On Wednesday, January 20, 2021, Joe Biden was inaugurated as the 46th President of the United States and will set forth policies designed to mitigate the adverse public health consequences of the coronavirus pandemic (Covid-19) while restoring the U.S. economy and dealing with environmental issues such as climate change. He will also need to address foreign and defense issues, but that discussion is for another time.
At the outset, let me make it clear that I am shocked and dismayed that former President Donald Trump’s recent aberrant behavior and culpability for the riot at the National Capitol, whether intentional or not, will likely overshadow the positive accomplishments of his administration such as Operation Warp Speed, criminal justice reform and, prior to the pandemic, pro-growth economic policies contributing to historically low unemployment. That said, let’s move on.
Biden’s proposed $1.9 trillion “American Rescue Plan," announced last week, will follow a $900 billion relief package enacted in December as deaths from Covid-19 reached record levels and many local governments expanded lockdowns to slow down the spread of the virus, unemployment claims increased, and the economy lost 140,000 jobs.
Major provisions of the plan include stimulus payments, jobless benefits, increasing the minimum wage, funding for vaccine distribution and financial support for schools and state and local governments. He will propose a second plan in coming weeks, which will focus on job creation and climate change.
In the past, Democrats, including Biden, tended to support creation and expansion of entitlement programs, citing the high level of need, especially among children, reduction of crime rates, and prevention of starvation, misery and disease, while conservatives, mainly Republicans, complained that these programs can create a culture of dependency and reward people who make poor choices.
Both parties generally took a centrist approach and incorporated sound economic principles, except for fiscal responsibility, which often slipped through the cracks. Now things are different.
In the face of increasing evidence of a surge in new Covid-19 cases and deaths during the summer of 2020, Trump mismanaged the crisis by ignoring scientific evidence, promoting unproven treatments, setting a bad example by not wearing a mask — the list goes on. While Biden’s approach to dealing with the Pandemic appears to be sound, in formulating economic policies he needs to be careful.
A significant number of Democrats in both the House and Senate style themselves as progressives, such as New York Rep. Alexandria Ocasio-Cortez, aka AOC, and Massachusetts Sen. Ed Markey, who late last year introduced a resolution in both houses of Congress proposing a “Green New Deal,” which will, among other things, reverse climate change, provide clean air and water, paid health care, affordable housing, a living wage and retirement security. Now on to the caution flags:
Caution Flag No. 1: The Solution Fallacy. This concept is based on a quote from H.L. Mencken, a journalist, philosopher and social critic of the early 20th century: “Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong.”
One does not have to be a progressive to have concerns about climate change, income inequality, inadequate housing, poor health care, retirement insecurity, etc. Proposals that purport to solve these problems with the adoption of the complete progressive agenda are not useful.
While there is a need for informed and thoughtful approaches to address these and related issues, the Green New Deal is neither informed or thoughtful. What AOC brings to the table is experience as a bartender. I will concede that Markey is viewed by many as a major advocate on Capitol Hill for efforts to combat climate change. Neither, however, has a background in climate science or economics.
Even leading Democrats are skeptical. Sen. Diane Feinstein complained that “there was no way to pay for it,” while her fellow Californian, House Speaker Nancy Pelosi, referred to by Vox as “the face of progressivism, a dreaded San Francisco liberal,” was dismissive, referring to it as “the green dream or whatever they call it.”
Caution Flag No. 2: The Law of Unintended Consequences. This law states that actions of people, and governments in particular, always have effects that are unanticipated or unintended.
Historically, this law has been the province of economists and social scientists, who have cited its effects for centuries, during which time politicians and the general public have largely ignored it.
For example, the Centers for Disease Control and Prevention reports that lockdowns, less severe than those Biden may be considering (or supporting), have led to increases in suicide rates, drug overdoses and behavioral problems, including domestic violence, not to mention causing a major recession.
Data from Deloitte Insights indicate that recent increases in unemployment have disproportionately impacted Blacks and Hispanics, who tend to work in occupations that have been disrupted, causing food and housing insecurities.
Another example involves the minimum wage. The Congressional Budget Office recently conducted a study to determine how increasing the federal minimum wage from $7.25 up to $15 per hour by 2025 would affect employment and family income. The conclusion was that this would have two major impacts on low-wage workers: earnings would increase for many, which would lift some families out of poverty. However, other low-wage workers would become jobless, their family income would drop and it could place them below the poverty threshold. Proposals with appealing titles are not enough. Failing to think through the range of possible outcomes resulting from their implementation can lead to a cure that is worse than the disease.
Caution Flag No. 3: The Pareto Principle. Named for Vilfredo Pareto, esteemed economist and moral philosopher of the 18th century Age of Enlightenment, this principle, also known as the 80-20 rule, states that for most outcomes, approximately 80 percent of the effects come from 20 percent of the causes.
This principle operates in the transmission of Covid and also applies to healthcare financing. Three independent studies by Scripps Research Translational Institute indicate that between 5 to 9 percent of original infections are responsible for 80 percent of secondary infections. This suggests that disease transmission prevention policy should focus much more on identifying the characteristics and symptoms of possible “super spreaders.”
Well, there you have it. Note that the Caution Flags are concepts that have empirical validity in that they are well-founded and correspond accurately to the real world. They also reinforce the underlying premise of what I have attempted to communicate in this piece — namely, that to come up with workable solutions, it is first necessary to understand the problems.
About the author: Buford holds the PhD in labor economics from the University of Georgia. He has authored or co-authored multiple editions of two textbooks, and has published numerous articles in academic journals, technical papers and studies.