President Joe Biden has an ambitious spending agenda
and a lot more fiscal room to maneuver than conservatives like to admit.
The money supply did increase
but caused little inflation — now that's a conundrum for the limited wisdom of conservative orthodoxy.
Americans working from home drove less, couldn't attend sporting events, consumed delivered meals that cost less than those at downtown restaurants, and generally saved
the extra cash if they weren't unemployed.
Biden can't count on consumers and businesses sitting on their hands. However, with the vaccinations proceeding, the FY 2021 federal deficit is on track to fall to about $2 trillion with the passage
of the bipartisan 2020 supplemental stimulus
package and to $1.1 trillion in FY 2022.
Three great trends give American and European leaders more head space to borrow than their predecessors enjoyed. China may be creating an ever-larger share of global wealth, but its currency is highly regulated, and its weak legal protections combine to make long-term Chinese government bonds risky assets.
Even as businesses require fewer investment funds from households, an aging population is saving a lot more
and needs low-risk assets — dollar-, euro-, yen- and pound-denominated government bonds — to balance stock investments in retirement portfolios.
Biden won't be able to run $3 trillion annual deficits, but he can likely get away with doubling Trump's $1 trillion pre-pandemic shortfall long after stimulus spending is no longer needed.
Without new taxes, the cost of Biden's campaign promises ranging from broad expansion of the Affordable Care Act to breakneck spending on green energy projects is about $10 trillion over 10 years
With central banks likely to keep interest rates low, financing $1 trillion a year in additional debt won't have quite the same negative consequences as during the second half of the 20th century. But the wrong kind of spending or unwise regulations can discourage work, skew capital to unproductive uses, and significantly drag on growth and wages.
Overall, projects that improve infrastructure — charging stations for electric vehicles and better roads, rails and airports — would boost efficiency and growth. The same goes for reversing the decline in support for federal spending on R&D
Thanks to government policies, the minimum required return on renewable energy projects is as low as 3%
. Overall investment in solar and wind is outrunning the science of cost reductions and will leave the country with outdated equipment a decade from now.
Biden should be cautious of more projects like Solyndra
. By constantly angling for higher taxes and woke regulations, Presidents Clinton and Obama suffered big midterm losses and ultimately surrendered control of Congress to the Republicans.
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1
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