The Great Biden YOLO

President Joe Biden pitched a pair of new federal spending and taxation bills on a scale rarely seen, intended to have transformative effects on the economy and the role of government in the economy.

The $2 trillion American Jobs Plan infrastructure spending plan includes rebuilding physical infrastructure such as roads and bridges along with federal boosts to workforce development, in-home care, and domestic manufacturing.

The $1.8 trillion American Families Plan includes targeted tax credits and education spending to benefit middle and lower earners as well as a plan to raise revenue through higher corporate taxes and taxes on higher earners and holders of wealth.

President Biden

If the twin proposals pass with narrow Democratic majorities in the House and Senate, it will herald changes of a piece and on a scale with Lyndon Johnson’s Great Society.

I’m asking myself three questions about these plans. I figure I’m unlikely to sway your fixed opinions either way, but here goes. My three questions are:

Is massive federal government stimulus spending on infrastructure a good idea right now?

Are higher taxes on corporations and wealthy households, combined with targeted tax breaks on lower earners a good idea right now?

Is increasing the federal debt by an additional $4 trillion a good idea right now?

Each of these three questions can be further considered on economic terms, political terms, and moral terms. As a citizen, I’m interested in all of these questions, on all of these terms.

Let’s start with the plan for massive infrastructure spending at this moment in the economic cycle. It’s surprising.

What I mean is that in a sluggish, ailing economy – with let’s say above 10 percent unemployment like the Great Depression or even the Great Recession following 2008 – a massive government stimulus push makes tremendous sense. That’s basic Keynesian economics. 

We’re not in that zone right now. The July 2021 unemployment rate was 5.4 percent. Yes, that unemployment rate is still worse than pre-COVID levels (3.5 percent unemployment in February 2020) but we also haven’t even fully re-opened the economy yet. 

Vaccinations, herd immunity, and the resumption of economic normalcy may naturally get us back to the relatively roaring economy of pre-COVID February 2020, without any further federal stimulus. The stock market is hitting new highs every week. (Yes, I know the stock market is not the economy, but it is a highly visible leading indicator, which is why we refer to it). Real estate prices are, in general, on fire. (Yes, housing is also not the economy, but it is an important and visible subsector of it.) And the latest GDP number was 6.4 annual growth, higher than normal trend. A massive stimulus bill right now feels, at the very least, unprecedented. I harbor strong doubts about the size and the timing of this one.

Unemployment through July 2021

What about the American Family Plan for higher taxes on corporations, higher earners, and capital gains taxes? I am here for it. I mean this more as a moral statement than an economic statement, since inequality is a leading problem of our time. But I also think it’s ok economically. First, because we need the additional revenue. Second, because the tax changes merely roll us back to times when the economy also grew strongly under higher corporate and upper income rates. Third, because tax rates and tax policy should alleviate, not exacerbate, inequality.

And the child and family support measures? I believe in expanded pre-K and community college access both morally and as an economic measure. I think poverty alleviation similarly has both moral and economic benefits, and we need to do more of those as well. We’ll be both a richer society and a better society for it.


Finally, what about expanding federal debt by $4 trillion more right now? Phew. This is the craziest part of the conversation. A conversation that we’re kind of not even having. Republicans blew their authority and credibility on the issue of fiscal responsibility long ago. 

If Biden gets this passed, it will mark a wholly different direction than the Clinton and Obama presidencies. Despite what critics said at the time and after, the Clinton administration prided itself on shrinking government. They actually balanced the federal budget and set a course for retiring federal debt. That seems forever ago but it was merely the year 2000. In that same spirit, Obama politically hamstrung his signature health care legislation by requiring that it pay for itself and not increase the federal deficit. In hindsight, this lack of generosity probably doomed it in the eyes of the many who needed it most. 

After a career in Congress built on being a deficit hawk, Paul Ryan shepherded a unified Republican Congress and Executive Branch to pass a $1.5 trillion tax cut in 2017, a tax cut that overwhelmingly favored upper earners and corporations. This is the opposite move than a real deficit hawk would make, but Ryan just YOLOd his own reputation for those sweet tax cuts.

When the W. Bush and Trump administrations massively increased federal debt despite the Republican party’s claim to favor fiscal responsibility and limited government, Democrats seemed to have internalized a whole different approach to government debt. Democrats are no longer willing to self-limit as they did in the past. At this point they are daring the cowards and hypocrites in the Republican party to stop them.

I honestly don’t know what to think about $4 trillion in additional deficit spending. We’re in total YOLO territory. It feels like the Washington DC version of lots of things I don’t understand about money in 2021, like GameStop, Bitcoin, SPACs, and NFTs. The assumptions we long held about fundamentals and financial gravity don’t seem to hold anymore.

 “It’s different this time” are frequently called the four most dangerous words in finance. It’s been different for a while when it comes to deficit spending, as the laws of financial physics are seemingly suspended. I don’t get it. I continue to worry about gravity.

A version of this post ran in May 2021 in the San Antonio Express News.

Please see related posts

Paul Ryan wrecks his reputation on the way out the door

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The Great Economic Leap Forward Experiment

While medical researchers race against time to find effective treatments for COVID-19, we have launched ourselves headlong into an economic experiment in federal policy on effectively treating a recession.

The experimental treatment so far is the recently signed $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Money for big businesses. Money for small businesses. Money for individuals. Is it too much? Is it not enough? Will it prove to be – in a phrase now used in many contexts – “a cure that’s worse than the disease?” 

A primary mission of mine – as a writer – is provide language and categories around which we can discuss financial matters, as citizens. In vastly simplified terms, we could identify 3 theoretical approaches to fiscal and monetary policy in response to a COVID-induced recession, from the right, the middle, and the left. 

On the right, the Austrian School and its most famous 20th Century theoretician, the Nobel Prize-winning Freiderich Hayek, would encourage limited government spending and a cautious central bank, in favor of freedom, individual action, efficiency, and ever-vigilance around inflation. Writing in the middle part of the 20th Century, Hayek warned against creeping Socialism and the centralization of economic power as threats to humanity. Bank lending of fiat currency – rather than relying on the solidity of an anchor-currency like gold – tends to artificially lower interest rates and overly expand the money supply.

The policy implications of the Austrian school is to interfere the least in business cycles, as they will work themselves out over time.

In the middle, policy makers advocate along themes established by John Maynard Keynes, who argued for a combination of robust government spending and easy money from the Central Bank, originally in response to the Great Depression of the 1930s. Fed Chairman Ben Bernanke, a careful researcher of the Great Depression, followed that playbook in the 2008 Great Recession. And I would say – from a monetary policy standpoint when all was said and done – very successfully.

The left has recently coalesced around something known as Modern Monetary Theory (MMT). 

Just as the Austrian school of thought and Keynesianism have variations, so too does MMT. But simplifying a bit, the big unifying idea of MMT is that governments that print their own currency like the United States do not have to worry tremendously about the problem of paying back debt. Controlling an unlimited supply of money can free policy makers from worries about a finite source of capital, or the classical economists’ worry of “crowding out” private borrowing and private enterprise. Both fiscal policy (taxing and spending) and monetary policy (the supply of money and interest-rate setting) should respond to problems by making money much more available, aggressively where needed. In stark contrast to the Austrian school, MMT points to a massive intervention of the government in the economy.

A key point of MMT – a point in which I am in agreement – is that debt owed by a government is not exactly like debt owed by a household or a business. Households and businesses do not create their own currency, so must always have a reasonable plan for repayment, or risk being shut down or punished by having assets seized by creditors. Governments that create their own currency, by contrast, need not fear creditors in quite the same way as households and businesses.

MMT theorists, accused of disregarding inflation, have argued that in periods of low inflation – like we’ve seen in recent decades, and like we usually see in recessions – policy can focus on more immediate threats, like underinvestment and unemployment. 

I’ve been thinking about some of this in part because a conservative friend and reader handed me a copy of Freiderich Hayek’s The Road To Serfdom on March 18th, during what might be the last sit-down meal at a restaurant we will enjoy for months. Hayek’s worldview (or permit me to smoothly roll ‘Weltanschauung’ off my tongue) in simplest terms, is that the biggest enemy confronting society is government control of economic activity. 

So where are we currently on the spectrum of policies – from the Austrian right, the Keynesian center, or the MMT left?  As of this month we’re neck deep in a massive MMT experiment. That’s not what Congress and President Trump said out loud as they passed the CARES act. They would all deny it, if asked. But just to be clear: that’s what we’re all doing. The CARES Act was the most MMT experiment our country has ever tried. And it’s still early days yet in the COVID recession. As a betting man, I’d say more is coming.


And the weird thing was the near-unanimity of it all. Which also makes me nervous.

One reliable indicator of problematic policy in a democracy is unanimity, or near-unanimity of votes. Problematic because unanimity generally indicates votes forcibly taken, votes taken in fear, or votes taken under emergency conditions. 

Like elections in the old Soviet times, in which the winner would earn 99% of the vote. Or like the Patriot Act of 2001, which passed the Senate by a vote of 98-1 in October 2001, following the attacks of September 11th. 

We similarly saw the passage of the $2 trillion CARES Act by a 96-0 vote in the Senate, and the absence of anything other than a voice vote among a quorum in the House of Representatives, without a recording of who voted how. Friday March 27 was a weird day in Washington.

So Tea Party folks, just to clearly review. Your party – with a unified Republican Congress and Presidency – passed the 2017 Tax Cuts and Jobs Act, expected to increase the federal deficit by $1.4 trillion, according to the Congressional Budget Office. The CARES act just passed – by a divided Congress and Republican President – will cost $2 trillion. What we should all agree on right now is that there is no fiscal and monetary conservative party in the United States. It does not exist. We’re all unified MMT leftists right now. I guess we’ll find out in a few years how we like it.

Not that we necessarily had a choice.

Would I have voted yes for the CARES Act, were I in Congress that day? Yes.

Do I think we’ll be instituting a form of Universal Basic Income within 6 months? Yes.

Do I think our fiscal and monetary policy might be a ticking time bomb – both because of our debt levels and inflation – for the United States? Also yes.   [LINK to column on government debt spending:

Please see related posts:

We’re getting UBI and we’re never going back, after 2020

Government Debt – Ways to Think About it.

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