No matter who wins the election this November, the worst of the COVID-19 crisis will likely be over by Inauguration Day, thanks either to improved therapeutics or a vaccine. On the economic front, the data from May and June demonstrates that the U.S. labor market can recover rapidly. An essential element of that recovery will be incentivizing private sector businesses to reignite, grow and hire.
Absent sufficient tax revenue, the government can do little to address the difficulties we will face or the debt we incurred due to the pandemic. Those tax dollars come from the profits private sector businesses generate and the jobs (incomes) they create. The government’s ability to borrow is also dependent on the strength of the American economy, which is, in turn, dependent on a vibrant private sector.
The lesson of President Trump’s first three years in office was that tax cuts and deregulation incentivize private sector growth, creating jobs and increasing the competition for employees. The result was a flood of job openings, extremely low unemployment, significant wage growth, and people rejoining the workforce. We headed into the pandemic with the strongest labor market in modern times and that strength is beginning to reemerge as we recover.
So, how would presumptive Democratic presidential nominee Joe Biden reignite private sector growth coming out of the pandemic? Biden has already committed to significantly increasing both taxes and government regulation to implement his policies, virtually all of which envision expanding government’s role in our economy.
Those proposals include expanding government power to battle climate change, empowering unions and encouraging the growth of what his campaign website calls “deserving” (read: government-favored) businesses. If that sounds a lot like socialism, no one should be surprised. Biden has formed a joint policy task force with, among others, Democratic socialist Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez. Democratic voters may have handed Biden a nomination battle victory, but Sanders is winning the policy war.
Biden’s economic plan boils down to a single theme: massive government spending. For example, there’s his $2 trillion climate change plan, his union-empowering $700 billion “Made in America” plan and, most recently, his plan to spend $775 billion to create 3 million government jobs in the areas of caregiving and education.
Would this government spending binge actually reinvigorate job and wage growth? We have a very recent example we can look to for guidance. In fact, Biden’s plan has a distinct air of familiarity.
When the Obama/Biden administration took office in January 2009, the unemployment rate was 7.8%. Shortly before Inauguration Day, Obama’s economic advisers issued a report arguing for massive government stimulus to create jobs and keep unemployment below 8%. Obama described the report as a “rigorous analysis so that the American people can see exactly what this plan will mean for their families, their communities, and our economy.”
The following month, the Democrats passed this Keynesian-style “stimulus” bill authorizing over $800 billion in supposedly job-creating federal spending.
The unemployment rate shot above 8% that very month and remained there for the next 3 ½ years -- or 43 consecutive months. Wage growth dropped below 3% within two months and never hit that mark again during the entire Obama presidency. Why?
Large businesses and those in what the government considers “deserving” sectors often love these government spending sprees as they expect to benefit from government largesse. But, American’s 32 million small businesses, which employ nearly 50% of all U.S. employees, are generally less enthusiastic.
While always happy with any increased revenue that may come their way, small business owners know that government largesse – no matter how generous – cannot last forever. If you believe a revenue source is going to dry up, you don’t invest in growth and hiring based on its continuing. That’s particularly true if you know taxes on your business and customers are the source for this spending spree. Small business owners know better than most that government cannot spend its way to prosperity.
Some government spending is, of course, essential to support the economy. For example, we need to build and maintain infrastructure and help those in need, particularly during a crisis. But it takes more than government spending to ignite private sector job growth.
The Obama/Biden administration presided over the worst economic recovery since World War II. Yet, Biden would have us put his former administration’s spending plan on steroids, depressing private sector growth, overburdening our tax base, and threatening to send the government’s ability to borrow -- or simply print more money -- past the point of no return.
In reality, Biden has no plan to increase private sector jobs. His one-horse economic plan is simply to grow government. We know what works and, pre-pandemic, we saw what releasing the energy of the private sector can do. It makes no sense to go back to what we know will fail.