I have a running theory that government officials, and the policies they support, are often disconnected from reality. Politicians on both sides of the aisle tend to do what they always do, no matter the current state of the world. They use the same policy tools, whether appropriate or not. They use every opportunity and emergency to push the same old policies they always peddle. And even when they claim they are reforming a program or an agency, they continue to serve the same special-interest groups. This alleged $908 billion compromise deal that includes state, Amtrak, airlines bailouts, unemployment bonuses, childcare subsidies, and a renewal of the PPP is a good example of that.
A few weeks ago, I wrote about how the Democrats’ Heroes Act — its size, its design, and the programs it includes — is oblivious to the improved economic conditions. They have been pushing this package when the unemployment rate was 14 percent, when unemployment rate was 10 percent, and when, at the end of October, the unemployment rate had fallen to 6.8 percent. They will continue pushing the same package of large unemployment bonuses, individual checks, and state and airline bailouts even if unemployment falls to 5 percent or less. The White House at the time seemed willing to go along with a big chunk of that Democratic wishlist.
This new $908 billion compromise is “only” 40 percent of the size of the Heroes Act, but it is still disconnected from what is happening in the real world. It is renewing many problematic programs fueled by the belief, I am sure, that the economy can stay on ice for months as long as it is sustained by government spending. I am sure the restaurants that benefited from PPP but have closed permanently have a different perspective on this issue.
To their credit, with this latest act, politicians are not double dipping in the same way as was done with the CARES Act and the Heroes Act — each of which dispensed both individual checks and unemployment bonuses. Little good can come from having individual incomes rise above their usual levels while many people aren’t working and the economic activity is constrained by government lockdowns or consumers’ behaviors. Restricting supply and subsidizing demand may be what government often does but it isn’t a good idea, as Arnold Kling notes.
Sadly, though, of the two programs, they picked with this recent act the one that creates the most disincentives to work. What’s more, since 1975, the unemployment rate has averaged 6.3 percent — it is forecast to be 6.8 percent for November. I am sorry, but extending and expanding UI — at a scale that is out of whack with past expansions — when the unemployment rate is close to the historical average is simply wrong.
Our leaders on the Potomac want to bail out state governments to the tune of $160 billion. I have written here and here why I think such bailouts are a bad idea. Chris Edwards at Cato also points out that state revenues fell less than feared and are going up again. It is also a serious missed opportunity as my colleague Tracy Miller recently wrote:
When revenue declines, this gives state and local governments, like businesses, an opportunity to become more efficient. There is no need to cut essential services like police, fire and sanitation, which account for just 7% of state and local government budgets. Most state and local governments have lower-value or nonessential programs, and can also consider tough emergency measures such as temporarily freezing salaries, furloughing workers and delaying highway spending and new initiatives.
State and local governments should also being using the pandemic to go after long-standing regulations that inhibit business formation and employment (e.g., occupational licensing).
But the cherry on top in this proposal is this: In addition to the fact that the economy is growing even as government spending is down and that business startups are soaring, the situation has entirely changed in the last three weeks. We now have three vaccines with what looks like high efficacy. Policymakers’ singular focus should be on getting them approved, manufactured, and distributed to health-care workers, the elderly, those with comorbidities, retail employees, teachers, Uber drivers, and others.
Yet, 1.7 percent of this bill — or $16 billion according to the COVID Framework document presented this morning — is specifically about manufacturing vaccines, distribution, and testing (and please spare me the argument that the airline bailout is about vaccine distribution because it is not).
I have seen reporting that $50 billion of the total bill is to manufacture and distribute vaccine. If that’s the case, the share of the bill going to answering the question, “How do we get the vaccine to people as fast as possible?” increases to 5.5 percent. By the way, funding for education, which includes money to schools that have been failing American children for months, is $82 billion.
If spending bills are a reflection of politicians’ priorities, Americans are getting a clear signal that these politicians have incredibly messed-up priorities with very little focus on what should matter the most right now. This compromise is about business as usual. It’s about spending money on the stuff politicians always want to spend money on. The fact that some Democrats are willing to spend less than they wanted and that Republicans are willing to spend more than they should is not noble. It’s politics.