Amid the Fiscal Follies, a Couple of Good Steps

I won’t say I’m pleased with the focus of President Biden’s reign so far, though I am not surprised. He has acted as one would have predicted: pushing for massive spending on his expansive notion of “infrastructure,” which includes welfare, unemployment, and healthcare programs along with whatever highways and bridges he might approve. And he has demanded higher taxes to pay for it all.

I haven’t bothered to comment on this, for a couple of reasons. First, it is what everyone anticipated, and what Biden promised to do during his campaign. Second, though the Republicans have feigned outrage over this proposed high level of deficit spending, after eight years of Bush and four of Trump, they are in no position to lecture anybody about deficits. What few deficit hawks there were in the Republican Party were purged unceremoniously by Trump and his myrmidons.

Biden has acted as one would have predicted: pushing for massive spending and demanding higher taxes to pay for it all.

In reality, this runaway spending is just democratic failure in action. The people love high welfare spending and low taxes, and will continue to do so — at least until a major blast of inflation followed by the recession that usually follows inflation, when the Fed raises interest rates. The citizens are just now getting a taste of what we faced in the 1970s, when the inflation hit 8.8% in 1973, hitting 12% later in the decade, and hitting 14% in 1980. When inflation hits these levels, the Fed is tasked by law to bring the inflation down, and the main tool it has to do that is by raising the interest rates, which in turn tends to bring on recession.

But when the Patriarch does something that I think merits the applause of classical liberals, intellectual fairness suggests to me that I should comment. And two recent Wall Street Journal pieces point to some moves worth noting.

First, the administration has announced that it will be resurrecting a wise immigration program that the Boss — Trump, always the anti-immigrant centurion — had crucified. It was a program called the International Entrepreneur rule that permits foreign businesspeople to work here for up to five years — if their startup companies can attract at least $250,000 in US venture capital and employ at least 10 employees, or meet other criteria. While Trump didn’t end it by decree, his angrily trumpeted threats to kill it did in fact kill it — by scaring away capital.

The Patriarch plans to market the program and revive it. Let’s hope he succeeds — US Citizenship and Immigration estimates that if the program is implemented properly, it could attract 3,000 entrepreneurs a year and create 100,000 net new jobs over a decade.

This is just classic Bastiat: populist protectionists see the 6,000 jobs possibly created by the tariffs, but not the 75,000 lost elsewhere in manufacturing and the millions of dollars lost in consumers’ wealth.

Second, the Administration has reached an agreement with the EU to stop a scheduled increase in Trump’s pointless populist tariffs on steel and aluminum, tariffs that led — as tariffs usually do — to counter-tariffs by the EU. What caused Biden to do this was receiving over 300 letters from American manufacturers — you know, the people the populists profess to promote — protesting the scarcity and high prices caused by those tariffs.

These manufacturers are the sort of companies who don’t make the metals, but use then to make other things — from screws, nuts, and bolts to microwave ovens. Higher prices for steel mean that these steel-using companies must charge higher prices — up to 40% higher on some items. So their sales suffer. To “protect” our “infant” steel industry — the oldest infant the world has ever known — hundreds of other companies, not to mention uncounted consumers, were badly hurt.

This tariff was imposed in March of 2018, when iron and steelworkers numbered 82,300. A year later — during a strong economy, that figure went up to 88,300. But a 2019 Federal Reserve report estimated that the higher prices in steel cost 75,000 manufacturing jobs elsewhere. Another study reported that each new steel job created by the tariff cost Americans generally about $900,000 a year. Really, this is just classic Bastiat: populist protectionists see the 6,000 jobs possibly created by the tariffs (or possibly the tax cut and booming economy), but not the 75,000 lost elsewhere in manufacturing and the millions of dollars lost in consumers’ wealth.

Most economists, I believe, would advise Biden to just eliminate the tariffs unilaterally and immediately. But most psychologists, I equally believe, would reply that the American people would balk at that. Our people — like all other people — desire fairness. This is why I would urge the Patriarch to negotiate a free-trade agreement with the EU (and the UK, for that matter), as many of our other trading partners have done. Will he do so? Big Labor opposes free trade, and Biden wants labor support, so he may not. But having trade wars with the EU and the UK will cost Americans jobs, and Biden knows that a bout of high unemployment will hurt his chances for a second term as much as a double-digit inflation rate.