Biden should heed GOP advice
President Joe Biden should take some advice from Republican Sen. Mitch McConnell on day one of his administration and reconsider his plan to send $1,400 checks to middle and low-income Americans. It could do more harm than good.
Besides, a little bipartisan cooperation would be a nice change.
Biden rolled out his American Rescue Plan last week and promised a top-up of the $600 checks that Congress approved in December. He would make good on President Donald Trump’s bid to give most Americans $2,000 to spend as they see fit.
McConnell scuttled that plan as too generous. The Republican leader did not rule out additional aid to the unemployed, but he wanted a more targeted program that would not inject so much free cash into the economy. He has legitimate reasons to worry.
The COVID-19 pandemic has triggered a bifurcated economic crisis, exacerbating income and wealth inequality. Unemployment among the highest-earning Americans is less than 5 percent, while it has reached more than 20 percent for the lowestearning Americans.
While one in five Black and Hispanic families do not have enough food to eat, the booming financial and real estate markets have made well-to-do Americans even wealthier.
“You won’t see this pain if your scorecard is how things are going on Wall Street,” Biden correctly observed.
But financial markets are where an even greater danger is lurking for the economy and Biden’s presidency. Dozens of analysts, including some of the financial industry’s biggest names, warn that stock trading and real estate investing have created dangerous bubbles.
U.S. financial assets are now six times larger than U.S. gross domestic product, Bank of America reported. There is no way corporate America is worth six times the total annual output
of American goods and services.
The typical stock price-toearnings ratio of the S&P 500 Index, a broad measure of the U.S. market, is between 10 and 20. Massive buying drove that ratio up to 38 in October, a level only seen twice before, just before the Dot Com Bubble burst in 2002 and the Great Recession in 2008.
The inflated stock prices come from too much money concentrated in too few hands with even fewer options for where to invest it. The Federal Reserve’s low-interest rates have made Treasury Bonds and savings accounts money-losers after adjusting for inflation.
Low taxes have left the wealthy with more disposable income than ever, so they are buying and driving up risky assets’ prices in search of a return on investment.
Millions of young people have taken up stock trading as their pandemic hobby. Mobile apps such as Robinhood have turned stock purchasing into a video game. A lot of stimulus money has found its way on to Wall Street.
Low-interest rates have also encouraged home buying, with real estate prices again reaching bubble territory. When millions of Americans are facing homelessness due to unemployment, housing has never been more expensive.
Biden’s $1,400 checks will only inflate these bubbles, and when they pop, paper profits evaporate. When reality sets in and investors decide a stock is worth $20 instead of $50, that money is lost to the economy. When a person sells a property at a loss, no one profits.
Indiscriminately pouring money into the economy could also trigger inflation. McConnell and his fellow Republican senators have good reason to want more targeted spending.
Luckily, Biden has other ideas. Higher unemployment payments, rent and mortgage support, expanded food programs and increased hiring to build infrastructure create jobs, lower debt and boost productivity without creating asset bubbles.
Biden’s Build Back Better plan to directly invest in the economy, though, is a break from the past 40 years. I suspect fiscal conservatives will accuse him of introducing socialism.
But the Biden plan takes inspiration not so much from the Green New Deal as from former President Franklin D. Roosevelt’s original New Deal.
A higher minimum wage, better employee benefits, and expanded government programs created the American middle class. Culturally, Biden’s plan also represents a break with the greed-is-good, me-generation self-centeredness that has dominated politics since 1980.
The Reagan Revolution accomplished some fantastic things. The United States was undoubtedly overly burdened by regulation and high taxes in the 1970s, but we’ve now witnessed the logical conclusion of supply-side economics: economic injustice and political instability.
As Biden takes office, the nation is deeply divided by rich vs. poor, rural vs. urban, liberal vs. conservative, and ethnicity. But most Americans agree the current economic system is not working for them, and the political class does not represent them. If he can fix the former, the latter will follow. As long as a bubble doesn’t burst.