Washington Wednesday - The sum of Biden’s economic parts

NICK EICHER, HOST: It’s Wednesday, December 2nd, 2020.

You’re listening to The World and Everything in It. So glad to have you along today. Good morning, I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. First up: Biden’s blueprint for the economy. 

As you heard a few minutes ago, the president-elect announced key members of his economic team on Tuesday. And among his picks are several officials who served in President Obama’s administration. 

So what should we expect from Biden’s incoming economic team?

EICHER: Joining us now is Jerry Bowyer. He is the chief economist at Vident Financial and author of The Maker vs. the Takers: What Jesus Really Said About Economics and Social Justice.

Jerry, good morning!

JERRY BOWYER, GUEST: Good morning, Nick. How are you?

EICHER: Doing well. Thanks for asking. Well, I was looking overall at the Biden economic team, and I think The Wall Street Journal summing up: lots of government experience, knowledge of labor markets, and an emphasis on equity and climate change.

In short, and no surprise, there kind of a preference for a government-managed economy, a re-regulation to produce certain outcomes—I’m thinking of this idea of equity and climate change. But I wonder, Jerry, is this not a recipe for a return to the slow growth of the Obama years?

BOWYER: Yes. It’s almost perfectly — seems almost perfectly designed to recreate those conditions, the conditions that held when we had this policy mix before. And what that was slow growth. Growth, there was a plus sign on almost all of the quarterly GDP reports, but it wasn’t the kind of plus sign the order of magnitude that we’re used to expecting as Americans. And I expect we’re going to get a similar outcome here. 

And it’s also—interestingly enough—coming out of a crisis, coming out of a deep recession. So, I think we’re going to get Obama results with Obama policies.

EICHER: Well, a deep but short recession. And that leads to what I wanted to ask next, which is that the Obama policymakers comprise a team of economic crisis managers. In a sense, you could say there’s a real crisis to manage, with Covid. 

But isn’t it very, very different from the crisis these managers have experience with? And I’m talking about the difference between the crisis a dozen years ago, the financial crisis, versus the economic lockdown that grows out of Covid policy that we’re dealing with today. 

Isn’t that a fundamental difference that requires a different sort of response?

BOWYER: Yes, it does. And, you’re right, they’re very different. We’ve never lived through a recession like this recession before. Recessions almost always start on the supply side. Or, recessions are often driven by monetary policy. The Fed tightens too much, creating a credit crisis. Or there’s a change in government policy leading to cutbacks in supply. So, the supply side runs things. 

This is the first recession we’ve had maybe since the 1940s where it’s not so much a recession as a suppression, where in essence it’s on the demand side because we illegalized demand. We shuttered the malls and we shuttered the movie theaters and the concert venues, etcetera. We didn’t shutter the factories so much. So, in essence, we suppressed demand. 

So, any stimulus approach—which is what they tried the last time—won’t work because you’re not allowed to spend the stimulus in the normal ways. We’ve suppressed demand, so putting more money in people’s pockets—which they won’t spend—doesn’t really do anything. 

Now, I don’t actually believe the stimulus works in the long run at all. But at least there’s a theory to it: Put money in people’s pockets and they’ll spend it. But when you have lockdowns, you put money in people’s pockets and they mostly hoard it, and that’s exactly what we’ve seen. So, to the degree the stimulus ever works—and I don’t think it tends to—even if you buy into stimulus ideology, this is not the kind of recession that we can stimulate our way out of.

EICHER: Let’s talk about that because there’s a lot of talk about spending. President-elect Biden is talking about $7 trillion in new spending over the next decade. Talking about major priorities like infrastructure, clean energy, and free community college education, among other things. 

This is what you were getting at, I think. The core of the Keynesian idea that government spending stimulates economic activity which is exactly what Biden asserts: the plan will boost the economy, create millions of jobs, and increase the nation’s productivity. What do you say to that?

BOWYER: Well, it won’t increase the nation’s productivity because there’s nothing about it that encourages productivity. So, the Keynesian model is severely flawed in so many ways. 

If I wanted to get sort of deep on this I’d like to get sort of worldviewy, if I might. John Maynard Keynes was raised as a Christian in the Victorian era, which emphasized self-restraint and deferral of gratification. Keynes rejected that. He embraced an ideology of atheism, of rejection of the traditional sexual moral code in ways that people have talked about. And along with that, he rejected the focus on thrift and productivity and inverted economics in the same way that he inverted the sexual ethic and inverted the Biblical worldview. And made spending the savior of the economy and savings was the enemy. 

That spiritual distortion comes down through our economic statistics, the focus on GDP—which is a spending metric—and comes down to our economic policies. This stuff is not spiritually neutral. We’re still living in our policy environment in the fruit that comes from Keynes’ rejection of God.

EICHER: And that fruit has a price tag: I’m seeing a $4 trillion tax increase over the course of a decade. But that, and even the spending blueprint, is contingent upon control of Congress, and we’re not going to know that until next month. You’ve got to get your taxing and spending through the U.S. Senate, of course. So everything here is highly theoretical.

BOWYER: Yes. It is. So, we’re talking about his plans and then we’re talking about what comes out the other side. At this point, I’m not big on predicting myself, but I happen to like the political futures markets and they show Republicans keeping the Senate and picking up seats in the House and I think that’s probably the case. And the Senate’s pretty good at blocking things. 

So, I think that we’re not going to get all of this. I think we’re going to get some of it, though. Because I think what we’re seeing emerging is a bipartisan consensus in favor of spending. We no longer have a functional, fiscally conservative, spending-restraint party in Washington. We have a tax cut and spend party—Republicans. We have a tax hike and spend party—Democrats. 

We have some disagreements about whether we should spend $2 trillion or $4 trillion on stimulus. But in essence the spending consensus is intact. I think markets are reflecting that. So, if markets thought the Biden program was going to go through, we wouldn’t have seen the several weeks we just saw. They would have crashed instead of going up. So, I think markets are liking the divided government, but I also think that there is some significant long term concern about spending. I think Republicans can probably hold off on most of the tax hikes, but I’m not sure they’re going to be very good at holding off on spending measures. 

And, really, what drives things in the end isn’t what Congress or the president does. It’s who we are as a people. If we are an envious people, then income equality mandates and the slow growth policies and the redistributionary policies that come with that will somehow register through the political process. We have to be a different people. As long as envy is seen as a virtue rather than one of the seven deadly sins, that puts a limit on our growth. Not an inherent limit on our growth. God is generous and has made a universe where we can be great at creating wealth. But our own moral vices put a tether on that.

EICHER: Jerry Bowyer is the chief economist at Vident Financial. Jerry, thanks! It was great to talk with you.

BOWYER: Nick, great to be with you.

(AP Photo/Andrew Harnik) President-elect Joe Biden departs a news conference after introducing his nominees and appointees to economic policy posts at The Queen theater, Tuesday, Dec. 1, 2020, in Wilmington, Del. 

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