Proponents of the federal government’s runaway spending and money-printing argue that the US data showing surging inflation are “transitory” outliers or otherwise not representative of a serious looming problem. But new data released by the Organization for Economic Cooperation and Development (OECD) show that globally, inflation in advanced nations is hitting highs not seen since 2008.
The OECD just revealed that prices across the advanced nations it monitors rose 3.3 percent from April 2020 to April 2021. Energy prices skyrocketed a shocking 16.3 percent, while food prices were less volatile, increasing by a more modest 1.6 percent.
It’s increasingly impossible to deny that both in the US and globally, prices are on the rise. Why does this matter?
Well, inflation acts as a stealth tax on everyday people. Their purchasing power is eroded and their quality of living deteriorates as a result. Inflation manifests itself in countless small yet pernicious ways.
For example, a top Costco executive recently warned that his retail chain is going to have to raise prices on essential basic goods like bottled water and chicken due to the skyrocketing costs it’s facing in its supply chain. Other consumers are getting hit with “shrinkflation” as stores shrink the size of packages for a given price, a sneaky approach for retailers wary of the backlash that comes with raising sticker prices.
Either way, we all lose.
And ultimately all of this can be traced back to policy decisions. Inflation doesn’t come out of nowhere. It’s what happens when the government prints money to pay for spending, rather than directly raising taxes.
“Nearly one-quarter of the money in circulation has been created since January 2020,” FEE economist Peter Jacobsen recently pointed out. But printing more money doesn’t mean we actually have more stuff, and “if more dollars chase the exact same goods, prices will rise.”
There’s no such thing as a free lunch, and there’s no getting around the costs associated with government spending. This is just how economics works, regardless of whether it’s here in the US or in nations across the globe.
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President Biden has just unveiled a new $2.3 trillion “infrastructure”plan, but a shockingly large portion of this bill is actually unrelated to infrastructure.
The plan includes massive subsidies for corporations as well as state and local governments, and comes right after the administration’s proposed increase in the corporate tax rate, which would raise the rate from 21 percent to 28 percent.
There’s $300 billion for manufacturing, $100 billion for electric utilities, $100 billion for broadband, $174 billion for electric vehicles, and a whole lot more. A significant portion of this spending is directed at subsidizing big corporations.
What the plan overlooks is that corporations are already investing heavily in the industries they aim to subsidize. For example, companies like Tesla and Volkswagen have invested billions into developing electric automobiles and charging infrastructure. Biden’s plan would aim to influence consumer spending decisions through the creation of further incentives for such vehicles. In other words, these companies would see their profits boosted as a result of artificially increased demand. The same goes for Verizon and T-Mobile that have invested in broadband, and Mitsubishi and Siemens that have invested in wind energy.
Subsidizing multi-billion dollar corporations and pumping up their profits is corporate welfare, not an infrastructure plan. The private sector built hundreds of thousands of gas stations across the country, and if there is demand for it, they will do the same withcharging stations for EVs. A federal takeover of business investment decisions in this manner will inevitably have repercussions.
The Biden administration hasincluded $100 billion to “decarbonize” the US electric grid, essentially eliminating coal and natural gas, alongside $213 billion for affordable housing and $400 billion to bolster home health-care. Despite President Biden’s push for bipartisanship, partisan political spending runs through his plan.
This plan comes on the heels of Biden’s proposed corporate tax hikes.
The current administration is betting that damage caused by jacking up taxes will be outweighed by the massive amount of federal spending in this proposal. As thepresident of the Tax Foundation, Scott A. Hodgeput it, “Based on CBO’s (Congressional Budget Office) assessment of the economic and budgetary effects of federal investment, there is no reason to believe that the economy will be better off with such a trade.”
The CBO estimates that $2 trillion in federal spending will yield about $1.3 trillion in actual investment. Since government investment only results in half the returns of private investment, we would be much better off if the $2 trillion in corporate tax increases that Biden needs to fund this plan were left in the hands of the private sector.
This plan would be a massive circular flow of revenue with increased corporate taxes funding subsidies for large companies, ultimately decreasing investment and long term capital formation. As federal spending increases to unprecedented levels, state and local governments become nothing more than the administrators of a giant national government.
Bureaucracies are notoriously and inherently inefficient, the economist Ludwig von Mises has pointed out.
“It is a widespread illusion that the efficiency of government bureaus could be improved by management engineers and their methods of scientific management. . . . What they call deficiencies and faults of the management of administrative agencies are necessary properties. A bureau is not a profit-seeking enterprise; it cannot make use of any economic calculation. . . . It is out of the question to improve its management by reshaping it according to the pattern of private business.”
Expanding bureaucracy will only exacerbate these effects. The expenses and delays involved in collecting trillions of dollars in additional corporate taxes, running them through Washington and eventually using them to finance countless programs only serve as further discouragement against pursuing such a plan.
Overall, a thorough analysis of this proposal reveals that it would ultimately do more harm than good. In addition to the high levels of political spending and unnecessary intervention in business investment decisions, this plan would be a burden on the economy, reducing investment, growth, and prosperity over the long run.
During the public health crisis caused by COVID-19 and the economic crisis that resulted from the government-mandated societal shutdown, the public’s attention has focused on short-term threats and immediate consequences. This, understandably, led to an emphasis on figures such as the approximately 2.1 million confirmed cases of coronavirus, roughly 118,000 deaths from the virus, and the 44 million Americans and counting who have filed for unemployment since the crisis began.
But one key measure has gone under the radar—the untold trillions our government has piled onto the national debt during this crisis. This debt burden will haunt future generations long after the pandemic subsides and the economy reopens. Thus, our debt-financed COVID-19 response represents a fundamentally immoral intergenerational transfer of wealth. Those who directly benefit from the spending are sending the bill down the line for today’s young people and tomorrow’s taxpayers to bear the burden. Responding to a crisis today isn’t a justification for creating a crisis for the next generation to deal with—and the debt is indeed approaching crisis levels.
New calculations make the severity of the current debt spike dreadfully clear.
Manhattan Institute economist Brian Riedl ran the numbers and concluded that between the $2.4 trillion cost of already-passed COVID-19 response pills, the economic downturn’s $4 trillion impact on the federal government’s budget, and $1.3 trillion in interest on the new debt, the COVID-19 pandemic and government response will lead to an astounding $8 trillion in new federal debt.
Riedl projects that the budget deficit may exceed $4 trillion this year—more than triple the deficit run during the peak of the 2008 financial crisis. And that $4 trillion figure assumes no further spending bills are passed, despite House Democrats having passed an additional $3 trillion bill and some members of the Trump administration calling for more “stimulus.”
And what led up to that pre-COVID inferno in the first place? As James Agresti of Just Facts writes:
As with the recent debt increases from the Covid-19-related laws, the national debt has been mainly driven for the past 60 years by social spending, or government programs that provide healthcare, income security, education, nutrition, housing, and cultural services. These programs have grown from 20% of all federal spending in 1959 to 62% in 2018:
Under current laws and policies, the Congressional Budget Office projects that almost all future growth in debt will be due to increased spending on social programs and interest on the national debt.
Legislators ignore this towering debt crisis at the peril of future generations.
One immediate consequence that massive deficit spending imposes on future generations is crippling interest payments that tomorrow’s taxpayers will have to cover. The interest on the national debt must be paid each year, and the annual expense associated with that payment only increases as the total debt grows.
The annual interest was already projected to hit $1 trillion by 2030 before the latest crisis hit and before counting all the new debt. This means future generations will have to shell out trillions more in taxes every year to service the debt we’re accruing now via spending that, at least ostensibly, benefits us today.
Image credit: Committee for a Responsible Federal Budget
And it’s widely understood that high levels of government debt are a serious drag on future economic growth. This happens in part because massive government deficits “crowd out” private sector investment by drawing from the pool of available money. But that’s hardly the only economic consequence of government debt.
Here’s how the non-partisan Peter G. Peterson Foundation summed up the consequences of the runaway national debt:
Growing debt also has a direct effect on the economic opportunities available to every American. Based on data provided by CBO, income per person could increase by as much as $5,500, on average, by 2049 if we were to reduce our debt to its historical average.
In addition, high levels of debt would affect many other aspects of the economy in the future. For example, higher interest rates resulting from increased federal borrowing would make it harder for families to buy homes, finance car payments, or pay for college. Fewer education and training opportunities stemming from lower investment would leave workers without the skills to keep up with the demands of a more technology-based, global economy. Faltering support for research and development would make it harder for American businesses to remain on the cutting edge of innovation, and would hurt wage growth in the U.S. Furthermore, slower economic growth generally would also make our fiscal challenges even worse, as lower incomes lead to smaller tax collections and put the federal budget further out of balance.
Of course, it is future workers who will bear these economic consequences—not the Baby Boomers in Congress who are burning through taxpayer money at lightspeed.
Here’s a hypothetical that helps put the gross immorality of skyrocketing government debt simply:
Imagine a parent who responded to a financial crisis affecting their family not by racking up bills on their own credit card, but by taking out a credit card in their child’s name and loading it up with charges for them to deal with later in life. This is effectively what the federal government is doing right now in response to COVID-19. At the very least, Congress shouldn’t have let the national debt continue to mount during the prior decade of growth. Fiscal responsibility would have cushioned the blow in case Congress was later forced to spend profusely in response to a crisis like COVID-19.
But instead, policymakers chose the path that would be politically beneficial in the short-term and shrugged off the future consequences as not their problem. As famed economist Thomas Sowell said, “The national debt is the ghost of Christmas past.” For future generations, holidays may not offer much cause for celebration.
