The Radical Modesty of Biden’s Budget – 6/1/2021 – Paul Krugman

Numerous reports on the Biden administration’s budget proposal, released on Friday (28), give the impression that its value is immense. President Biden, some headlines shout, wants to spend $ 6 trillion (R $ 30.9 trillion) next year. (Sorry, I couldn’t help but be tempted to imitate Dr. Evil).

You have to wade through the texts for a while to find that the starting point – the amount the government estimates we would spend in the next fiscal year without its new proposals – is US $ 5.7 trillion (29.4 trillion dollars). trillions of R $).

In fact, one of the most striking things about Biden’s budget initiative – and perhaps his entire government – is the relative modesty in terms of the money spent and the promises of what it is. money would accomplish.

He neither proposes nor promises a revolution. Only policies that would dramatically improve the lives of Americans. And, to me at least, that sounds immensely refreshing after the blunt and totally unbridled statements from its predecessor.

It should be emphasized that Biden’s plan is by no means trivial. The budget proposes that the federal government spend the equivalent of 24.5% of GDP (gross domestic product) over the next 10 years, compared to 22.7% if nothing changes.

The increase, mainly due to an increase in infrastructure spending and family assistance, is larger than it appears because a large part of current spending is devoted to the army, insurance- sickness and social security. But we are not talking about socialism either. The proposal would still leave the United States with a smaller government than most other rich countries.

Still, the extra spending would make a huge difference to some economic sectors, especially renewables, and significantly improve the lives of some Americans, especially low-income families with children.

Remarkably, however, the administration does not claim that these policies would significantly accelerate economic growth. The former president’s economists predicted that his policies would produce sustained growth of 3% per year in GDP, which would have been extraordinary in an economy whose working-age population is barely increasing. Biden economists predict growth of less than 2% per year after the economy recovers from the pandemic.

Why this modesty? Part of it may be political strategy: Biden likes to promise less than he keeps, just like he did with vaccines.

Government economists are quite optimistic, for example, that family allowance policies and other measures to support families will lead to increased labor market participation, and that investing in children will generate significant economic returns over the years. the long term.
But they also know the story.

Governments can do a lot to fight short-term recessions (or make them worse), but the point is that it is very difficult for public policies to make a big difference in the long-term growth rate of the economy. .

This is something the right has never understood (it’s hard to get people to understand something when their wages depend on not understanding it).

The Conservatives always promote the claim that tax cuts, in particular, will accelerate growth; they like to quote Ronald Reagan’s alleged economic triumph. But Reagan only presided over two years of very rapid growth, and at a time when the economy was recovering from a severe recession.

Throughout the 1980s, the economy grew only 0.015 percentage points – almost nothing – faster than in the troubled 1970s.

And looking at history more broadly, at the national and state levels, shows that predictions that tax cuts will produce economic miracles have never been confirmed – not once. Besides, predictions that tax increases, such as those proposed by Biden to apply to businesses and the wealthy, will not lead to disaster.

So it makes sense that the Biden administration should avoid making exaggerated promises about economic growth. But does that mean plans aren’t important? Certainly not.

The truth is that while government policies rarely have a large effect on the overall rate of economic growth, they can have a large effect on the quality of life of citizens.

Governments can, for example, ensure that their citizens have access to affordable health services; they can dramatically reduce the number of children whose lives will be marred by poverty.

Biden’s plan would make great strides on both of these fronts, and others. And it is in this sense that Biden’s plan, despite its relatively modest cost, represents a radical departure from the economic policies of the past.

For the past four decades, the economic debate in the United States has been dominated by an ideology fundamentally opposed to spending money to help ordinary citizens. We cannot borrow more money so as not to cause a public debt crisis. We cannot raise taxes for those who can pay, lest they destroy their motivation to build wealth.

Biden’s budget, however, reveals a government liberated from these fears. It does not offer large deficit-backed spending, but points out that the federal debt burden, if measured correctly, is minimal. And government officials have made it clear that they don’t believe in low-tax propaganda.

You could argue that the most important thing in this budget is not so much the dollars it spends as it is the dogma it rejects. And if Biden’s presidency is considered successful, this ideological liberation will have immense consequences.

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