US: Conventional wisdom states that if the government pumps a lot of money into the economy, it will bloom and bloom like a flower that gets water and grows and grows and grows.
It is the basis of modern liberal economic thinking and has been since the New Deal. The government that gives people money to spend is better than the private sector does.
But the respected scholars at the Wharton School of the Business University of Pennsylvania took out their slide rules and counting frames and determined that this was not the case with Joe Biden’s $ 1.9 billion stimulus bill. In fact, the impact of all that money will be negligible in 2021 and will hurt the economy by 2022.
“The existence of debt disappears from the rest of the economy,” said Wharton analyst Efraim Berkovich. “When the government has budget deficits, the money that could go to productive investment is diverted.”
“What we do is effective in taking money from [some] people and giving it to other people for consumption purposes,” he continued. “It has value for social safety nets and redistribution benefits, but in the long run, you are taking away from the capital we need to grow our economy in the future.”
And while it’s a dirty word in Washington, debt will still pile up.
Biden’s expensive plan would explode the national debt. This, according to Wharton, will lead to a “dwarfing effect” in the coming years, as more borrowing money is taken away from productive investments in the business / private sector and instead consumed by government debt.
As a result, analysts find that in 2022 employees would see a slight drop – not an increase – in their hourly wage, and in 2040 a slightly larger reduction in their hourly wage. By 2022, the total number of hours worked would actually be due to the plan.
Therefore, Wharton concludes that Biden’s spending capacity would actually lead to a smaller economy in 2022. How is it “stimulus?”
Biden and the Democrats Rarely mentioned that this “stimulus is what is not” are the roadblocks to recovery that the Democrats want to include in the bill. A minimum wage of $ 15 an hour with half the small businesses in America struggling to get off the mat and get back into the fray is crazy.
The five to six months more of extended unemployment benefits, where most unemployed workers are paid more when they sit at home than they work, will significantly delay the recovery if businesses are unable to attract their employees again.
The unseen cost of the stimulus that the brilliant political economist Frédéric Bastiat discussed in one of his essays.
“law gives not only an effect but also a series of effects,” Bastiat wrote. Only the first effect is foreseen by naive policymakers who fall victim to this delusion, while the many second-order consequences remain unseen.
“It almost always happens that when the immediate consequence is favorable, the ultimate consequence is fatal, and vice versa,” he wrote. ‘It follows that the bad economist must pursue a present small good, which will be followed by a great evil that will come, while the true economist must pursue a tremendous promising future – with the danger that a small evil a present can offer. ‘
The crisis caused by the pandemic is over. Why are Biden and the Democrats acting like it’s just starting out?