The president claims that his trillion-dollar spending plan would generate jobs, improve the economy, and raise salaries while without increasing the national debt.
President Biden is still fighting in Congress to have some form of his multibillion-dollar "Build Back Better" spending plan passed. The proposal includes billions of dollars spent on everything from electric vehicle tax credits and green energy subsidies to taxpayer-funded daycare for all, housing subsidies, and more in its different forms. According to the Biden administration, the newest version would include $1.85 trillion in new spending.
The president has made grandiose promises about what we would get in return for such a monumental expenditure. (After all, that price tag is more than FDR's New Deal's inflation-adjusted cost!)
“[This is] a framework that will create millions of jobs, grow the economy, invest in our nation and our people, turn the climate crisis into an opportunity, and put us on a path not only to compete, but to win the economic competition for the 21st century against China and every other major country in the world,” Biden said in a recent speech. “It’s fiscally responsible. It’s fully paid for.”
“For much too long, the working people of this nation and the middle class of this country have been dealt out of the American deal, and it’s time to deal them back in,” he continued. “If we make these investments, there will be no stopping the American people or America. We will own the future.”
Simply put, Biden argues that his plan to spend trillions will create jobs, grow the economy, and increase wages—all without adding to the $28.9 trillion (and counting) national debt. Yet a new Ivy League economic analysis undercuts every single one of these claims.
Analysts at the Wharton School of Business reviewed President Biden’s latest $1.85 trillion framework proposal and ran the numbers to project its likely economic impacts, under two distinct scenarios. One is the rather unrealistic scenario where it actually only costs $1.85 trillion. Yet because the proposal is structured with many budget gimmicks and short-term spending authorizations that would likely be reauthorized if implemented, its real cost could be as much as $4.25 trillion. Wharton also modeled the likely impact of this scenario.
In the first instance, assuming the president's initiatives are only as expensive as he claims, the analysis reveals that his pledges fall short on practically every front. The tax hikes mentioned would not cover the full program, and in the long run, they would result in a 2% rise in government debt. (It may seem insignificant, but it amounts to hundreds of billions of dollars in government funds!) While Wharton predicts a minor gain in earnings, it also predicts a contraction in the overall economy, as well as a decrease in company investment and hours worked.
How's it for reviving America? And those bleak findings are based on Biden's optimistic assumptions. The investment's return is much worse under the more realistic case, where expenditure allowances are correctly accounted for and the true cost is north of $4 trillion.
Over the next 30 years, the government's debt would rise by 25%, amounting to trillions of dollars in new spending that would not be paid for. In comparison to the baseline, the economy would decrease by roughly 3% throughout this time period, with earnings falling by 1.5 percent and hours worked falling by 1.3 percent.
It's simple to understand how government expenditures may result in such poor outcomes. Big government spending proponents, such as Joe Biden, focus primarily on the ostensible advantages of their policies.
Every dollar spent, however, must originate from someplace else in the economy, whether directly or indirectly. The resources that the government invests in one area are, by definition, resources that the private sector would have invested elsewhere.
Tax increases to partially pay the expenditure dissuade people from working and tax money that might otherwise be invested. The debt used to partially pay the spending "crowds out" resources that may be used for private investment. It's also not just a wash. Government redistribution often results in net economic losses because it takes resources that would have been distributed based on market signals and instead allocates them based on politics.
As Ludwig von Mises famously put it, “The government and its chiefs do not have the powers of the mythical Santa Claus. They cannot spend except by taking out of the pockets of some people for the benefit of others.”
The Wharton approach is able to consistently anticipate the negative effects of Biden's ideas by keeping the realities of trade-offs in mind.
For the president's ambitions, this analysis is nothing short of disastrous. Biden wants to seize and spend trillions of dollars from the American people, promising us the world in exchange. However, both Ivy League experts and fundamental economic concepts reveal how hollow those assurances are.