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U.S. economic growth has declined the past two quarters, a sign that a recession is around the corner. But even without a new recession, U.S. economic growth is stuck in a rut and President Bidens agenda is making it harder for us to get out.

In an important piece in City Journal, James Pierson notes how real GDP growth has slowed over the last 60 years, from 4.5% per year in the 1960s to a low of 1.9% per year in the 2000s before slightly rebounding to 2.2% in the 2010s. This is a disturbing trend that should alarm voters and policymakers at every level of government. Economic growth makes us healthier, happier, and better able to defend ourselves against authoritarian regimes like Russia and China.

A growing economy also helps quell civil unrest. When there is more for everybody people are less envious of other peoples success. When there is a fixed amount of stuff, someones success often comes at anothers expense. A country cannot be at peace for long with a stagnant or shrinking economy.

Supporters claim that President Bidens and Congresss recently passed lawsthe CHIPS Act, Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA)as well as Bidens student loan forgiveness executive order, will boost growth. But this optimism is misplaced.

CHIPS HIPS Act

The CHIPS Act subsidizes American semiconductor manufacturing and research and penalizes companies for expanding production in China. It also throws a lot of money at STEM education programs, especially in marginalized or underserved communities that the Biden administration considers more in need of investment.

While all the stipulations for the generous government handouts may further some worthwhile goal, that goal is certainly not economic growth. Most of the investment in new U.S. semiconductor manufacturing and research was going to happen regardless of the CHIPS Act because of increased demand and broad recognition that supply chains had become too dependent on China. The figure below shows planned U.S. foundry investment from Samsung, Intel INTC , and Taiwan Semiconductor Manufacturing Co. as of 2021, well before the CHIPS Act was passed last month.

Planned US foundry investment 2021 - 2024

In short, businesses were making investments in U.S. semiconductors because they made financial sense. Now, some of them will get free taxpayer money to boot, which is a waste of scarce resources.

Industrial policy has never been the key to strong economic growth because the government is terrible at playing venture capitalist. Instead of focusing on the return on investment, the CHIPS Act will funnel government money to various firms, organizations, and regions of the country based in part on subjective factors like community marginalization. This may be valuable, but it is not a strategy focused on boosting growth.

Infrastructure Investment and Jobs Act and Inflation Reduction Act

Like the CHIPS Act, the Infrastructure Act will be a disappointment when it comes economic growth. It gives money to states and local governments to build roads, bridges, EV charging stations, airports, ports, etc. but it does nothing to make building those things less expensive.

The IRA suffers from the same fatal flaw: It allocates billions of dollars to green energysolar panels, windfarms, nuclear power, EVsbut leaves the underlying cost issues untouched.

Not addressing costs is a problem since America has some of the highest construction costs in the world. America has the 6th highest average cost of rail per kilometer in the world and the real cost to build a mile of highway increased from $10 million in 1960 to over $30 million by the 1990s.

America is also relatively bad at building universities, hospitals, and airports, in no small part because of government regulation and oversight. As Brian Potter, a researcher who studies all things construction, wrote As administrative costs risethe more involved the government is in projectsthe worse the U.S. does compared to other countries.

If we do not address our high construction costs via regulatory reforms and reforms to prevailing wage laws, we will never get the infrastructure Biden and other government officials promise.

Related, both the IRA and Infrastructure Act are littered with counterproductive Buy American provisions that also raise costs. For example, only EVs assembled in North America are eligible for the EV tax credit in the IRA, and by 2023 batteries in EVs cannot use components sourced from China, even though China is the largest producer of many of the raw materials used to make batteries (In part because U.S. regulations make it extremely difficult to build the required mines. You cant make this stuff up).

Buy American provisions insulate U.S. companies from international competition, allowing them to reduce quality, ignore costs, and raise prices. This is what happened to the U.S. steel and automobile industries in the 1970s.

U.S. companies sheltered from competition become reliant on government favors and subsidies and their interests become entangled with the government that protects them. This creates companies that are too-big-to-fail and leads to more government bailouts like the ones we saw during the financial crisis in 2008.

Student Loan Forgiveness

Bidens latest policy, student loan forgiveness, will not boost growth, either, despite what he says. For starters, it does not directly incentivize much new education or human capital investment since it primarily pays for old investments.

Second, it indirectly creates an incentive for people to overinvest in education in the future since they will be less concerned about making sure they earn enough money to pay back any loans. After all, a future president may just forgive a big chunk of them again. So instead of working or getting some other training that will make them more productive, people will be more inclined to earn superfluous government-subsidized college credits.

Third, it will likely drive up the cost of a college education over time since colleges will feel less pressure to keep costs down knowing the government will step in if tuition gets too expensive. This has already happened in the past: A 2019 study found that when Congress increased the caps on subsidized student loans to help make college more affordable, colleges raised tuition by $0.60 per dollar increase. Colleges will rationally decide it is more profitable to secure government loans for their students than to do the hard work of managing costs.

Finally, the Committee For a Responsible Federal Budget notes that forgiving student loans will increase the deficit and contribute to higher inflation. Bigger government deficits crowd out private-sector investment, which hurts growth, and higher inflation creates economic uncertainty and instability, which also hurts growth.

Bidens policy agenda is anti-growth

Nothing the Biden administration has done so far is an obvious boost to economic growth. His signature policy wins raise taxes, create numerous economic distortions via subsidies and tax credits, will raise not reduce inflation, and do not address the overregulation that makes building things in America so expensive.

And if that was not enough, the administration is also anti-trade, pro-tariff, and is ignoring the countrys broken immigration system, causing us to miss out on the foreign workers and entrepreneurs we need to boost economic growth.

It is fair to say that the Biden administration is the most anti-growth administration of the past 40 years. This does not mean everything other administrations did was pro-growth or that the economy will not grow under Biden. But each of the other administrations was in favor of at least some pro-growth policies, such as Reagans pro-growth tax reforms and deregulation or the Trans-Pacific Partnership trade agreement promoted by Obama.

As I wrote previously, states can implement their own tax and regulatory reforms to boost economic growth and they should do so. Unfortunately, the federal headwinds created by the Biden administration will weaken the impact of any state-level pro-growth policies.

To get economic growth back to 3% or more per year we need a presidential administration that prioritizes it. Someone who supports simple things like protecting private property, tax reforms that lower rates and broaden the base, bilateral and multilateral trade agreements, immigration reform that increases the labor force, and broad regulatory reform that makes it easier to build things or start a business. Until we return to basics, U.S. economic growth will suffer.

Read the original here:
Biden's Economic Agenda Is The Most Anti-Growth Of The Last 40 Years - Forbes