will be available every month, and we expect to have enough vaccines for every American by April.” It tuns out, he was right, and we have Operation Warp Speed to thank.
85. Biden has failed to apologize for his statements spreading doubt about the vaccine which he made on the campaign trail last year.
Biden’s COVID $1.9 Trillion Bill Was A Far-Left Boondoggle
86. Biden’s $1.9 trillion boondoggle was not a “relief” bill.
87. Through Biden’s boondoggle, Democrats insisted on sending nearly $2 billion dollars in stimulus checks to prisoners, including violent felons like the Boston Marathon Bomber. Democrats blocked an amendment to restrict the stimulus payments when ramming through their partisan legislation.
88. In fact, hundreds of billions of the Democrats’ “relief” will not be spent for up to a decade from now.
Republican Coronavirus Policies Worked, Now Biden Wants To Rewrite History
89. Biden is trying to rewrite history on the coronavirus. After criticizing the Paycheck Protection Program and repeatedly visiting businesses that received PPP loans under President Trump, Biden baselessly claimed credit for their success.
90. After gaslighting the American people during the campaign, he proceeded to plagiarize the Republican’s coronavirus response at every turn, all while lying about the Trump administration’s robust COVID response.
Biden Gives The Worst Governors In The Nation A Pass
92. Biden has failed to take responsibility for being one of Andrew Cuomo’s biggest cheerleaders. Biden even declared: “Your governor in New York’s done one hell of a job. I think he’s the gold standard.” What was Biden declaring the “gold standard?” Anti-science nursing home orders that led to thousands of deaths, rewriting reports to hide the higher death toll, and a cover-up in the face of a federal investigation so the data would not be “used against” the Cuomo administration.
93. During the campaign, Biden repeatedly applauded Whitmer’s terrible approach to the coronavirus, and now as we keep learning more about how awful her response truly was, he has refused to backtrack his endorsement of Whitmer. The policies Biden endorsed? Renewing devastating nursing home orders three times, refusing to release the data on nursing home deaths, and buying the silence of her former health director with a $150,000 taxpayer-funded confidentiality agreement.
94. Biden won’t insist hypocritical governors like Gavin Newsom open their economies. America can only recover economically if we allow our businesses to open, but instead of standing up to governors whose lockdowns are hurting Americans, Biden continues to take a backseat.
An Opaque Administration Where One Has To Wonder Who Is Setting Policy
95. The Biden administration is one of the least transparent in history, continually ignoring questions from the press.
96. Joe Biden holds the modern record for the number of days it took a president to hold his first press conference.
97. Biden has not kept his promise on ethics agreements, facing mounting pressure to disclose the ethics agreements of his appointees.
98. After establishing a cap on refugees not in line with the desires of his far-left base, Biden then backtracked and claimed that he didn’t say that the cap was “justified.”
99. Remember when Biden was silent as his press secretary claimed for days that his reopening goal was only 50% of the schools for one day a week? Was he just not paying attention all that time?
Joe Biden’s presidency has been one stumble after another. It has only been 100 days, and the American people are already paying a steep price for his failures
When you break it down, Donald Trump’s trade policy was simple. “No more bad deals,” he’d say while flexing America’s economic muscle and bringing miscreant trading partners back into line.
Joe Biden, on the other hand, has yet to make his trade priorities clear.
There are a few things we do know. One, he’s eager to reunite with partners on the world stage. With the pandemic and climate change as the centerpieces of his administration’s international efforts, we can expect trade pacts to be less important. Two, the president says he wants to fix or build back America before he launches any trade initiatives. Three, he wants to be sure trade initiatives will be “worker-centered” but hasn’t explained what that would look like.
Going forward, the priorities for U.S. trade policy overall ought to be bringing U.S. jobs and manufacturing back from overseas and encourage emerging industries to develop new technologies here in the United States. Internationally, as an example, the White House must convince much of the world to eschew products made by Chinese-owned Huawei when building out 5G networks.
At home, the president and his trade team need to make sure that the innovative activities of companies creating emerging technologies on which we’re all dependent are not being crushed by government bodies like the U.S. International Trade Commission, a six-member, independent, quasi-judicial federal agency that settles certain kinds of trade disputes.
Of late, the commission is a place where non-practicing entities (they’re more commonly called “patent trolls”) are violating patent rights. Through expensive and extensive litigation, patent trolls ask the International Trade Commission to find that a company manufacturing and innovating some product is making illegitimate use of a non-practicing entity’s intellectual property — and, because of it, any device using said infringed-upon patents must be banned from the U.S. marketplace.
That is exactly what Swedish telecom giant Ericsson is asking the commission to do to Samsung and a range of other smart devices and its 5G-related infrastructure equipment. Ericsson is a telecom infrastructure equipment manufacturer, but these days close to a third of its operating profit comes from IP licensing.
Ericsson is currently negotiating with Samsung to renew a patent cross-licensing agreement. Instead of continuing to negotiate, Ericsson is using the threat of a massive U.S. import ban on Samsung products to try to get its way.
If Ericsson’s backup strategy prevails and Samsung devices including cell phones and tablets are excluded from the U.S. market, or if it gets the International Trade Commission to block one of its key competitors in the 5G infrastructure market, it would be a disaster. The digital divide would widen just as the Biden Administration is proposing trillions in new infrastructure spending including broadband.
Spending billions of taxpayer dollars on broadband while at the same time excluding Samsung infrastructure equipment and devices from the market makes no sense. The International Trade Commission will have given Ericsson dominant market power in 5G infrastructure equipment and limited device choices for U.S. consumers. It would be shockingly counterproductive to give Apple a virtual monopoly on sales of sophisticated phones while opening the door to Chinese manufacturers like Huawei, ZTE or their home-grown rivals to service the rest of the U.S. market at a time when the U.S. government is working to prevent Chinese tech attacks on U.S. information security.
There is a better way to settle what is essentially a dispute over patent royalties – the traditional court system.
Ericsson took its complaints to the International Trade Commission because it knows that an exclusion order would nearly cripple its rival. At a minimum, it would give it tremendous negotiating leverage.
It’s time for the president to propose and for Congress to reform the International Trade Commission by addressing weaknesses that enable these kinds of manipulative and illegitimate cases.
The COVID-19 pandemic introduced an unprecedented amount of uncertainty into transportation infrastructure planning. Travel fell significantly across all modes and remains depressed, particularly for shared transportation modes such as commercial air travel and mass transit. Changes in travel behavior may persist long after the coronavirus pandemic finally ends, particularly for commuting trips given that a large share of employees may continue working from home. Given this uncertainty, investments in new infrastructure meant to provide service for decades into the future are incredibly risky. As Congress considers surface transportation reauthorization in this low-confidence era, it should adopt a preference for the lowest-risk class of projects: maintaining and modernizing existing infrastructure under a “fix it first” strategy.
COVID-19 led to dramatic changes in travel behavior. By April 2020, when much of the country was under stay-at-home orders, road traffic fell 40%, mass transit ridership fell 95%, and air travel fell by 96%. Since then, road travel has largely recovered, with vehicle-miles traveled back to within 10% of the pre-pandemic baseline.
However, travel by shared transportation modes, such as commercial aviation and mass transit, was still down by approximately two-thirds year-over-year by the end of 2020, according to data collected by the Bureau of Transportation Statistics.
Travel is expected to continue its rebound as the number of people vaccinated grows and the pandemic wanes, but changes in travel behavior driven by factors such as the rise of remote work are likely to persist. To what degree pandemic-spurred changes in travel demand are permanent is unknown at this time, and this uncertainty has rendered pre-pandemic infrastructure planning and investment models nearly useless as accurate guides to the future.
While the drop in transportation demand and the fixed nature of transportation infrastructure supply has significantly reduced the productivity of existing transportation infrastructure, some are calling for large new investments by claiming that the nation’s infrastructure networks are crumbling. However, a review of the available evidence suggests a different and more complicated picture of infrastructure asset quality.
For example, Reason Foundation’s most recent Annual Highway Reportfound, “Of the Annual Highway Report’s nine categories focused on performance, including structurally deficient bridges and traffic congestion, the country made incremental progress in seven of them.”
Similarly, a June 2020 National Bureau of Economic Research (NBER) working paper on transportation infrastructure concluded, “Not only is this infrastructure, for the most part, not deteriorating, much of it is in good condition or improving.”
However, Reason’s Annual Highway Report shows large variation across states and the NBER analysis is limited in that it fails to account for transit infrastructure beyond rolling stock. Rail guideway assets such as tracks and signals have deteriorated in many cities. To be sure, there are sizeable transportation infrastructure needs in the United States. Reconstructing the Interstate Highway System alone has been estimated by the National Academy of Sciences to cost at least $1 trillion over two decades and mass transit’s maintenance backlog likely exceeds $100 billion.
Given all we know about existing transportation infrastructure needs and the uncertainty surrounding future travel activity, Congress should adopt a risk-minimizing “fix it first” strategy to restore our existing transportation assets to a durable state of good repair. This approach has been endorsed by organizations and think tanks across the political spectrum, from the progressive Transportation for America to the free market Competitive Enterprise Institute.
Building new infrastructure that will last three to five decades based on pre-pandemic travel modeling is fundamentally imprudent at this time. Physical capacity expansions such as highway widening and new rail lines should at the very least face heightened scrutiny from policymakers until there is more confidence in post-pandemic travel behavior that can be used in transportation infrastructure planning and investment decisions.
This past week, President Joe Biden unveiled his new $2 trillion infrastructure plan, scheduled for implementation over the next eight years. He delivered a pep talk about it before a union audience in Pittsburgh: “It’s a once-in-a-generation investment in America. It’s big, yes. It’s bold, yes, and we can get it done.” One central goal of his program is to tackle climate change by reaching a level of zero net carbon emissions by 2035. Many of Biden’s supporters gave two cheers for this expansion of government power, including the New York Times columnist Farhad Manjoo, who lamented that the program is too small to work, but too big to pass. Huge portions of this so-called infrastructure bill actually have nothing whatsoever to do with infrastructure.
In one classic formulation by the late economist Jacob Viner, infrastructure covers “public works regarded as essential and as impossible or highly improbable of establishment by private enterprise.” Classical liberal theorists like Viner believe it is critical to identify a limited scope of business activity appropriate for government. And even here, while government intervention may be necessary to initiate the establishment of an electric grid or a road system, oftentimes the work is completed by a regulated private firm, overcoming government inefficiency in the management of particular projects.
Biden’s use of the term “infrastructure” is merely a rhetorical flourish, the sole purpose of which is to create an illusion that his proposed menu of expenditures should appeal just as much to defenders of small government as it does to progressive Democrats. A quick look at the proposed expenditures shows that they include large transfer payments to preferred groups that have nothing to do with either infrastructure or climate change. Consider this chart prepared by NPR, which breaks down the major categories of expenditure:
“Home/community care” and “affordable housing” constitute over 30 percent of the budget at $613 billion. Much of this money is for child and elder care. Both are traditional forms of transfer payments, which are already available in abundance. Why more? Why now? After all, these cash transfers are not taxable compensation for work done. They increase the motivation to stay out of the workforce, in fact, and thereby reduce the size of the tax base as overall expenditures are mushrooming. Moreover, large doses of home/community care are difficult to target exclusively to the needy. A correct analysis seeks to determine whether such payments are directed toward the truly needy and whether they induce people to leave the workforce to become tax recipients rather than taxpayers.
A similar analysis applies to affordable-housing expenditures, both for renters and owners. In the Biden plan, those expenditures operate as a combined program of disguised subsidies and disguised price controls. An affordable-housing mandate typically requires a developer to build some fraction of total units held for sale or lease at below-market rates to individuals who fall within certain broad income categories. In some programs, the losses to the developer may be offset in part by government subsidies.
These programs are not only costly but also a massive disincentive to new construction, especially when the fraction of affordable units is set too high, at which point the developers cannot recoup their losses on the affordable units by their profits on their market-rate units. A far more sensible regime that reduces both rent controls and subsidies over time allows housing resources to be allocated cheaply and sensibly by market forces. Housing markets are like all others insofar as people are willing to spend other people’s money for their own benefit, which leads to overconsumption. Similarly, price controls reduce the incentive to produce housing that people want, thereby creating systematic shortages, and the long queues and political intrigues that accompany them.
The rest of the initiative’s priorities include investments in electric vehicles at $174 billion, roads and bridges at $115 billion, the power grid at $100 billion, public transportation at $85 billion, and railways at $80 billion. There is absolutely no reason to believe that these expenditures will be made in a responsible fashion, given the political forces that will descend on Washington if the proposed funds become available. Nor is there anything inherently desirable about electric vehicles, for example, that merits their subsidization. To be sure, there is a constant risk of pollution from vehicles powered by fossil fuels, but the correct response is to tax the externality in order to reduce its incidence, not to guess which alternative technology merits a subsidy. Indeed, it is especially wrongheaded to subsidize both electric cars and public transportation when they should be allowed to compete with each other. More generally, any massive subsidy for energy investment is a bad idea for the same reason that it’s a bad idea for housing: it leads to overconsumption, such that total social costs exceed total social benefits.
Shifting to wind or solar energy—both centerpieces of the Biden strategy—is also a bad idea. Those energy sources are too precarious to make more than a dent in the overall energy market. As the US Energy Information Administration reports, fossil fuels account for about 80 percent of total energy production in the United States, as well as raw materials for making “asphalt and road oil, and feedstocks for making the chemicals, plastics, and synthetic materials that are in nearly everything we use.” Keeping crude oil and natural gas in the ground is not a winning strategy. Indeed, relying on wind and solar carries risks, as these forms of energy can respond poorly in extreme situations, a reality that became clear with the breakdown of the Texas power grid recently during an extreme cold snap.
The correct path to environmental soundness lies in the more efficient production and consumption of fossil fuels. This is why one of the best ways to deal with the externalities of fossil fuel consumption, such as air pollution and spills, would be to allow the development of the Keystone XL pipeline. Given how central fossil fuels are to the energy market, any small improvement in their production and distribution will result in enormous benefits. The effort to wean an entire economy off fossil fuels over the next two decades will provide short-term dislocations without any durable long-term relief.
The dubious nature of the Biden plan is made still more evident by looking at its rickety financing. As always, the two favorite targets for new taxation are increases in the corporate income tax and the income tax rates for wealthy individuals. The claim is that these targeted taxes will spare the rest of America from financial pain. Senator Elizabeth Warren made that case for her ultra-millionaire tax, saying her wealth tax would have no impact on 99.9 percent of the population. But that is one strong reason to reject her program or others like it: it encourages majorities to confiscate the wealth of the most productive. Those majorities, of course, would be far less eager if their own taxes were to rise at the same time.
Biden has rightly rejected that approach, but the price of his new, once-in-a-generation expenditure is an increase in the overall corporate tax rate from 21 to 28 percent. Yet this proposal has dangerous consequences too. The United States constantly competes with other nations for corporate investment. Biden’s policy will reduce the level of foreign investment in the United States while simultaneously increasing the level of American investment abroad. This in turn will reverse the beneficial effects of the Trump corporate tax cuts, which notably translated into higher wages. Additional taxes on the wealthy will barely make a dent in the anticipated financial shortfall.
Worse still, it is simply false advertising to say that even if these deferred revenues could be generated, they would cover the full costs of the Biden program. The public expenditures will take place over an eight-year period. As NPR reports, the government plans to keep the corporate tax in place for fifteen years to balance the books. That move will require the treasury to borrow money to cover the anticipated revenue shortfall. And there is no reason to think that the government will meet any of its revenue targets, let alone be able to find the revenues to cover the items on the Biden agenda.
At this point, Republican skepticism about the plan may perhaps peel away some Democratic support. To avert that result, Biden would be well-advised to unbundle the strange bedfellows in his omnibus bill, so that each component can be evaluated on its own merits. The likely result is a smaller program with better outcomes, both for Biden and everyone else.
President Joe Biden’s multitrillion-dollar infrastructure proposal includes a major union handout that would overhaul labor law in the United States.
The White House released a fact sheet Wednesday detailing Biden’s proposed $2 trillion infrastructure package that includes a call to pass the PRO Act, which is currently languishing in the Senate after passing the House. The law would overturn right-to-work laws in 27 states and expand the ability of the National Labor Relations Board to fine employers that violate employees’ organizing rights.
“[Biden] is calling on Congress to ensure all workers have a free and fair choice to join a union by passing the Protecting the Right to Organize (PRO) Act, and guarantee union and bargaining rights for public service workers,” the fact sheet states. The sheet also says that increased union membership can increase worker productivity. The labor overhaul, however, would overturn existing laws in more than half of the states in the country that allow employees to work without requiring union membership.
Biden’s infrastructure plan would also provide a massive handout to the Service Employees International Union by allocating $400 billion for in-home Medicaid health care. In many Democratic-run states, in-home Medicaid health workers are forced to join the SEIU, a major Democratic donor and labor union with nearly two million members.
Critics of the proposal said Biden is using the infrastructure package as “cover” to pass pro-union reform.
“By using his massive infrastructure proposal as cover for denying millions of American workers their right to decide for themselves whether or not to subsidize union activities, President Biden is proving that his top priority is really building the forced-dues empire of his union boss political allies,” Mark Mix, president of the National Right to Work Committee, said. “The so-called PRO Act will eliminate by federal fiat all 27 state right-to-work laws and give union bosses a whole host of other new coercive tools to force workers into compulsory dues payments and one-size-fits-all union ‘representation.'”
The infrastructure bill, which Democrats have called “must-pass” legislation, may be the best vehicle for advancing the controversial PRO Act. Biden’s strong endorsement of the labor law has not helped it advance through the Democratic-controlled Senate. Majority Leader Chuck Schumer (D., N.Y.) reportedly told AFL-CIO leaders that he would not bring it to the floor without 50 cosponsors, according to the Intercept. Sens. Joe Manchin (D., W.Va.), Mark Kelly (D., Ariz.), Kyrsten Sinema (D., Ariz.), Mark Warner (D., Va.), and Angus King (I., Maine) have yet to back the package.
Other union watchdogs said the Democratic holdouts are right to be skeptical of the bill. Charlyce Bozzello, communications director at the Center for Union Facts, said the passage of the act could harm workers who are struggling to recover from the economic impacts of the coronavirus pandemic.
“Far from providing a ‘free and fair’ choice for workers, the PRO Act is nothing more than a union wishlist,” Bozzello said. “The bill does little to support American workers who are struggling to get back on their feet after the pandemic. Instead, it would consolidate more control with our country’s labor unions, force more employees to pay union dues as a condition of employment, override the right to a secret ballot election, and threaten the livelihood of countless freelancers.”
Biden unveiled the infrastructure package at a speech in Pittsburgh on Wednesday. He urged quick congressional action on the package, which Democratic lawmakers have said they want to pass by Independence Day. He also said that he wants to include Republicans in negotiations, but other Democratic leaders have indicated that they could push the infrastructure package through via the budget reconciliation process.
The passage of the PRO Act would likely require the elimination of the Senate filibuster, however, which would allow the Senate to move forward on a number of other Democratic legislative initiatives. Manchin and Sinema have said they oppose ending the filibuster.
The Biden administration did not respond to a request for comment.
America is a diplomatic fox, while Beijing is a hedgehog fixated on the big idea of reunification.
In a famous essay, the philosopher Isaiah Berlin borrowed a distinction from the ancient Greek poet Archilochus: “The fox knows many things, but the hedgehog knows one big thing.”
“There exists,” wrote Berlin, “a great chasm between those, on one side, who relate everything to … a single, universal, organizing principle in terms of which alone all that they are and say has significance” — the hedgehogs — “and, on the other side, those who pursue many ends, often unrelated and even contradictory” — the foxes.
Berlin was talking about writers. But the same distinction can be drawn in the realm of great-power politics. Today, there are two superpowers in the world, the U.S. and China. The former is a fox. American foreign policy is, to borrow Berlin’s terms, “scattered or diffused, moving on many levels.” China, by contrast, is a hedgehog: it relates everything to “one unchanging, all-embracing, sometimes self-contradictory and incomplete, at times fanatical, unitary inner vision.”
Fifty years ago this July, the arch-fox of American diplomacy, Henry Kissinger, flew to Beijing on a secret mission that would fundamentally alter the global balance of power. The strategic backdrop was the administration of Richard Nixon’s struggle to extricate the U.S. from the Vietnam War with its honor and credibility so far as possible intact.More fromArchegos Appeared, Then VanishedHedge Fund or Billionaire? For Tribune, It’s a No-BrainerIllinois Owes Georgia Voters a Debt of GratitudeOne Cheer for the Return of Earmarks
The domestic context was dissension more profound and violent than anything we have seen in the past year. In March 1971, Lieutenant William Calley was found guilty of 22 murders in the My Lai massacre. In April, half a million people marched through Washington to protest against the war in Vietnam. In June, the New York Times began publishing the Pentagon Papers.
Kissinger’s meetings with Zhou Enlai, the Chinese premier, were perhaps the most momentous of his career. As a fox, the U.S. national security adviser had multiple objectives. The principal goal was to secure a public Chinese invitation for his boss, Nixon, to visit Beijing the following year.
But Kissinger was also seeking Chinese help in getting America out of Vietnam, as well as hoping to exploit the Sino-Soviet split in a way that would put pressure on the Soviet Union, America’s principal Cold War adversary, to slow down the nuclear arms race. In his opening remarks, Kissinger listed no fewer than six issues for discussion, including the raging conflict in South Asia that would culminate in the independence of Bangladesh.
Zhou’s response was that of a hedgehog. He had just one issue: Taiwan. “If this crucial question is not solved,” he told Kissinger at the outset, “then the whole question [of U.S.-China relations] will be difficult to resolve.”
To an extent that is striking to the modern-day reader of the transcripts of this and the subsequent meetings, Zhou’s principal goal was to persuade Kissinger to agree to “recognize the PRC as the sole legitimate government in China” and “Taiwan Province” as “an inalienable part of Chinese territory which must be restored to the motherland,” from which the U.S. must “withdraw all its armed forces and dismantle all its military installations.” (Since the Communists’ triumph in the Chinese civil war in 1949, the island of Taiwan had been the last outpost of the nationalist Kuomintang. And since the Korean War, the U.S. had defended its autonomy.)
With his eyes on so many prizes, Kissinger was prepared to make the key concessions the Chinese sought. “We are not advocating a ‘two China’ solution or a ‘one China, one Taiwan’ solution,” he told Zhou. “As a student of history,” he went on, “one’s prediction would have to be that the political evolution is likely to be in the direction which [the] Prime Minister … indicated to me.” Moreover, “We can settle the major part of the military question within this term of the president if the war in Southeast Asia [i.e. Vietnam] is ended.”
Asked by Zhou for his view of the Taiwanese independence movement, Kissinger dismissed it out of hand. No matter what other issues Kissinger raised — Vietnam, Korea, the Soviets — Zhou steered the conversation back to Taiwan, “the only question between us two.” Would the U.S. recognize the People’s Republic as the sole government of China and normalize diplomatic relations? Yes, after the 1972 election. Would Taiwan be expelled from the United Nations and its seat on the Security Council given to Beijing? Again, yes.
Fast forward half a century, and the same issue — Taiwan — remains Beijing’s No. 1 priority. History did not evolve in quite the way Kissinger had foreseen. True, Nixon went to China as planned, Taiwan was booted out of the U.N. and, under President Jimmy Carter, the U.S. abrogated its 1954 mutual defense treaty with Taiwan. But the pro-Taiwan lobby in Congress was able to throw Taipei a lifeline in 1979, the Taiwan Relations Act.
The act states that the U.S. will consider “any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States.” It also commits the U.S. government to “make available to Taiwan such defense articles and … services in such quantity as may be necessary to enable Taiwan to maintain a sufficient self-defense capacity,” as well as to “maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan.”
For the Chinese hedgehog, this ambiguity — whereby the U.S. does not recognize Taiwan as an independent state but at the same time underwrites its security and de facto autonomy — remains an intolerable state of affairs.
Yet the balance of power has been transformed since 1971 — and much more profoundly than Kissinger could have foreseen. China 50 years ago was dirt poor: despite its huge population, its economy was a tiny fraction of U.S. gross domestic product. This year, the International Monetary Fund projects that, in current dollar terms, Chinese GDP will be three quarters of U.S. GDP. On a purchasing power parity basis, China overtook the U.S. in 2017.
In the same time frame, Taiwan, too, has prospered. Not only has it emerged as one of Asia’s most advanced economies, with Taiwan Semiconductor Manufacturing Co. the world’s top chip manufacturer. Taiwan has also become living proof that an ethnically Chinese people can thrive under democracy. The authoritarian regime that ran Taipei in the 1970s is a distant memory. Today, it is a shining example of how a free society can use technology to empower its citizens — which explains why its response to the Covid-19 pandemic was by any measure the most successful in the world (total deaths: 10).
As Harvard University’s Graham Allison argued in his hugely influential book, “Destined for War: Can America and China Escape Thucydides’s Trap?”, China’s economic rise — which was at first welcomed by American policymakers — was bound eventually to look like a threat to the U.S. Conflicts between incumbent powers and rising powers have been a feature of world politics since 431 BC, when it was the “growth in power of Athens, and the alarm which this inspired in Sparta” that led to war. The only surprising thing was that it took President Donald Trump, of all people, to waken Americans up to the threat posed by the growth in the power of the People’s Republic.
Trump campaigned against China as a threat mainly to U.S. manufacturing jobs. Once in the White House, he took his time before acting, but in 2018 began imposing tariffs on Chinese imports. Yet he could not prevent his preferred trade war from escalating rapidly into something more like Cold War II — a contest that was at once technological, ideological and geopolitical. The foreign policy “blob” picked up the anti-China ball and ran with it. The public cheered them on, with anti-China sentiment surging among both Republicans and Democrats.
Trump himself may have been a hedgehog with a one-track mind: tariffs. But under Secretary of State Mike Pompeo, U.S. policy soon reverted to its foxy norm. Pompeo threw every imaginable issue at Beijing, from the reliance of Huawei Technologies Co. on imported semiconductors, to the suppression of the pro-democracy movement in Hong Kong, to the murky origins of Covid-19 in Wuhan.
Inevitably, Taiwan was added to the list, but the increased arms sales and diplomatic contacts were not given top billing. When Richard Haass, the grand panjandrum of the Council on Foreign Relations, argued last year for ending “strategic ambiguity” and wholeheartedly committing the U.S. to upholding Taiwan’s autonomy, no one in the Trump administration said, “Great idea!”
Yet when Pompeo met the director of the Communist Party office of foreign affairs, Yang Jiechi, in Hawaii last June, guess where the Chinese side began? “There is only one China in the world and Taiwan is an inalienable part of China. The one-China principle is the political foundation of China-U.S. relations.”
So successful was Trump in leading elite and popular opinion to a more anti-China stance that President Joe Biden had no alternative but to fall in line last year. The somewhat surprising outcome is that he is now leading an administration that is in many ways more hawkish than its predecessor.
Trump was no cold warrior. According to former National Security Adviser John Bolton’s memoir, the president liked to point to the tip of one of his Sharpies and say, “This is Taiwan,” then point to the Resolute desk in the Oval Office and say, “This is China.” “Taiwan is like two feet from China,” Trump told one Republican senator. “We are 8,000 miles away. If they invade, there isn’t a f***ing thing we can do about it.”
Unlike others in his national security team, Trump cared little about human rights issues. On Hong Kong, he said: “I don’t want to get involved,” and, “We have human-rights problems too.” When President Xi Jinping informed him about the labor camps for the Muslim Uighurs of Xinjiang in western China, Trump essentially told him “No problemo.” On the 30th anniversary of the 1989 Tiananmen Square massacre, Trump asked: “Who cares about it? I’m trying to make a deal.”
The Biden administration, by contrast, means what it says on such issues. In every statement since taking over as secretary of state, Antony Blinken has referred to China not only as a strategic rival but also as violator of human rights. In January, he called China’s treatment of the Uighurs “an effort to commit genocide” and pledged to continue Pompeo’s policy of increasing U.S. engagement with Taiwan. In February, he gave Yang an earful on Hong Kong, Xinjiang, Tibet and even Myanmar, where China backs the recent military coup. Earlier this month, the administration imposed sanctions on Chinese officials it holds responsible for sweeping away Hong Kong’s autonomy.
In his last Foreign Affairs magazine article before joining the administration as its Asia “tsar,” Kurt Campbell argued for “a conscious effort to deter Chinese adventurism … This means investing in long-range conventional cruise and ballistic missiles, unmanned carrier-based strike aircraft and underwater vehicles, guided-missile submarines, and high-speed strike weapons.” He added that Washington needs to work with other states to disperse U.S. forces across Southeast Asia and the Indian Ocean and “to reshore sensitive industries and pursue a ‘managed decoupling’ from China.”
In many respects, the continuity with the Trump China strategy is startling. The trade war has not been ended, nor the tech war. Aside from actually meaning the human rights stuff, the only other big difference between Biden and Trump is the former’s far stronger emphasis on the importance of allies in this process of deterring China — in particular, the so-called Quad the U.S. has formed with Australia, India and Japan. As Blinken said in a keynote speech on March 3, for the U.S. “to engage China from a position of strength … requires working with allies and partners … because our combined weight is much harder for China to ignore.”
This argument took concrete form last week, when Campbell told the Sydney Morning Herald that the U.S. was “not going to leave Australia alone on the field” if Beijing continued its current economic squeeze on Canberra (retaliation for the Australian government’s call for an independent inquiry into the origins of the pandemic). National Security Adviser Jake Sullivan has been singing from much the same hymn-sheet. Biden himself hosted a virtual summit for the Quad’s heads of state on March 12.
The Chinese approach remains that of the hedgehog. Several years ago, I was told by one of Xi’s economic advisers that bringing Taiwan back under the mainland’s control was his president’s most cherished objective — and the reason he had secured an end to the informal rule that had confined previous Chinese presidents to two terms. It is for this reason, above all others, that Xi has presided over a huge expansion of China’s land, sea and air forces, including the land-based DF‑21D missiles that could sink American aircraft carriers.
While America’s multitasking foxes have been adding to their laundry list of grievances, the Chinese hedgehog has steadily been building its capacity to take over Taiwan. In the words of Tanner Greer, a journalist who writes knowledgably on Taiwanese security, the People’s Liberation Army “has parity on just about every system the Taiwanese can field (or buy from us in the future), and for some systems they simply outclass the Taiwanese altogether.” More importantly, China has created what’s known as an “Anti Access/Area Denial bubble” to keep U.S. forces away from Taiwan. As Lonnie Henley of George Washington University pointed out in congressional testimony last month, “if we can disable [China’s integrated air defense system], we can win militarily. If not, we probably cannot.”
As a student of history, to quote Kissinger, I see a very dangerous situation. The U.S. commitment to Taiwan has grown verbally stronger even as it has become militarily weaker. When a commitment is said to be “rock-solid” but in reality has the consistency of fine sand, there is a danger that both sides miscalculate.
I am not alone in worrying. Admiral Phil Davidson, the head of U.S. forces in the Indo-Pacific, warned in his February testimony before Congress that China could invade Taiwan by 2027. Earlier this month, my Bloomberg Opinion colleague Max Hastings noted that “Taiwan evokes the sort of sentiment among [the Chinese] people that Cuba did among Americans 60 years ago.”
Admiral James Stavridis, also a Bloomberg Opinion columnist, has just published “2034: A Novel of the Next World War,” in which a surprise Chinese naval encirclement of Taiwan is one of the opening ploys of World War III. (The U.S. sustains such heavy naval losses that it is driven to nuke Zhanjiang, which leads in turn to the obliteration of San Diego and Galveston.) Perhaps the most questionable part of this scenario is its date, 13 years hence. My Hoover Institution colleague Misha Auslin has imagined a U.S.-China naval war as soon as 2025.
In an important new study of the Taiwan question for the Council on Foreign Relations, Robert Blackwill and Philip Zelikow — veteran students and practitioners of U.S. foreign policy — lay out the four options they see for U.S. policy, of which their preferred is the last:
The United States should … rehearse — at least with Japan and Taiwan — a parallel plan to challenge any Chinese denial of international access to Taiwan and prepare, including with pre-positioned U.S. supplies, including war reserve stocks, shipments of vitally needed supplies to help Taiwan defend itself. … The United States and its allies would credibly and visibly plan to react to the attack on their forces by breaking all financial relations with China, freezing or seizing Chinese assets.
Blackwill and Zelikow are right that the status quo is unsustainable. But there are three core problems with all arguments to make deterrence more persuasive. The first is that any steps to strengthen Taiwan’s defenses will inevitably elicit an angry response from China, increasing the likelihood that the Cold War turns hot — especially if Japan is explicitly involved. The second problem is that such steps create a closing window of opportunity for China to act before the U.S. upgrade of deterrence is complete. The third is the reluctance of the Taiwanese themselves to treat their national security with the same seriousness that Israelis take the survival of their state.
Thursday’s meeting in Alaska between Blinken, Sullivan, Yang and Chinese Foreign Minister Wang Yi — following hard on the heels of Blinken’s visits to Japan and South Korea — was never likely to restart the process of Sino-American strategic dialogue that characterized the era of “Chimerica” under George W. Bush and Barack Obama. The days of “win-win” diplomacy are long gone.
During the opening exchanges before the media, Yang illustrated that hedgehogs not only have one big idea – they are also very prickly. The U.S. was being “condescending,” he declared, in remarks that overshot the prescribed two minutes by a factor of eight; it would do better to address its own “deep-seated” human rights problems, such as racism (a “long history of killing blacks”), rather than to lecture China.
The question that remains is how quickly the Biden administration could find itself confronted with a Taiwan Crisis, whether a light “quarantine,” a full-scale blockade or a surprise amphibious invasion? If Hastings is right, this would be the Cuban Missile Crisis of Cold War II, but with the roles reversed, as the contested island is even further from the U.S. than Cuba is from Russia. If Stavridis is right, Taiwan would be more like Belgium in 1914 or Poland in 1939.
The low interest rates we’ve experienced over the past few years have made it possible for millions of Americans to buy new homes, refinance properties, and pull out some equity to ease the pinch caused by the lockdowns.
Families have been able to increase their liquidity and pump billions into the economy when it was desperately needed. Consumers, real estate agents, lenders and mortgage brokers all have benefited. So Thursday’s speech via Facebook by United Whole Mortgage CEO Mat Ishbia, in which he delivered essentially an “ultimatum” to his company’s brokers and partners, seems odd.
Ishbia told brokers they had to make a choice — either work with UWM or else. Anyone working with Quicken Loans/Rocket Mortgage and Fairway Independent Mortgage wouldn’t be getting any more business from him.
Some might call that the hard sell. Others might say it’s the kind of threat that could provoke intervention by federal regulators looking for evidence of restraint of trade. Either way, it’s a bad deal for consumers who have or who planned to capitalize on the current low rates.
Ishbia’s play didn’t go over well among industry observers. Mortgage Bankers Association President and CEO Bob Broeksmit issued a statement that said, “Consumers are best served when they have choices created by a robust, competitive market that offers a multitude of loan prices, products, and service levels. Our mortgage market is extraordinarily competitive, with thousands of lenders, multiple delivery channels, and varying business models. MBA does not condone activities designed to thwart competition in the mortgage market and limit loan options available to borrowers.”
What Ishbia wants amounts to a “publicly traded nonbank,” Inside Mortgage Finance reported, “altering its broker contract, telling third-party salespeople if they violate this ‘representation and warranty’ they must pay the wholesaler damages ranging from $5,000 to $50,000.”
Chris Whalen of Whalen Global Advisors LLC, a frequent contributor to the National Mortgage News, said Ishbia’s demands were a direct result of “mortgage lending volumes slowing” forcing firms to fight over brokers and production.
“Both firms are very dependent upon loan refinance transactions and thus buy loans from mortgage brokers. Rocket Mortgage is best in class at refinance, while UWM is an upstart and bottom feeder in terms of production,” Whalen said.
UWM is “the monkfish of mortgage lending,” Whalen said, adding it compared in some ways to Countrywide Financial, a firm that played a key role in the sub-prime lending crisis more than a decade ago “but with the added fuel of the Fed’s purchases of mortgage paper.”
The story, Whalen predicted, “will end in tears” and placed the blame squarely at the feet of Federal Reserve Chairman Jay Powell and the Federal Open Market Committee. Perhaps, but what is certain is that by trying to force third-party brokers to act as UWM employees, Ishbia is guaranteeing home buyers and mortgage brokers will suffer. The policy he is attempting to put into place will restrict competition, despite the launch in January by Quicken/Rocket of a new national mortgage broker directory backed by an investment of $100 million on its website.
Ishbia’s tactics undermine the goal of mortgage brokerages: to identify the lowest interest rates for borrowers and streamline the mortgage process. With Rocket — an industry leader in the mortgage space — now stripped out of the Rolodex of many brokers, consumers almost surely will be required to pay more.
That will cause the housing market to slow down at a most inconvenient time for buyers, sellers and the country as a whole.
Among the best remembered summits of the 20th century are those of Ronald Reagan and Mikhail Gorbachev. Reagan’s commitment to dialogue with America’s primary adversary and what then-Secretary of State George P. Shultz called his “personal chemistry” with his Soviet counterpart were hallmarks of his presidency. But even more important was the fact that Reagan had a clear strategy for victory in the global contest with the Soviet Union.
Reagan’s approach — applying intensive economic and military pressure to a superpower adversary — became foundational to American strategic thinking. It hastened the end of Soviet power and promoted a peaceful conclusion to the multi-decade Cold War.
Now it is useful to ask if a similar approach would be equally successful in America’s contest with an even more formidable rival, the People’s Republic of China, a challenger with whom the free world’s economies are intertwined and increasingly interdependent.
In 1983, Reagan approved National Security Decision Directive 75, which set the course for an assertive, competitive approach to the Soviets, in contrast to the “live and let live” aspirations of détente. Reagan drew on George F. Kennan’s innovative policy of containment, which acknowledged both the disastrous consequences of a hot war with the Soviet Union and the impracticality of cooperation with a Kremlin driven by communist ideology.
Working from Kennan’s original intuitions, the operational approach that Directive 75 emphasized was “external resistance to Soviet imperialism” and “internal pressure on the USSR to weaken the sources of Soviet imperialism.” Rather than trying to reduce friction with the Soviets as prior administrations had done, Directive 75’s aim was “competing effectively on a sustained basis with the Soviet Union in all international arenas.” Within nine years, the Soviet Union collapsed, worn out by economic pressure, an arms race it could not win and internal political contradictions.
The goal of a competitive strategy versus Chinese Communist Party aggression should be different. The United States and like-minded liberal democracies must defend against the expansion of the party’s influence, thwart its ambitions to dominate the 21st century global economy, and convince Chinese leaders that they can fulfill enough of their aspirations without doing so at the expense of their own people’s rights or the sovereignty of other nations.
These efforts must apply Reagan’s fundamental insight — to win against a rival of China’s magnitude requires sustained pressure against the true sources of the adversary’s power.
China is an economic juggernaut. Through its engagement with the United States and other major markets, it has made itself central to global supply chains, moved to dominate strategic industries and emerging technologies, and built up a military designed to win a war with the U.S. and its allies. Numerous multinational corporations and global financial institutions pump capital, technology and know-how into China. This transfer of capability and competitive advantage can be used against the free world to devastating effect. As the CCP puts it, China is poised to “regain its might and re-ascend to the top of the world.”
To foil China’s plans for preeminence, the United States and its partners should restrict investment into Chinese companies and industries that support the CCP’s strategic goals and human rights abuses. The U.S. should work to block China’s access to Western technology in areas that contribute to military advantage and to construct a new global trade and supply chain system that reduces dependency on China. With India, Australia and Japan, the U.S. must also maintain preponderant military power in the Indo-Pacific to convince Chinese leaders that they cannot accomplish their objectives through threats or the use of force.
In all of this, America and its allies should be confident. At the start of the Reagan administration, the Soviet Union, like China today, appeared to be at the height of its ambitions, exerting influence in every corner of the globe. One decade of focused American strategy helped bring about a peaceful conclusion to what many believed could have been an endless Cold War.
Just as Reagan generated the national and international will necessary to overcome the Soviet challenge, the Biden administration can galvanize efforts to compete effectively with an emboldened China. That effort will bolster the administration’s goal of building back the United States’ strength and prosperity.
The Trump administration’s recognition of that the Chinese Communist Party is a strategic competitor was a crucial shift in U.S. foreign policy. There is now a bipartisan consensus in Washington about the need to sustain a multinational effort to restrict the party’s mobilization against the free world. Applying pressure abroad and fostering growth at home will allow the United States and its partners to prevail in this century’s most important competition, preserve peace, and help build a better future for generations to come.
The Biden administration is committed to applying the freshest thinking of the 1930s to contemporary challenges, while congressional Democrats are keen on mandating that all 50 states adopt what is worst and most destructive in California practice. These two tendencies come together in the PRO Act.
The PRO Act, which already has been passed by the House, is being sold as a measure to make it easier for American workers to join labor unions. What it is, in fact, is a measure that would make it much harder for workers to stay out of unions when they want to, by overriding state right-to-work laws and adopting California’s so-called ABC test to treat certain independent contractors as employees.
The union bosses went to bat for Joe Biden in 2020, and this is their payoff. Joe Biden takes a rosy view of unions, and it probably is easy to be sentimental about blue-collar work when you have been in elected office since the early 1970s. Nobody named Biden has lifted anything heavier than money in decades.
Why would a worker want to avoid joining a union? Wouldn’t they prefer to have someone looking out for their interests? That might be the case — if American workers were naïve enough to believe that the Teamsters and the other unions are looking out for their interests, rather than looking out for the interests of, say, a union boss’s brother getting paid a $42-an-hour wage on a New York City construction site while operating a coffee concession. There are, as it turns out, a great many blue-collar workers not much interested in paying for the privilege of enriching politically connected labor leaders who do no real work.
Beyond the corruption and the desire to be free of union politics, other workers have practical, bottom-line reasons for wishing to remain free of union entanglements. For instance, owner-operators involved in long-haul trucking cut their own deals with their clients, working on their own terms rather than on terms set by a union boss. They can do that even where a union already is present. Under the PRO Act, some of these independent operators would risk being reclassified as employees — meaning reclassified out of business. That is because of the second prong of the ABC test insists that independent contractors must be engaged in incidental work rather than core business activities — owner-operators who do drive for trucking services (as opposed to contracting with a farm or a construction company) wouldn’t pass the test to qualify as independent contractors.
Right-to-work laws, which have been passed in the majority of states, do not restrict voluntary union activity. What they do is forbid unions from forcing workers who do not wish to belong to the union to pay dues anyway as a condition of employment — which is to say, they forbid a particularly nasty form of extortion. Anybody who is not a union official who demands a kickback out of workers’ wages as a condition of employment is considered to be engaged in racketeering. The PRO Act would (probably unconstitutionally) supersede laws duly enacted by the state legislatures, making such extortion a mandatory business practice from coast to coast.
The People’s Republic of China (PRC) has consistently revealed itself to be a rogue regime. China operates “re-education camps” where unpopular minorities are systematically imprisoned, tortured, raped, and killed.The communist regime defends the existence of these camps while denying the atrocities committed in them. These denials are without even the semblance of credibility.
Over the years, China has been caught shipping children’s toys that had been painted with lead paint — decades after it was well known that lead paint is poisonous and particularly harmful to children. China has also poisoned baby food and pet food with melamine — which in nutrition testing gives the food the appearance of having a higher protein content. But the food doesn’t have higher protein, and melamine can cause serious illness, organ failure, and even death. China has also been caught producing vitamins with dangerous levels of toxic heavy metals.
Of course, the PRC consistently denies any wrongdoing — just as it did in 2020 with the COVID-19 virus.The totalitarian regime lied about the virus, misled the world in important ways that cost millions of lives across the globe, and blamed others — all while never accepting any responsibility for the harm that they had done. That’s how dictators and totalitarians roll.
Why does China behave like this? Because the totalitarian regime seeks not only to control and dominate its own population, but to ensnare the rest of us in its web of control. The PRC has a comprehensive plan to make itself the world’s most dominant power and it intends to use that power globally, as it has within its own borders. The PRC’s goal isn’t just to become the world’s largest economy or even to have the world’s largest military. The regime’s objective is to force compliance with its world view, its goals and its preferences.
The PRC is rapidly seeking and building a military and naval force; a space presence; economic, trade and shipping dominance; and technological supremacy. The PRC considers everything to be part of its plan to achieve world governance and control — everything from pet food to 5G wireless technology, from children’s toys to trade agreements and shipping, from software and apps to economics, from artificial intelligence to military force, from space exploration to infiltration of American academia.
The same PRC totalitarians who spy on their own people and systematically punish, imprison, torture and even execute them for having the “wrong” views, opinions, religious beliefs, friends, or family, want to expand the circle of their power. And they want you within that circle so that they can have the same control over you.
One of the PRC’s chief plans is to dominate world shipping — because it will give them both economic and military power. The global trade fleet is about 41,000 ships. China builds almost 1,300 ships a year. The US builds only 8. China has become the dominant player in ship building and operating ports around the globe.
But China does not currently dominate shipping within the borders of the US. That is thanks to the Jones Act which requires that ships used to transport goods between two American ports, must be American ships and American crews. Notably it does not prohibit foreign ships from making a stop in American ports. But between US ports, the Jones Act requires American ships and crews.
The Jones Act was designed to ensure that we have the shipping capacity, trained mariners, and the ship building and ship repairing capability required to meet our national security needs. The Jones Act also turns out to big a huge help in protecting the American homeland.
Some argue that the Jones Act is outdated and that it harms American competitiveness. But ask yourself these important questions — if we abolished the Jones Act, would you be comfortable with Chinese ships sailing up and down the Mississippi loaded with spies and high-tech electronics gathering intelligence and intercepting communications? Would allowing China to have a constant presence in America’s heartland on the more than 25,000 miles of inland waterways make America more or less secure? Would abolishing the Jones Act help or hinder China in achieving its goals of world domination? These are a few of the things that America must consider before listening to those who say the Jones Act should be repealed.
One thing is for sure — China would support the repeal of the Jones Act. China’s totalitarian regime seeks to become our master. We should not help them achieve that goal. That’s why we must have a robust and capable defense that is second to none. That is also why we need the Jones Act.
Even though America is still within the first 100 days of Joe Biden’s presidency, most voters are telling pollsters they approve of his performance on the job. According to a poll conducted recently by the AP and the NORC Center for Public Affairs Research, the president gets high marks from 60 percent of those surveyed.
Along party lines, Biden’s handling of the novel coronavirus pandemic is viewed favorably by 70 percent of Democrats and 44 percent of Republicans. Some analysts would say the latter figure lines up nicely with pollster Tony Fabrizio’s post-election autopsy for the 2020 Trump campaign that concluded it was the former president’s mishandling of the COVID crisis that did the most to alienate GOP voters and drive them into the Democratic camp, at least at the presidential level.
Importantly for the GOP, which is still trying to figure out how best to proceed in the post-Trump era, a
new Rasmussen Reports survey found that 51 percent of Republicans considered likely to vote in 2022 thought congressional Republicans had “lost touch” with them over the past several years.
While 41 percent of the likely GOP voters surveyed said their individual representatives “have done a good job representing the party’s values,” their criticism of the congressional party is an ominous sign. It’s true, Rasmussen Reports said, that the numbers were a marked improvement “over previous surveys dating back to 2008” but with well over a third still dissatisfied with what the party in Congress is doing it will likely be difficult to bring the pro and anti-Trump forces together on any affirmative plan to win back the majority in both chambers.
“Democrats are far more satisfied with their representation in Congress,” the polling firm said as, “62 percent of Democratic voters say Democrats in Congress have done a good job of representing Democratic values, while 32 percent say their party’s Congress members have lost touch with Democratic voters from throughout the nation.”
Other findings revealing in the survey include:
–Sixty-five percent (65 percent) of voters not affiliated with either major political party think Republicans in Congress have lost touch with voters, while 51 percent of unaffiliated voters say Democrats in Congress are out of touch.
–Voters under 40 are more likely than their elders to say Democrats in Congress have done a good job representing their party’s values. Voters with incomes over $200,000 a year say Democrats in Congress have done a better job than Republicans of representing their party’s values.
–Among all likely U.S. Voters, just 29 percent think Republicans in Congress have done a good job representing Republican values over the past several years. Most (59 percent) think congressional Republicans have lost touch with GOP voters from throughout the nation, down from 63 percent in 2018, but 12 percent are not sure.
–Forty percent (40 percent) of all voters believe congressional Democrats have done a good job representing their party’s values over the past several years. Forty-nine percent (49 percent) disagree and say they’ve lost touch with Democratic voters, but 10 percent are not sure,” the polling firm said in a release.
The survey of 1,000 U.S. likely voters was conducted on February 28 and March 1, prior to the passage by the United States Senate of the COVID 19 federal stimulus bill adopted without Republican support and has a +/- 3 sampling error. The bill now heads back to the House where Speaker Nancy Pelosi is expected to call it up quickly rather than go to a conference committee to iron out the differences between the new bill and what the House passed last week.
In two Defining Ideas articles in 2009, “Who’s Afraid of Budget Deficits? I Am” and “Furman, Summers, and Taxes,” I criticized Lawrence Summers and Jason Furman, two prominent economists who worked in the Obama administration, for their dovish views on federal debt and deficits. They had argued that we shouldn’t worry much about high federal budget deficits and growing federal debt. Of course, that was before the record budget deficit of 2020. Now even Summers is worried. In two February op-eds in the Washington Post, Summers argues against the size and composition of the Biden “stimulus” bill.
Summers makes a solid argument, on Keynesian grounds alone, that the proposed $1.9 trillion spending bill is much too large. He also, to his credit, digs into some of the details of the bill, pointing out how absurd they are. Had Summers looked at more details, he could have made an even stronger case against the measure. For instance, one major provision of the bill, the added unemployment benefits through August, will actually slow the recovery. And other provisions of the bill, like the bailout of state and local governments, are bad on other grounds. The fact is that this is not your father’s or your grandmother’s run-of-the-mill recession. It was brought about by two things: (1) people’s individual reactions to the threat of Covid-19 and (2) politicians’ reactions, in the form of lockdowns, to the same threat.
First, though, let’s consider Summers’s big-picture case. A standard way that Keynesian economists, including Summers, evaluate a spending program to stimulate the economy is to consider the difference between the actual output (gross domestic product) of the economy and the potential output, that is, the GDP that would exist at full employment. They then advocate an increase in federal spending to close this gap. The typical increase they favor is less than the gap because of the so-called multiplier effect, the idea that when the feds spend a dollar the increase in spending in the economy is more than a dollar. Such multipliers, you might or might not be surprised to know, are difficult to estimate in advance, a fact that many Keynesians readily admit. But whatever the multiplier is, we know that if the difference between potential and actual output is $x billion, the stimulus spending, in the Keynesian view, should be less than $x billion.
Now comes the shocker. The stimulus spending in the Biden bill is a multiple of x. Summers quotes an estimate from the Congressional Budget Office that with the $900 billion measure Congress enacted and President Trump signed in December, the gap between actual output and potential output will fall from about $50 billion a month at the beginning of 2021 to only $20 billion a month at the end. He then notes that the Biden measure would spend about $150 billion per month over many months. So the spending is three times the current shortfall and over seven times the expected shortfall in December.
A major problem with the Keynesian model is that in its simplified form, which, amazingly, is still the one that Keynesian economists use to decide on the amount of spending needed, a dollar that the feds spend on item A is the same as a dollar they spend on item B. Summers, disappointingly but not surprisingly, does not challenge that view directly. He regards the $150 billion per month as overly stimulative whatever it is spent on.
However, Summers does grant the basic fact that one dollar spent on one item could be better or worse than one dollar spent on another item. And he finds much that is bad or, at least, inappropriate. In his February 7 op-ed in which he replies to critics and questioners, Summers notes, “Proposed expenditure levels for school support exceed $2,000 per student.” To put that in perspective, per-pupil spending in K–12 schools in academic year 2017, the most recent year for which we have data, was $13,094. So $2,000 is a huge increase in federal spending on something that, in the government sector at least, has been largely the preserve of state and local governments.
Summers also points out in his February 4 op-ed that the ratio of proposed spending to income loss is even greater for low-income families. He writes:
In normal times, a family of four with a pretax income of $1,000 a week would take home about $22,000 over the next six months. Under the Biden proposal, if the breadwinner were laid off, the family’s income over the next six months would likely exceed $30,000 as a result of regular unemployment insurance, the $400-a-week special unemployment insurance benefit, and tax credits.
Disappointingly, though, Summers doesn’t point out that if the purpose of a stimulus program is to stimulate, paying people an extra $400 a week as long they’re unemployed is a bad idea. This omission is all the more striking given that Summers, in the late 1980s and early 1990s, was prominent in arguing that paying people to be unemployed will cause many of the unemployed to stay out of work longer. Indeed, in his article “Unemployment” in my 1993 Fortune Encyclopedia of Economics,later renamed The Concise Encyclopedia of Economics, Summers wrote:
The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.
Economists since then have done a number of studies of the effect of extending unemployment benefits beyond the traditional twenty-six weeks, and the bottom line is that the effect is large. For example, Rob Valletta and Katherine Kuang, two economists at the San Francisco Federal Reserve Bank, wrote in November 2010:
By easing the financial burden of long-term unemployment, extended benefits reduce the incentives of eligible workers to search for jobs and fill vacancies. Research by Valletta and Kuang (2010) suggests that the impact of extended insurance benefits on the unemployment rate in late 2009 was only about 0.4 percentage point. Updated estimates for all of 2009 and the first half of 2010 suggest a larger impact of about 0.8 percentage point.
More recently, economists Marcus Hagedorn of the University of Oslo, Iourii Manovskii of the University of Pennsylvania, and Kurt Mitman of Stockholm University, in a 2016 study published by the National Bureau of Economic Research (“The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?”), found that 2.1 million people got jobs in 2014 due to the ending of the extended unemployment benefits.
Of course, what we would really like to know is the effect of the double whammy of extending unemployment benefits through August and increasing them by $400 per week. The latter measure would cause millions of unemployed people to make more money by being unemployed than by being unemployed. My own admittedly intuitive guess is that if the bill passes with those benefits, at least two million workers who would have been working will be out of work. That one provision of the “stimulus” bill, in short, would create a drag on the economy.
The other major absence from Summers’s critique is any mention of the huge bailout for state and local governments. Last June, in “Just Say No to State and Local Bailouts,” I noted the Federation of Tax Administrators’ estimate that the combined effect of the pandemic and the state government lockdowns would be a loss of $152 billion in state government revenues through the end of their fiscal years. I also pointed out that the state governments’ rainy-day funds plus their year-end balances totaled $90 billion. So the needed cuts in spending to stay within the states’ balanced-budget requirements would have been $62 billion, which was only 7 percent of the prior estimated tax revenues.
These numbers, it turns out, were overly pessimistic. The Committee for a Responsible Federal Budget estimates that state and local government tax collections by the end of 2020 were over 2 percent higher than in the fourth quarter of 2019. It should be even easier for Congress to “just say no” to state and local bailouts. Unfortunately, the $1.9 trillion bill contains $350 billion for state and local governments, territories, and tribes.
Why doesn’t Summers mention the state and local government bailout? I don’t know, but here’s a hypothesis. He wants to get Democrats to listen to him but he knows they’ll turn off if he is too critical. Thus Summers softens his criticism of the bill by writing, “Its ambition, its rejection of austerity orthodoxy, and its commitment to reducing economic inequality are all admirable.” Senator Elizabeth Warren, in her book A Fighting Chance, recalled the advice that Summers had given her in a dinner conversation early in her time as a US senator:
Larry’s tone was in the friendly-advice category. He teed it up this way: I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders. (Italics in original.)
I don’t know if this is true, but it fits. Larry Summers has been an insider for a long time and it’s probably hard for him to criticize his allies. That makes his criticism of this bill all the more credible.
I’m an outsider and so it’s easier for me to call them the way I see them. Here are the two major things I see, both of which undercut the case for any stimulus bill.
First, the economy is recovering. In January, the International Monetary Fund predicted that real GDP will grow by 5.1 percent in 2021. Possibly that’s because the IMF understands that this is not a typical recession. The slump we’re in was due initially to people’s fear of the virus, a fear whipped up by Dr. Anthony Fauci and others. But now it’s due mainly to lockdowns. As the percent of the US population that has had COVID-19 rises and the number of people vaccinated rises, we are getting closer to herd immunity. Then people will feel even safer going out and governments will have fewer excuses to keep their economies locked down. We can all become Florida or Florida-Plus. That will all happen without any stimulus bill.
Second, the $1.9 trillion bill represents government taxing us or our children in the future to spend money in places where we the people have chosen not to spend it now. The bill is, in essence, a huge instance of central planning with government officials’ preferences overriding ours. The bill, for example, contains $28 billion for transit agencies, $11 billion in grants to airports and airplane manufacturers, and $2 billion in grants to Amtrak and other transportation. How does the government know that those are the right amounts? What if, as I predict, when the pandemic and lockdowns end we will still have fewer people wanting to ride transit because they and their employers will opt for a hybrid model of some at-home work and some in-office work? The effect of this misallocation of resources won’t necessarily show up in GDP because GDP measures government spending at cost rather than at value. But this spending will make us somewhat worse off. It’s far better to rely on people having the freedom to make their own allocations.
If the government gets out of the way, the economy will recover. Maybe it takes an outsider to see that and to say that. I just did.