Many reports about the
Biden administration’s budget proposal, released Friday, convey the sense that
it’s huge. President Joe Biden, scream some of the headlines, wants to spend
SIX TRILLION DOLLARS next year. (Sorry, can’t help doing my best Dr Evil
imitation.) It takes some digging to learn that the baseline — the amount the
administration estimates we’d spend next fiscal year without new policies — is
$5.7 trillion.
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In fact, one of the
most striking things about Biden’s budget initiative — arguably about his whole
administration — is its relative modesty in terms of both money spent and
claims about what that spending would accomplish. He is neither proposing nor
promising a revolution, just policies that would make Americans’ lives
significantly better.
And I, for one, find
this hugely refreshing after former guy’s achievement-free bombast.
Now, the Biden plan is
by no means trivial. The budget proposes spending 24.5 percent of
GDP over the
next decade, up from a baseline of 22.7 percent. That increase, mainly driven
by increased expenditures for infrastructure and families, is bigger than it
looks because so much of the baseline is devoted to the military, Medicare, and
Social Security. But it’s not socialism, either. It would still leave the
United States with a smaller government than most other wealthy countries’.
Still, the extra
spending would make a huge difference to some economic sectors, notably
renewable energy, and vastly improve some American lives, especially those of
lower-income families with children.
Notably, however, the administration
is not claiming that these policies would dramatically accelerate economic
growth. Former Guy’s economists predicted that their policies would produce
sustained GDP growth of 3 percent a year, which would have been extraordinary
in an economy whose working-age population is barely growing. Biden’s
economists are projecting growth of less than 2 percent after the economy has
bounced back from the pandemic.
Why this modesty? Part
of it may be political strategy: Biden likes to underpromise and overdeliver,
the way he did with vaccinations. The administration’s economists are actually
quite optimistic, for example, about the possibility that child care and other
family policies would expand labor force participation and that investing in
children would yield big economic returns in the long run.
But they also know
history. Governments can do a lot to fight short-term recessions (or make them
worse), but the fact is that it’s very hard for policy to make a big difference
to the economy’s long-term growth rate.
This is something the
right has never understood. (It’s difficult to get people to understand
something when their salaries depend on their not understanding it.)
Conservatives are
constantly pushing the claim that tax cuts, in particular, will supercharge
growth; they love to cite the supposed economic triumph of Ronald Reagan. But
Reagan presided over only a couple of years of very rapid growth, as the
economy recovered from a severe recession. Over the course of the 1980s, the
economy grew only 0.015 percentage points faster — basically a rounding error —
than it did in the troubled 1970s.
And looking more
broadly across history at both the national and the state levels shows
predictions that tax cuts will produce economic miracles have never panned out
— not once. Neither, by the way, have predictions that tax hikes, like the
increased levies on corporations and the wealthy that Biden is proposing, will
lead to disaster.
So it makes sense for
the Biden administration to avoid making big claims about economic growth. But
does this mean that its plans are no big deal? Not at all.
You see, while
government policies rarely have major effects on the economy’s overall growth
rate, they can have huge effects on the quality of people’s lives. Governments
can, for example, ensure that their citizens have access to affordable health
care; they can drastically reduce the number of children whose lives are
scarred by poverty. The Biden plan would take big steps on these and other
fronts.
And this is the sense
in which the Biden plan, despite its relatively moderate price tag, represents
a radical departure from past economic policy.
For the past four
decades, US economic debate has been dominated by an ideology fundamentally
opposed to spending money to help ordinary citizens: We can’t borrow more, lest
we provoke a debt crisis. We can’t raise taxes on those able to pay, lest we
destroy their incentive to create wealth.
The Biden budget,
however, reveals an administration free from these fears. The budget doesn’t
propose huge deficit spending, but it does point out that the burden of federal
debt, properly measured, is minimal. And administration officials have made it
clear that they don’t buy into low-tax propaganda.
You could say that the
most important thing about this budget isn’t so much the dollars it would
deliver as the dogma it dismisses. And if Biden’s presidency is seen as a
success, this ideological liberation will have huge consequences.
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