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Opinion: Biden's stimulus would be worse than ineffective

Opinion: Biden's stimulus would be worse than ineffective

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Frank G. Steindl

Frank G. Steindl

President Joe Biden is on record as wanting to “go big” in addressing several issues, hence, his proposed $1.9 trillion stimulus proposal.

This is not the first time a president has offered a substantially large one-time spending proposal designed to lift the economy toward full employment. In the midst of the very sharp 1937-38 depression, one much steeper than the 1929-33 contraction, Roosevelt similarly offered such a plan. This was based on the then-new Keynesian multiplier, wherein government spending of an initial sum would be spent and spent again over and over by the private sector, thereby raising income by a multiple of the initial expenditure by the government, that is, the multiplier

This one-time increase in spending to lift the economy came be known as pump-priming, the analogy derived from drawing water via a pump from a well. In this, the pump handle must be pushed up and down several times before water began flowing, and to maintain the flow the handle must again be pumped.

Economists then pointed out that a one-time expenditure increase would soon peter out as the repeated secondary spending died out. The only way to have a permanent long-term effect on increasing income would be to continue repeatedly the amount of the one-time expenditure increase.

Obviously, the proposed one-time $1.9 trillion “stimulus” would be ineffective. It would not have any lasting long-run effect on the economy’s income. Only if the $1.9 trillion expenditure was to be repeated time and again would there be a permanent effect, a most unlikely prospect.

There are however two long-term effects, neither desirable. The first is that the deficit increase in the federal debt must result in a future increase in higher taxes in order to pay interest of the greater debt, much less to begin to pay off the federal debt. Hence, future generations would have lower disposable incomes and therefore lower standards of living. What this says is that the current generation is financing its standard of living at the expense of future generations. In other words, the current generation is greedy.

Secondly, included in the $1.9 trillion proposal is a mandated doubling of the minimum wage to $15 an hour. The obvious effect is to reduce employment, principally in the service sector of which restaurants are the clear example. Of more consequence, a $15 minimum wage also raises the bar on entry into the labor force to those whose labor skills are too low. As a consequence, the underground economy in both its legal and illegal activities grows.

Prime among those entering the underground economy, i.e., those “denied” entry into the official labor force are minorities, principally Blacks and Hispanics, this due to well-documented inferior schools. In effect the proposed expenditure increase is inherently discriminatory, even outright racist as indeed are all minimum wage laws.

It is important to note that those who enter into the underground economy are not counted in the official labor force data, either as in the labor force or as unemployed

There does not seem to be much to recommend this expenditure other than politically it is another case of “mistaking activity for achievement,” i.e., MAFA!

Frank G. Steindl is regents professor emeritus of economics at Oklahoma State University.


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Frank G. Steindl is regents professor emeritus of economics at Oklahoma State University.

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