By John F. Di Leo -
Joe Biden has been talking about the Biden/Harris campaign's effort to help American manufacturing, in the form of a $700 billion spending bill, essentially a repackaged version of an economic program that Senator Elizabeth Warren ran on in the primaries.
The program, as Mr. Biden describes it, is a combination of $400 billion focused on federal purchases of goods, and $300 billion focused on federal grants and partnerships for research and development.
On the surface, this doesn’t sound entirely bad. It’s not innovative either; presidents always propose spending programs. President Trump tried very hard to get a large infrastructure spending program passed in his first term, but the Democratic-run House of Representatives wouldn’t agree to a spending program with Trump’s name on it, even though it focused on the very kinds of things – bridges, roads, water and sewer systems, etc. – on which they spend federal money all the time.
But if we have learned anything from watching presidential campaigns over the past century or so, it is to dig deeper than the numbers. We need to study who the government is spending the money on, whether they are useful or unwise projects, if they are merely make-work projects or real, necessary programs that will bring genuine value besides the immediate jobs they involve.
Consider a few similar programs from recent Democrat administrations:
“Cash for Clunkers” – formally, the Car Allowance Rebate System (CARS)
Just a decade ago, the Obama/Biden administration claimed that one of America’s problems was a multitude of broken-down old cars that got bad gas mileage, and we could help to get the country out of the 2008 recession by paying the owners of these low-mpg cars to scrap them and buy new ones. The basic idea was that owners of good, operable cars getting under 18 mpg would get up to $4500 as a credit against the purchase of a new car if they allowed the government to destroy the car (remember, these are good, drivable cars whose only crime was not being particularly fuel-efficient), and buy a new car that got over 22 mpg.
The program planned to use up only about $3 billion in federal tax dollars, a rounding error in modern terms, but it’s important to look at its effects. About 125,000 cars, SUVs and trucks were destroyed to get these $4500 (or thereabouts, depending on the vehicles) payouts. These were working vehicles; destroying 125,000 of them simultaneously raised the price of used cars across the country, encouraged car owners to buy a new car often before they were ready to, or to buy a more expensive car than they should have budgeted for. Perhaps most importantly, the plan resulted in pushing people away from US-made vehicles and toward imports, often for the first time. Most high-mpg cars are Japanese or South Korean; most low-mpg cars are American. (Text updated 9:25 AM 9-29-20)
The Obama-Biden program did more to move Americans from Detroit products to Japanese and Korean cars than any ad campaign ever could. That $4500 government check from Obama and Biden, in most cases, turned out to be a bribe to get Americans to switch away from Ford, GM and Chrysler, and to start buying from Honda, Nissan and Toyota.
The destruction of value and waste of tax dollars aren’t even the key takeaways from this debacle; this Obama/Biden enticement to stop buying American cars and start buying imports was a lasting change, a change in plan that carried on into these drivers’ future car purchases as well.
The lesson of Cash for Clunkers is therefore that the seemingly good intentions and dollar figure of a government program aren’t necessarily its most important aspects. We need to study what the requirements are (Forcing people to destroy perfectly good cars… Forcing people to buy a new car before they really needed to… Encouraging American car owners to switch to imports)… and think ahead to what the real results will be.
Sometimes, government spending plans are just a waste… but sometimes, they can be destructive far beyond their mere waste alone.
The American Recovery and Reinvestment Act of 2009
Another of the Obama/Biden administration’s big promises was the 2009 Stimulus, known as ARRA. The administration made Joe Biden the point man on this one, to ensure there was no waste, to ensure that the trillion dollar budget was well spent.
This program actually turned out to be a hodgepodge of many different spending plans that Congressional Democrats had been pushing for years.
The program included, for example, about $100 billion in education funding, but what that meant in real life was that the federal taxpayers funded foolhardy decisions by local school boards. School districts that were losing tax revenue or losing student population used this program to create new staff positions, both educational and administrative, rather than making the budget and staffing cuts appropriate for their districts. The problem with such a move is that the federal money would expire in a year or two, while the districts have now created new positions to either find a way to fund, or painfully delete, just a couple of years later.
This is a common tactic for public school districts, as parents and children develop relationships with the teachers, so they react with compassion when the budget-strapped district comes to them two years later for a referendum, saying “We are losing our funding, so we need a tax increase just to maintain current services!” They never admit that it was that federal or state stimulus windfall that created these unaffordable “current services” in the first place.
And frankly, that’s the real result of these sorts of federal assistance, more often than not: to encourage local and state governments to take on permanent employees they won’t be able to afford when the federal money runs out.
The 1994 “Crime Bill”
Those of us who were around fifteen years earlier, in fact – a quarter of a century ago now – remember an almost identical program with identical results, from a different Democrat administration, ostensibly to deal with a different recession:
In the 1994 Crime Bill, the federal government allocated hundreds of millions of dollars in federal grants to local communities all over the country, to help them hire more police. Sounds great, right? But there were some serious strings attached to these bags of money: the grants were limited to only cover up to 75% of the new hires’ salaries, and could only cover the first three years of their employment.
So, what the 1994 Crime Bill (strongly supported by then-Senator Joe Biden, who still boasts about it whenever he forgets that he’s not supposed to be proud of it anymore) really did was to dangle money in front of budget-strapped cities to convince them to hire new employees they couldn’t afford, with whom they’d be stuck, three years later, when the federal support ran out.
For cities already growing economically, it might sometimes have been manageable, on the theory that a growing tax base would make the employees more affordable three years later. Unfortunately, that scenario applied to precious few of these towns. Most of the towns "blessed" with this windfall were stuck with a bigger problem when the program ran out. Of course, by the time anyone noticed, the responsibility of the politicians who came up with this scheme was sure to be long-forgotten. Three years is a lifetime in politics, whether federal, state, or local.
The Choice Before Us
We could analyze example after example from past stimulus bills, and find few examples that differ from these patterns.
Again and again, stimulus programs are trotted out that promise huge carrots, while the equally huge sticks that come with them are hidden until it’s too late. Few ancient sayings remain as relevant over time as this classic: Take the king’s shilling, Dance to the king’s tune. And when you're talking about Washington, D.C., that tune is complex indeed.
The Biden/Harris administration will happily offer to send hundreds of billions of your own dollars back to your community, but they will come with conditions. And as we have seen the past, these conditions are generally far more expensive than any apparent benefits they bring.
Over the past four years, the Trump/Pence administration and their allied Republicans in Congress have passed tax cuts and federal regulatory rollbacks, which together have caused an economic resurgence in manufacturing and service alike, from coast to coast. Once the pandemic shutdowns are removed, this lower-tax and lower-regulation environment will again spur job growth and standard of living improvements… as long as this lower-tax and lower-regulation environment is allowed to remain in place.
The Biden/Harris campaign, again and again, has proudly trumpeted their intention to repeal the Trump era tax cuts if they win, and to ratchet up the regulations again, at a faster pace than ever before. Their Green New Deal and related programs are all about the red tape, the restrictions, the controls, the mandates… Joe Biden has promised that if he wins, the free market reforms of the Trump era will be relegated to the history books.
If you want job growth… if you want economic revitalization… the tax and regulatory climate is a thousand times more important to you than some temporary "stimulus" grants that come with expensive chains and a quick sunset anyway.
If you want job creation… if you want prosperity… there is only one choice, and it sure isn’t the guy promising a bunch of short-term federal giveaways. We’ve seen how Joe Biden’s circle sets up such things for a generation now, and it’s nothing this country needs or wants.
Copyright 2020 John F Di Leo
John F Di Leo is a Chicagoland-based trade compliance trainer, writer and actor. His weekly column has been found in Illinois Review since 2009.
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