The President of the Perpetual Bailout

What do state and local governments, public education, the hospitality industry, the construction industry, the technology industry, the green energy industry, and, most recently, student loan recipients have in common?  They’ve all been bailed out by President Biden, ushering in a new era of perpetual spending, sometimes with no vote in Congress required.

Americans are generally comfortable with the idea that drastic times call for drastic action by the Federal government.  Of course, there is a debate to be had on the efficacy of any government program, but over the past two decades a majority has supported some variation of stimulus and bailouts when faced with recessions under George W. Bush and Barack Obama, plus the coronavirus pandemic under Donald Trump.  The techniques employed have included direct stimulus payments, subsidies for affected companies or sectors of the economy,  incentives to purchase certain items, tax credits, and more.  Based on the circumstances it could be one, several, or all of the above.  We are also comfortable with the idea of using federal funds to deal with emergencies and natural disasters.  Relief was provided for Hurricane Katrina, Sandy, and other unanticipated events from floods to tornadoes, and the pandemic.  Right or wrong, effective or ineffective, the sense that the government had to do something was strong and, generally speaking, there was bipartisan support for the large majority of these programs with the exception of President Obama’s almost trillion dollar stimulus in 2009.  Even in that case, Republicans and Democrats rallied a few months earlier for the $700 billion financial bailout known as TARP, meaning the entire government did act during the crisis.  Taken together, one might say that it is a well established democratic norm for the government to provide targeted financial assistance in extreme or at least novel circumstances.

Sadly, this has proven to be yet another norm shattered by President Joe Biden.  He and his progressive allies in Congress have collaborated to bring about perpetual bailouts and stimulus, one where neither need nor even basic fairness is a consideration before embarking on massive government spending.  In less than two years in office, he has variously bailed out or stimulated state and local governments, public education, the hospitality industry, the construction industry, the technology industry, the green energy industry, and, most recently, student loan recipients.  You might even say he bailed out the IRS to the tune of 87,000 new workers.  Otherwise, the only common feature of these programs has been money.  Lots of it we do not have, flying from government coffers faster than at any time in the history of the known universe, far more quickly than anyone could reasonably count or control it, and with no regard for an economy already beset by massive inflation.  It is an irony of our times that the continued spending of money we do not have that is likely to drive up inflation is frequently characterized as major wins for the President.  It’s as if I decided to take out as many credit cards as I could, promptly maxed them out and lived like a king for a month, spending borrowed money on everything and everything, and then declared myself king for life on someone else’s dime.  No credit card company, however, would be able to handle the scale of Biden’s spending:  A total of around $4.37 trillion, above and beyond the regular federal budget, all in less than two years.  To say no one has ever spent money like this is the understatement of the year:  No one has even come close in terms both the overall size and the number of industries being bailed or subsidized, whatever you preferred terminology, and the pace at which these programs are being rolled out.

Perhaps nothing illustrates this more than the dizzying sequence of events between the passage of the CHIPs act and the announcement that the administration was unilaterally “forgiving” 10,000 in student debt.  The CHIPs act itself was always something of a mystery:  Why did large, established, profitable companies like Intel, Nvidia, and even Apple need $52 billion of taxpayer money?  Ostensibly, the goal was to increase the manufacturing of microchips in the United States, but the end result was billions in cash with little to no strings attached for the last industry on the planet that needs it.  Microchips don’t have a demand problem.  They are produced in the millions upon millions and used in almost every device, from a computer to a car to a microwave oven.  Companies are already competing with another to produce them as fast as they possibly can.  This is the market in action.  They need no incentive to continue investing in manufacturing capabilities, and haven’t for decades, but that didn’t prevent a bipartisan group of Senators from showering the industry with additional cash.  At the same time, $52 billion, what was once considered a huge sum of money, is barely a rounding error in the current state of our fiscal affairs.

Besides, the ink was barely dry on the bill before Democrats returned to the government well with a much more audacious spending plan:  The so-called Inflation Reduction Act, otherwise known as Build Back Better’s mini-me.  Despite its name, the bill is primarily focused on global warming, providing some $369 billion in subsidies to achieve a 40% reduction in carbon emissions by 2030.  Not that anyone truly believes such a dramatic reduction is going to happen, even the Democrat talking points only claim we’ll be on the “path” to it, any more than they believe it will reduce inflation.  Whether or not it works, it’s the most expensive and aggressive investment ever taken in this regard. The bill also promises lower “energy costs for Americans,” increased “American energy security,” the “decarbonization of all sectors of the economy,” focused “investments into disadvantaged communities,” and “resilient rural communities.”  Beneath the surface, however, there is nothing remotely new here:  Consumer home energy programs, tax credits for energy efficiency, a rerun of tax credits for electric vehicles, and grants for affordable housing, are all techniques tried over and over again in the past with mixed at best results.  In fact, we’ve been at this since Jimmy Carter was in office.  President Barack Obama also took a similar approach to his “stimulus” program in 2009, The American Recovery and Reinvestment Act, backed by some $340 billion of the overall spending.

The second part of the bill, the one which Democrats insist will reduce inflation, is a combination of tax increases to pay for these subsidies with the remainder going to deficit reduction, supposedly $300 billion over 10 years, a rounding error in the federal budget if ever there was one.  The tax increases will, perhaps needless to say, be immediate, violating even President Obama’s maxim about not raising taxes in a recession:  A new 15% minimum corporate tax for large companies, billions of dollars for the IRS to audit more taxpayers, what I alluded to earlier as a “bailout” of the IRS itself, and some changes to carried interest for investors and hedge fund managers.  Sadly for us all, nonpartisan Congressional Budget Office calculations put the actual deficit reduction at barely a third of the figure advertised, $102 billion, making it less than a rounding error.  They also believe the bill will do nothing to combat inflation, a thought echoed by a study produced by the Wharton School of Business and economists quoted on even progressive websites such as Vox.com.  “We’re talking about small impacts one way or the other, not likely to have any significant change in what consumers are feeling overnight,” Shai Akabas, director of economic policy at the Bipartisan Policy Center, explained to the site.  The White House and Democrats will admit no contrary data, however, continuing to cite experts of the real card carrying kind who say otherwise.  White House Press Secretary Karine Jeanne-Pierre told reporters, “You know, leading economists have said that this Inflation Reduction Act that’s been analyzed by them, that’s been looked at by these economists, will indeed reduce inflation.”

At least back then, as in two weeks ago, there was an argument to be had:  It is widely believed that excessive government spending partially drives inflation and therefore reductions in the deficit could slow the tide.  How that was supposed to work when government spending was increasing more than the reduction was left entirely unsaid, but there remains something like a rational position if you look at the bill with one eye closed.  The plan to reduce student debt, revealed barely two weeks later, demolishes the entire argument, however.  The excess revenue from the tax increases will now be spent on “forgiving” student loans, likely much more, driving up the deficit and hence inflation even further according to their own argument.  In other words, there will be no deficit or inflation reduction to speak of.  Both will only increase, yet another incident of President Biden following his inner George Costanza and doing the opposite of what is needed at the time.  A former economic advisor to President Obama and Harvard economist, Jason Furman, described the plan as “reckless” and the equivalent of “pouring roughly half a trillion dollars of gasoline on the inflationary fire,” making this the third such advisor who has come forward against President Biden’s ridiculous spending following Larry Summers and Steven Rattner.  Perhaps even worse, the plan to cancel student debt amounts to a massive wealth transfer from the poorest Americans to the wealthiest.  The college educated earn far more than their uneducated counterparts, some 31% more over their lifetimes than those with an associates degree and a whopping 74% more than those with only a high school diploma.  This amounts to a net earnings of almost a million dollars more.  Therefore, it should be no surprise that the $10,000 forgiveness plan will accrue to the top wage earners in the country.  The top 60% will receive the majority of the expected $300 to $980 billion in cost, some 69% to 73% of the total even with the $125,000 annual income cap, $250,000 for married couples.  This is Robin Hood in reverse, and would normally be considered a moral obscenity according to the philosophy of progressives.

There is also, of course, a moral hazard, for two reasons.  The plan does nothing to reduce the costs of college, meaning current students will continue to accrue massive amounts of debt, only now with good reason to believe they will never have to pay all of it back.  Why would anyone taking out a loan not assume a “forgiveness” plan will be forthcoming at some point in the future?  Second, the authority the President is claiming for his never before attempted, unilateral measure stems from emergency actions taken after 9-11 and has absolutely nothing to do with the current situation.  The White House cited the HEROES Act, a 2003 law that granted the Secretary of Education the power to provide relief from loan requirements in the midst of a crisis.  The coronavirus pandemic is over, but the Biden Administration still believes a 20 year old law applies in our current non-emergency.  “In present circumstances, this authority could be used to effectuate a program of categorical debt cancellation directed at addressing the financial harms caused by the COVID-19 pandemic,” a memorandum issued by the White House explains.  Legal experts, at least some of them, are claiming this is nonsense.  Jed Shugerman, a law professor at Fordham University, generally supports the idea of debt relief in principle, but is honest enough to admit it cannot be done by executive fiat.  “I think it’s a loser argument with the [John] Roberts [conservative-leaning] US Supreme Court. The Roberts court has already indicated in three different decisions that it has a different approach to major questions and that it’s skeptical of COVID being invoked in a broad way to achieve policy goals,” he explained.  “The problem with the HEROES Act of 2003 is it is clearly about 9/11 context. Even if it says emergencies might be broader than 9/11, the Roberts court will see COVID as a stretch.”

Politically it is also far from a clear win.  Progressives are claiming the plan isn’t generous enough while Democrats in swing states are rapidly attempting to distance themselves from what conservatives are calling a bribe to Democrat voters.  Nevada Democrat Senator Catherine Cortez Masto said, “I don’t agree with today’s executive action because it doesn’t address the root problems that make college unaffordable. We should be focusing on passing my legislation to expand Pell Grants for lower income students, target loan forgiveness to those in need, and actually make college more affordable for working families.”  Colorado Senator Michael Bennet noted, “In my view, the administration should have further targeted the relief, and proposed a way to pay for this plan. While immediate relief to families is important, one-time debt cancellation does not solve the underlying problem.”  Maine Democrat Representative Jared Goldman claimed, “This decision by the president is out of touch with what the majority of the American people want from the White House, which is leadership to address the most immediate challenges the country is facing.”  New Hampshire Representative Chris Pappas, “[T]his announcement by President Biden is no way to make policy and sidesteps Congress and our oversight and fiscal responsibilities. Any plan to address student debt should go through the legislative process, and it should be more targeted and paid for so it doesn’t add to the deficit.”  Kansas’ Sharice Davis, “It’s not how I would have addressed the issue.”  Ohio Senate hopeful Tim Ryan, “While there’s no doubt that a college education should be about opening opportunities, waiving debt for those already on a trajectory to financial security sends the wrong message to the millions of Ohioans without a degree working just as hard to make ends meet.”

It seems like robbing Peter to pay Paul has its limits even in the modern Democrat party, but it’s impossible to see any of this in a vacuum:  The only way to explain it is that President Biden has ushered in an entirely new era of perpetual bailouts for everyone and everything.  The defining feature of his Presidency is the desire to spend untold sums of money regardless of the impact on inflation or our long term prospects.  He is aided in this by a progressive movement that has never encountered a dollar of spending or taxing it doesn’t like, putting us in truly uncharted territory.  Perhaps even worse, the latest bailout of student loans was performed by executive fiat.  President Biden has claimed the power to spend up to a trillion taxpayer dollars without any legislative action required.  There is no reasonable reading of the Constitution or any democratic norm that supports anything on that scale.  No one has ever attempted something similar.  President Bailout has a pen and a phone and thinks he can do whatever he likes with your money.

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