Infrastructure spending to foster economic growth is not a new idea. These programs hearken back to some of the most expansionary periods of government. The American Jobs Plan is multi-faceted, with focuses on traditional infrastructure spending and strengthening the care economy – caregiving for the old and disabled. The Jobs Plan is partnered with the American Families Plan, which is problematic spending intended to build back the middle class. Proponents claim these plans would build the economy back better with copious amounts of government spending. However, neither of these plans is appropriate to achieve stated goals. The extension of the government into almost every part of the American life is a horrible consequence for the false hopes of economic stability.
An improvement to basic infrastructure (roads and bridges) could lead to some economic prosperity; however, any improvement is quickly diminished, given the cost and scope of these infrastructure programs. The improvements to infrastructure found in these programs goes beyond that of roads and bridges, and seeks to create 10 million clean energy jobs. Improvements to infrastructure of this size will be expensive and can be financed in one of two ways: either by driving up the deficit (costing future generations) or by increasing taxes (reducing current economic growth). Either way they are financed, several of the projects are counterproductive, damaging the very economy they are intended to bolster.
For example, when the federal government disrupts the labor market for caregivers, this changes labor market dynamics. This change could dictate where the jobs are located and the pay levels. The added levels of education increase the time in which students spend in school and increases the density of bureaucracy.
The negative impacts of this spending would cascade down to the states where they could be left paying their part of these ineffective programs. This could be long-term upkeep on infrastructure or the continuing cost of social programs once federal funding has been exhausted. The sudden shock to state spending will disrupt local economies. The increase in spending could divert goods to projects the federal government deems necessary, making building materials and labor scarcer. While it’s bad that government planning leads to ineffective spending, its worst impact is to divert money away from productive uses. The government lacks the knowledge that many private firms have in a free market, which leads to malinvestment of public funds. A private firm faces incentives to fund only those ventures that are profitable or have long-term growth potential. When government actors invest, they spend other people’s money. With nothing to lose, they don’t have any reason to invest carefully.
Rapid growth of government often occurs during times of crisis, but it is not conducive to long term productivity. Each of Biden’s plans greatly expands the responsibility and power of the government. The goal of these plans is not just to build back the economy as it was before, but to build it back differently. The plans try to remove the old economy’s structure, and build an economy that removes inequalities. The government using force to restructure the economy in an effort to remove inequalities ignores the fact that a free-market economy would do this on its own. Building the economy back to where it was has its faults, but nowhere near those of the intended plans.
The promise of the government creating good quality jobs in the American Jobs Plan is not helpful to the long-term growth of the economy. Without constant government intervention most of the proposed jobs would fail to exist. For a job to exist in an economy it must provide a benefit. While there are many jobs in the government that are useful and provide benefit, job growth for job growth’s sake is not. For example, government employing people to dig a hole and fill it back in provides jobs, but those jobs are not useful to the growth of the economy.
Providing direct support to children and families in the American Families Plan unnecessarily balloons the size and scope of government. The added growth of the federal government would also have implications for the overall size of state governments. The expansive growth of the federal government reduces the strength found in state houses. While the economic failings of these plans are evident, the shortcomings of trying to build a new economy should not be overlooked.
Since the funds from these programs are portrayed as free money, not using them at the state level seems foolish. The cost of these programs is passed to the people of Oklahoma through federal taxes and deficit increases. In the long run, Oklahomans will pay their portion through higher prices, caused by inflation and taxation. The growth of government should be judged on its merits, not on the additional cost provided by state governments. Oklahoma needs to improve its roads and bridges, and federal funding would undoubtably help; however, the scope of the current plan is too great. Although costs are often quantified in terms of economic impact or the total dollar amount, these are not the only impacts that are seen with government expansionary programs.
These plans are economically unsound and will not “spend America into prosperity” (as if such a thing were even possible). They expand government to a level not necessary for recovery. They are intrusive and threatening to free market policies, which should be in the forefront of a recovery. The federal government thinks it can buy off the states by helping them pay for needed road and bridge repair, but the savings come at the cost of changing a state’s spending priorities, which is likely to happen. The fiscal cost is simply not telling the whole story. To see the full picture, one must also account for the reduction of economic freedom these plans inevitably cause by putting government in the driver’s seat. The expansion of government during times of financial crisis has a direct correlation to the duration the of the crisis. The 1920-1921 depression was short lived because of the lack of intervention by the government, while the Great Depression was prolonged by the New Deal. The constant growth of government intervention will cost future generation for decades to come, while economic freedom always pays dividends.
Jason Lawter is the Fiscal Policy Fellow at 1889 Institute. He can be reached at firstname.lastname@example.org.
The opinions expressed in this blog are those of the author, and do not necessarily reflect the official position of 1889 Institute.