Obama will be remembered for the slowest economic recovery since the Great Depression, and Biden seems to have learned nothing from the experience. The economy has a record high number of unfilled jobs, and this administration has gone out of its way to discourage people from returning to work.
It has pushed for extensions of supplemental unemployment insurance and directed the Centres for Disease Control and Prevention to continue a “temporary” ban on evictions. It has increased the child tax credit, which sends cash each month to tens of millions of US households. It has extended student-loan forbearance, initially set to expire in September, until January next year and is even mulling the cancellation of student debt.
These efforts may have been justified to some degree in the early days of the pandemic, but the longer they continue, the more they undermine attempts to get the economy back up to speed.
People who aren’t worried about getting evicted or paying off student loans obviously have less incentive to return to work, even when jobs are plentiful. And employers who can’t offer wages that compete with state subsidies will have trouble finding workers.
People aren’t taking jobs primarily because the government has made it easier for them to be unemployed.
It’s happened before. The Obama administration pushed policies that expanded the welfare state to the detriment of economic growth, and the trade-off was a long and tepid recovery. As the economists Richard Burkhauser, Kevin Corinth and Douglas Holtz-Eakin explain in a study released in March, “while the safety net response to the Great Recession helped to preserve the incomes of middle-class households and fended off an increase in inequality, it came with a cost — discouraging work and thus contributing to prolonged labour market weakness.”
Under Obama, unemployment insurance was extended for up to 99 weeks in many states, nearly four times as long as normal. Work requirements for food stamps were waived even for able-bodied adults with no dependants. Medicaid was expanded, and subsidies were provided for the purchase of private health-insurance plans.
“The key lesson from the Great Recession,” Burkhauser and his co-authors conclude, “is that strong economic growth and a hot labour market do more to improve the economic wellbeing of the working class and historically disadvantaged groups than a slow recovery that relies on safety net programs.”
It’s a lesson that the Biden administration and Democrats in congress, who are calling for business tax hikes and larger entitlement programs, appear in no danger of learning anytime soon.
Even some Republicans are now persuaded that wealth redistribution — in the form of some kind of basic income guaranteed by the government — is the best way to help today’s disadvantaged. Senators Mitt Romney, Josh Hawley, Mike Lee and Marco Rubio have supported an expanded child tax credit, though they’re unlikely to expand it enough to satisfy Democrats.
Romney’s plan has no work requirement, which makes it no different from any other welfare program. The problem is that people respond to incentives, and not working is a rational choice if a government program is offering you more money and benefits than you otherwise would be earning in the labour force.
As the welfare state expands some groups are seeing higher rates of multi-generational dependence on government assistance. Providing a guaranteed income to unproductive people will create more unproductive people. Government benevolence, no matter how generous, will never compensate for a lack of personal responsibility, and subsidising irresponsibility won’t end well.
A larger welfare state that discourages work would shrink the labour force and reduce the nation’s economic output. How is that helpful?
There’s another way to go. Before the pandemic, poverty and inequality declined under president Donald Trump, who focused not on expanding the safety net but on cutting taxes and easing regulatory burdens. Businesses responded by increasing capital investment and hiring more workers at higher salaries. The result was faster economic growth and dramatic increases in jobs and wages, especially for lower-income minority groups.
Liberal support for government solutions is politically motivated. Dependency creates a reliable voting bloc for Democrats, who are ideologically committed to the cradle-to-grave entitlement systems so popular in Europe.
Republicans who think they can beat Democrats at this game are fooling themselves and doing a disservice to the country. Americans need more growth, not more handouts.
The Wall Street Journal
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