Prepare for 3 Things: Big Government, Huge Boondoggles, Massive Taxes

Mish

Progressives have their eyes on on your wallet to pay for their big government schemes. And it looks like Biden will oblige them.

$10 Trillion for Climate and Infrastructure 

The National Review reports Liberal Senators Push Biden for a $10 Trillion Climate and Infrastructure Bill

On Monday, Sen. Edward J. Markey (D-Mass.) and Rep. Debbie Dingell (D-Mich.) unveiled a climate and infrastructure plan that called for $10 trillion in spending over the next decade. Biden’s initial campaign pledge to invest $2 trillion over four years was already inadequate to confronting climate change, and his coming proposal may be even less so, said Robert Pollin, an economist at the University of Massachusetts Amherst, who helped craft the Markey-Dingell plan. Pollin said a $3 trillion investment only amounted to about 1.3 percent of America’s gross domestic product.

To put the $10 trillion Markey and Dingell are proposing in perspective, over the next decade, the Congressional Budget Office expects that we’ll spend $1.4 trillion on veterans’ programs, $6 trillion on Medicaid, $8.5 trillion on defense, and $8 trillion on all other non-defense discretionary spending. The Markey-Dingell bill would be higher than any of these parts of the budget, only it would come on top of all of these existing expenditures.

Biden's Big Plans 

The Wall Street Journal comments Behind Biden’s Big Plans: Belief That Government Can Drive Growth

The Biden economic team’s ambitions go beyond size to scope. The centerpiece of their program—a multitrillion-dollar proposal to be rolled out starting Wednesday, less than a month after a $1.9 trillion stimulus—seeks to give Washington a new commercial role in matters ranging from charging stations for electric vehicles to child care, and more responsibility for underwriting education, incomes and higher-paying jobs. 

The administration has also laid the groundwork for regulations aimed at empowering labor unions, restricting big businesses from dominating their markets and prodding banks to lend more to minorities and less for fossil-fuel projects. All while federal debt is currently at a level not seen since World War II.

It all marks a major turning point for economic policy. The gamble underlying the agenda is a belief that government can be a primary driver for growth. It’s an attempt to recalibrate assumptions that have shaped economic policy of both parties since the 1980s: that the public sector is inherently less efficient than the private, and bureaucrats should generally defer to markets.

The administration’s sweeping plans reflect a calculation that “the risk of doing too little outweighs the risk of doing too much,” said White House National Economic Council Director Brian Deese. “We’re going to be unapologetic about that,” he said. “Government must be a powerful force for good in the lives of Americans.”

Crazy Thinking 

If you think this is crazy, you are thinking correctly. 

If you don't think this is crazy, you are crazy.

The notion that government can spend money wisely and allocate resources wisely has been disproved countless times. 

Take a look at Soviet 5-year plans, Venezuela, Japan for the last three decades, or dozens of other examples. 

A Word About Capitalism 

The saving grace of capitalism is failure. Good ideas are rewarded, bad ideas fail.

We don't have failure, we have bank bailouts, student loan bailouts, housing bailouts, and so many moral hazard market interventions by the Fed and Congress I cannot even name all the facilities or tools.

And without failure, you don't have capitalism. So don't tell me that we need big government because capitalism doesn't work.

The problem is lack of capitalism not a failure of capitalism. Governments fail and ideas fail, capitalism doesn't fail.

Regardless, more big government ideas are about to be tested. 

Mish

Comments (153)
No. 1-42
oee
oee

i have a counter to that. the US lack of response to Covid 19. the US has had one of the worst deaths due to Covide. Japan that you hate so much has only 7400 deaths in a population that is 38 % of the US. the US has had 550000 deaths . I hope that the US had filed like Japan.

GeorgeWP
GeorgeWP

I would have said China is pretty big government, seems to have done OK against the US over the last 30 years.

.. actually China is probably more free market that anyone in the 'West'. Stuff all labour protection, exploitation, environmental destruction and deep corruption.

Just the conditions the industrial barons enjoyed in American before an active middle class arose.

The free market works well in the micro. In the macro it fails badly. Government is corrupted to subsidise business, suppress wages and provide free infrastructure for business which then reap the profits and leaves any mess for the community to pay to clean up. There is a mis-allocation of wealth into non-productive assets. The market is short-term and can't address the long term e.g. the price of a good increases as it becomes in short supply, which encourages more sensible use of the goods. But it doesn't react in 10-20-50 years time frames. It doesn't do planning for a the world of our grandchildren.

Admittedly neither does most government, but that is often because it is owned by the folk that own the market.

If there was no political movement, when do you think the market would have moved us off coal and oil... I'd say not until there wasn't enough production to meet supply and the price became too high. The market would sort of work, but too late.

When would it stop clearing forest for timber (answer to that is look at the current state of the former fertile crescent or plenty of other examples of collapsed societies that didn't have long term planning)? The market would work, but too late.

numike
numike
KidHorn
KidHorn

Most of the money will go to democratic crony contractors who will be judged on how much they contribute to campaigns. Not on how efficiently they get the job done. Not any different when pubs are running things.

Every contract will have cost over runs and delays.

Lance Manly
Lance Manly

The only definitive taxes are a partial rollback of the corporate income tax of 35 to 21% back to 28% to pay for the infrastructure package. Imagine that, actually paying for something rather than saying it will pay for itself. Since this will use up the reconciliation for this year it will be 2022 before anything else is done. All the rest is hot air that won't get enacted.

threeblindmice
threeblindmice

The US is done. Put a fork in us. We've spent 2-3 decades boosting speculation with artificially cheap money. Our kids don't want to study and work hard. Our education sector cares more about racial proportions and creating activists than educating students. Our citizens don't respect our founding principles any more. We deride wealth as evil and revere poverty and single motherhood as noble. We forgot the values that created our prosperity and assume our prosperity would have come regardless. Our priorities are misplaced. We're not hungry any more. China is hungry.

Quatloo
Quatloo

Even the NYT is calling Biden’s plan the largest Federal tax increase since 1942
https://reason.com/2021/03/29/heres-how-bidens-proposed-tax-increases-will-affect-you/

PostCambrian
PostCambrian

That is where your philosophy fails. Capitalism has failed many times especially now. That isn't to say that governments haven't failed either. The best approach is for governments to provide a good environment for business, the proper incentives and regulations to limit capitalisms worst impulses (which basically is that anything that makes a dollar can't be bad), and let capitalism do its best to reach the goals.

dbannist
dbannist

So I just took a look at Biden's proposal for infrastructure.

While there is the normal pork there are some things in there that really DO need to be done.

Update the nations electrical grid? Check. That's absolutely necessary and must be done if we wish to remain competitive. People don't have a clue about how vulnerable the grid is to a solar flare. Look up 1859 Carrington Event: it's not a rare thing and if it happened today we'd be in huge trouble.

100 billion to update that is indeed an investment.

Of course, I'd rather cut the DOD budget than raise taxes.

simb555
simb555

Power corrupts, absolute power corrupts absolutely" Soviets, Cuba, Venezuela failed due to one man ruled dictatorships. If Biden's Policies pass a 50-50 senate due to steamrolling the rules you are correct that US is on the road to failure like the above mentioned Countries.

simb555
simb555

"Power corrupts and absolute power corrupts absolutely" Soviets, Cuba, Venezuela failed due to one man ruled dictatorships. If Biden's wish list passes a 50-50 Senate due steamrolling the rules we will be on the same road as the above mentioned failed countries.

Quanta
Quanta

Unfortunately I have to disagree with Mish on "The problem is lack of capitalism not a failure of capitalism. Governments fail and ideas fail, capitalism doesn't fail."

Yes it is entirely possible that these gov't programs will waste all of the money even before completing the plans on paper. Mostly due to fraud, and it's unfortunate.

However capitalism (aka private ownership of assets) has been shown to fail repeatedly over the last thousands of years. It is no different from feudalism and many other -isms where the de-facto power was in private hands. Capitalism only cares about those private individuals that have power in the market, and not society as a whole. Education of children, for example, takes 20+ years from birth to college and capitalism is never going to address that because the payoff is too far in the future, and may even go to a competitor through employment.

Replacing a gov't official with a private individual doesn't solve societies problems, because of concentration of power and lack of accountability.

Those who say government is not solving any problems makes a mental error. They take problems that the government does indeed solve, and pretend that it is capitalism that solves them, while the government is interfering. No, it's the other way around in many social services areas, education, road repair & infrastructure, policing, fundamental R&D, and yes national defense, basically anything that isn't directly tied to profit within 5-10 years "capitalism" is unable to solve.

Capitalism is an efficient system for promoting market competition and developing products and solutions. It is not a government system that represents all of the population, and has many blind spots that it will NEVER be able to address, and has not shown it's ability to do so in the last thousands of years.

KyleW
KyleW

Unfortunately, as you can see from the comments, government intervention makes a mess and capitalism always gets blamed.

Bungalow Bill
Bungalow Bill

Bigger government over the big government and more taxes we got the previous four. It's the American way and Americans applaud as long as it is their party delivering it.

anoop
anoop

Prepare for this by doing what?

simb555
simb555

Prepare for this by selling the $ and buying real Gold and Silver coins, NOT paper Gold and Silver.

Quanta
Quanta

If the government didn't promise to pay for the vaccine development, it would not have been developed in one year, because there would not be a financial incentive to do so. Maybe in 3-5 years, and only for those who can afford to pay. Welcome to Capitalism without Government!?

Sechel
Sechel

Instead of labeling it a boondogle about identiying the wasteful spending? Otherwise repeating conservative dogma. Gateway tunnel in my view is absolutely critical. It's a shanda it became political under Trump. The wall in my view , now that was a boondoggle and plenty of Trump's buddies tried to cash in , Steve Bannon for one.

Sechel
Sechel

Private roads and bridges sound good in theory but it never works, a project like the gateway tunnel would never happen privately, same with the chunnel which seemed a boondoggle at the time but now everyone loves

Sechel
Sechel

Unfortunately this sort of thinking has resulted in a crumbling bridges and tunnels, roads and a crumbling infrastructure.

rach1902
rach1902

at least when FDR had some sort of electoral mandate resorted to these kind of plans.

Biden doesnt.

or at least he doesnt until he fixes the next (2024) election;

Eddie_T
Eddie_T

We've been a de facto socialist country since the creation of the Social Security Administration under Roosevelt, before most of us were born. Over time it has gotten more socialist incrementally, as politicians have (mostly) wasted money to try to solve one problem or another (healthcare for old people and poor children, meals for poor kids at school, etc., SNAP).

As you can see from the comments above mine, the majority of your current readership (maybe because the hard-core Trump crowd got disgusted and left) lean toward the Social Democrat label. It is what it is.

I think free and fair exchange and free markets do solve a lot of problems. But they surely don't solve problems that have no profit incentive.

And we are so far down this road now of Corporatism and corporate control of government, none of our founding fathers would recognize our system today.

The real story (imho) is one of how to keep robbing more and more, from the fewer and fewer that have anything to take, in order to keep the ones who have nothing from getting rowdy and hanging politicians from lamp posts.

We've run smack up against the wall of limits to growth. The pie is not getting much bigger from here, although for a few more years the furniture can be rearranged a bit to make it look that way.

I agree that there will be massive, massive waste and misappropriation in these new programs, and much of the money will accrue to those who already own everything.

BAU.

rmhooge
rmhooge

Totally agree Mish but this is what the majority voted for. So suck it up.

davebarnes2
davebarnes2

@Mish,
You keep writing "massive tax hikes".
Please define "massive".
I just don't see huge hikes coming for us and our gross income is $250K (thank to Roth conversions).

FromBrussels
FromBrussels

...the USSA ....United Socialist States of America....sounds good....can t put my finger on it but it does ring some kind of a bell , don t it ....

Mish
Mish

Editor

Pfizer took no research money
What holds up vaccine development is regulation, some of it good, most bad

Zardoz
Zardoz

I don't make or have millions. Their eyes aren't on my wallet. Taxing rich people is in my best interest, and I support it fully. If I get rich, or they decide I'm rich, maybe I'll feel differently about that, but I won't end up starving or homeless because of it.

This country is full of neglected shitholes, and it's getting to be embarrassing. I want that megayacht money going to fix the stuff that makes this country function. I don't want rich people to have the power to buy and sell everyone else, and their children, like Epstein and all his as-yet untouched customers. Not even Prince Andrew went down for that.

If you want people like Bezos to get more powerful than the government, you are sick in the head.

numike
numike

“Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
― Ronald Reagan

Sechel
Sechel

Why Biden is no longer a deficit hawk ad why he's no longer afraid of debt. Hint: You can thank Trump and Republicans

Jojo
Jojo

Yeah, yeah, yeah. Infrastructure needs to be repaired and improved. I am tired of kickback as too expensive on this front decade after decade after decade. Yet there is always more than enough money for the military-industrial complex to build weapons and wage wars around the world.

It's time to spend where spending is needed and if that requires taxes to be raised, then so be it. Perhaps increased taxes will stop frivolous spending that is rampant in the USA.

Bam_Man
Bam_Man

"The era of Big Government is over."
-- President Bill Clinton, 1996

simb555
simb555

Eddie T has a point that you drive away a lot of readers with your constant Trump bashing. I have stayed with you because I learn and appreciate your economic comments especially on Govt reports and do not care about your political views. Politics today is like war and Trump has to be Trump to keep his base which is a comment on the intelligence of the electorate as Biden has to do with his Socialist base. I voted for Trump because of his policies and his so called "character flaws" is only an act to motivate his base.

simb555
simb555

Taxing the rich has never worked in the past as they have enough money for creative tax avoidance. Soon they will go after the 200000 when not enough money comes from the 400000. Many of the rich are close to retirement age and the extra tax burden will make many retire, close or sell their business and the jobs that go with it. I see an expanding market in tax free Muni bonds if Biden's tax increases passes.

Realist
Realist

Mish; you have been making this mistake for the entire time that I have been following your blog. You admire the system described as Capitalism and you dislike the system described as Government.

I have a different view, which does not admire or dislike either:

There is nothing wrong with Capitalism as a system, except that it will be perverted by people trying to take advantage of that system for personal gain.

Similarly, there is nothing wrong with Government as a system, except that it will be perverted by people trying to take advantage of that system for personal gain.

Reality is that you shouldn’t praise or denigrate either “system”.

bitlu
bitlu

I do not understand why sensationalize with head lines like huge tax increase coming.President has repeatedly said no tax increase for people with income less than 400k/year . So any new taxes will only effect the top 1% earners. It is time they
pay their due share

tvc7
tvc7

half of the people in this country pay no federal income taxes, when are they going to pay there fair share.

mrutkaus
mrutkaus

April 1 WAPO:

Biden’s infrastructure plan aims to turbocharge U.S. shift from fossil fuels

That kind of sums up the US; a turbocharger, which uses fossil fuels, is the plan to shift from fossil fules.

frozeninthenorth
frozeninthenorth

Mish are you really saying that highways and bridges are a bad idea. Because based on your view of the world, all roads and bridges should be built privately. Of course governments are not perfect. BTW Japan's government may have been screwed up but its companies were not doing much better.

As for the US government's boondoggle, since the mid 1980s America has being using the credit card to get what it wants. Wars lower taxes, someone elese's problem. I see no difference with Biden than I did with Trump or any other president

Advancingtime
Advancingtime

Biden's infrastructure package is the biggest boondoggle ever put upon America. While many people see government spending on infrastructure as a job creator and a silver bullet for our ailing economy I would like to raise a word of caution, things are not that simple.Anyone naive enough to think America is about to receive a big gift of newfangled "fixed installations" needed in order to function should look long and hard at what is really being proposed.

To be perfectly clear, the problem we face is that poorly spending even trillions of dollars does not necessarily create a strong economy. More on this subject in the article below.


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