Why Congress’s Trillion-Dollar Coronavirus Bailouts Will Shackle The U.S. Economy

1in_god_we_trustHot on the heels of passing an $8.5 billion coronavirus emergency funding bill, the White House and congressional lawmakers have proposed yet more pork-laden coronavirus “rescue” packages with a running price tag of over $1.3 trillion.

The “Families First Coronavirus Response Act” (FFCRA) was passed with overwhelming support in the House of Representatives on Saturday. The Senate will likely vote to approve the legislation this afternoon.

With the help of Trump administration officials, House Democrats drafted and passed the FFCRA so quickly that the Congressional Budget Office was unable to estimate its total cost, meaning that taxpayers could be on the hook financially for an indeterminate amount.

Amazingly, the FFCRA will not be the last word of the federal government on the coronavirus crisis. News broke earlier this week that the Trump administration is requesting a $1 trillion stimulus and bailout package—significantly larger than the $831 billion stimulus package passed in 2009 under the Obama administration that provoked cries of “socialism!” from conservatives everywhere.

 

Where is the Money Going?

The emergency measures include a grab bag of long sought progressive policy priorities.

Perhaps worst of all are the two new federal paid leave mandates, lasting until the end of the year, for companies with fewer than 500 employees. The first requires up to two weeks of paid sick leave. The second provides employees with three months of paid family and medical leave if their children’s school or daycare closes or if a family member is quarantined.

Seeing that school closures around the country are becoming increasingly common, it is not inconceivable that nearly all parents fitting the requirements might take advantage of these two new entitlement programs, both of which will be profoundly costly to businesses and the federal budget.

Businesses will be compensated for these expensive benefit mandates with money from the US Treasury through a complex scheme of tax refunds administered by the IRS.

Yet there remain concerns that some cash-poor businesses cannot remain solvent long enough to survive until they receive their tax credits. Additionally, the government reimbursement for these programs fails to consider all the monetary and nonmonetary costs for businesses when employees do not show up for work.

Another component of the legislation is sure to irritate welfare state reformers: the FFCRA obliterates the Trump administration’s bid to restrict food stamp benefits for able-bodied adults without children. The long-planned reform, which had been slated to go into effect in April, would have strengthened the work and training requirement for some single adults collecting food stamps.

The FFCRA also expands unemployment insurance and federal Medicaid funding, and provides over $1 billion in additional funding for nutrition programs.

Although the details of the mammoth $1 trillion stimulus package are still in flux, a Treasury Department memo suggests the newly proposed coronavirus stimulus package would give a $50 billion bailout to the airline industry. The package also includes an additional $150 billion in loan guarantees to other affected industries and a payroll tax cut sure to expedite the coming insolvency of social security.

And during a Tuesday press conference, President Trump and Treasury Secretary Mnuchin announced their intention to distribute “big” direct cash payments to Americans, perhaps in denominations of $1,000 or more per person. The measure is estimated cost taxpayers $500 billion.

 

Bad Economic News

Here are five reasons why the “Family First Coronavirus Response Act” and other coming bailout and stimulus packages are economic ‘bad news’ for Americans:

1. Bad Precedent

Due to our human nature, we make quick studies in dependency when “free” things offered to us.

These new entitlements and bailouts, albeit temporary, may prove to be the proverbial camel’s nose under the tent.

Once the bad precedent is established, it is all too likely that the electorate will have a harder time resisting demands from leftist political candidates for greater government control of the economy. These “temporary” programs make permanent national sick leave and paid family leave more likely in the future.

2. National Debt

The debt owed by the federal government currently sits at $23.5 trillion. This means every American citizen born in 2020 enters the world owing $73,500 to our nation’s creditors.

Emergency spending for the coronavirus only adds to the unconscionable level of debt we already owe. The money this nation borrows will need to be repaid through inflation or higher taxes sometime in the future.

 3. Inflation

If taxes are not immediately raised to cover the emergency spending, the Federal Reserve will need to print new dollars—create money out of thin air—to finance these new programs.

This inflation in the money supply predictably leads to price inflation. One of the most basic economic principles is that a greater quantity of dollars chasing the same number of goods eventually results in rising prices.

4. Higher Taxes

Increased government spending and national debt will necessitate higher taxes for all Americans and businesses, whether sooner or later.

Lest we forget, every dollar taken from us in taxes is a dollar we cannot spend on the things we need and want. We will have to foot the bill for all this extra spending—and that comes at the price of future economic growth and a lower standard of living for everyday Americans.

5. Reduced Future Economic Growth

All these inflationary effects and higher taxes will inevitably hinder the growth of the economy in the future.

Higher taxes make it more difficult for businesses to save and reinvest their profits in expanding their operations, boosting employee pay and benefits, or engaging in research and development.

Similarly, higher taxes for individuals disincentivizes productivity and results in less household saving and investment. This means there will be less capital available for businesses to expand operations and boost productivity.

Rising productivity and profits, greater saving and investment, and more funding for research and development are all needed for robust economic growth. Economic recoveries tend to be lackluster without the necessary combination of these fundamentals.

Let us look back in economic history for a case study. During the economic troubles following the stock market crash of 1929, President Franklin D. Roosevelt’s “New Deal” relief and recovery policies created greater government interventions into the economy, ultimately with the result of reducing profits and raising taxes on businesses.

These New Deal policies exacerbated and prolonged the downturn, turning it into a “great” depression that lasted fifteen years.

In fact, a study by UCLA economics professors calculated that the interventionist policies of the New Deal elongated the Great Depression by seven years, delaying the natural market corrections and recovery that would have occurred otherwise.

Like the New Deal, every additional billion dollars in stimulus and bailout spending will further delay the economic recovery we all want and need. Ironically, these government interventions always end up aggravating the recessions and depressions they are intended to alleviate, causing even greater economic complications in the long run.

 

How All This Affects President Trump’s Reelection Chances

In summary, the newly proposed bailout and stimulus packages smack of big government welfarism and crony capitalism. These are the sort of policies that will move the needle toward socialism, impoverishing us and stripping the productive engines of our economy.

If President Trump wants to win reelection on his economic record, he had better drop his support of this legislation, which is sure to cause lasting economic problems.

Likewise, if the president’s supporters in the Senate want a quick and sustainable economic recovery post-coronavirus, they had better gather their senses and stand firm against bailouts and stimulus packages like this economically disastrous legislation. Our financial wellbeing and the future of our liberties depend upon it.


This article was originally published by The Federalist.


 

Toward a Trinitarian Understanding of the Free Market

1in_god_we_trustThe concept of the Trinity is foundational to the Christian life. This fundamental doctrine teaches that there are not three gods but one God in three persons (Father, Son, and Holy Spirit). Each person of the Godhead is equally, eternally, and fully God. There is unity among the three persons of the Godhead; they are “equal in every divine perfection” yet “execute distinct but harmonious offices in the great work of redemption.”

All human relationships reflect the Trinity. Because God created us in His image, we are relational beings. We were created to live in community. Although some types of social relationships are more intimate and lasting than others, all relationships are interpersonal and require at least some cooperation and interdependence. Furthermore, just as there are different roles among the persons of the Trinity, there are also roles within every social relationship.

Theologians often point to God’s design for the family as one example of this phenomenon. Familial relationships are characterized by interdependence, cooperation, and mutual service. The husband is called to lovingly exercise headship over the family, following the pattern of Christ and the church. Conversely, the wife joyfully submits herself to her husband’s proper exercise of authority, and children submit to their parents. Thus, the biblical pattern for family exemplifies the interdependence and interpersonal cooperation of the Trinity.

This Trinitarian pattern also applies to our relationships in the marketplace. Consider the relationship between employer and employee. Employers are called to lovingly and righteously exercise authority over their employees, and their employees are called to submit joyfully, so long as the employer isn’t directing the employee to engage in unholy or illegal behavior. In doing this, the employer and the employee glorify God by imitating the Father’s proper exercise of authority and the Son’s joyful submission as well as through acting righteously toward each other.

Even economic exchange between strangers reflects the Trinity and glorifies God. “Society under the market economy means a state of affairs in which everybody serves his fellow citizen and is served by them in return,” wrote the famed economist Ludwig von Mises.

This axiom is obvious to those who have studied the market economy. The businessman serves his customers by producing the goods and services they desire, and the customers compensate the businessman for those goods. The employee serves his employer by providing his labor, and the employer returns the favor by remunerating the employee for his work.

Through its division and specialization of labor, the market drives every person to rely on everyone else to supply his needs. No one person is self-sufficient. By fostering interdependence and interpersonal cooperation, the relational nature of economic exchange reflects the relational nature of the Trinity. Accordingly, the free market bears the mark of its Creator.

The nineteenth-century Christian philosopher and economist Frederic Bastiat affirmed this truth:

“We should be compelled to contemplate the Divine plan that governs society… And see how, by means of social [economic] laws, and because men exchange among themselves their labors and their products, a harmonious tie attaches the different classes of society one to the other! It is therefore certain that the final result of the efforts of each class is the common good of all.”

Adam Smith, renowned by historians as the father of modern economics, famously wrote that market participants “are led by an invisible hand… without intending it, without knowing it,” to “advance the interest of society.” Even when they are merely seeking their own benefit, market participants are led by the mechanisms of profit and loss to use their productive energies to meet the needs of others. Christians recognize that this invisible hand must be God, who uses the laws of economics that He created to guide market participants into the service of others.

In the free market, this mutual service through economic exchange is voluntary. No party is forced to supply the needs of the other. Instead, profit and loss direct individuals into the service of their fellow men. Assuming the absence of force and fraud, the people and companies who earn the greatest profit are those who best serve the needs of their customers. Christianity understands this and therefore affirms that profit is morally good.

In Matthew 25:35-36, Jesus commands His disciples to attend to the needs of others. Can it not be said that this is accomplished through the mechanisms of the market, at least in part? Do food workers not feed the hungry? Do pipe workers not help supply water to the thirsty? Do retail workers not help to clothe the naked? Do doctors and nurses not attend to needs of the sick?

This explains why the Christian Reformers believed that all work is sacred and provides an opportunity to glorify God. All work, even the most mundane, is a high calling. God uses our work and economic exchange to provide for ourselves and others. Through the process of voluntary market exchange, we glorify God by reflecting the Trinity’s interdependence and interpersonal cooperation in our own lives.


This post was published by Baptists for Liberty.


 

Care About The Poor? Why Withdrawing From Paris Agreement Helps Those Most Vulnerable

3329557-eiffel-tower-2Are you truly concerned about the poor’s economic welfare? If so, you should be celebrating President Trump’s announcement that the United States will withdraw itself from the Paris Agreement.

The Paris climate accord, which was ratified last year, attempts to “bring all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.” Supporters of the agreement claim it is necessary to avert the disastrous consequences of climate change.

Regrettably, the plan’s supporters are committing the greatest economic fallacy, which Henry Hazlitt, the acclaimed economics writer, warned about in his most prominent work, Economics in One Lesson (1946):

“The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of the proposed course; the good economist looks also at the longer and indirect consequences.”

While laypeople, pundits, scientists, and economists have focused their attention on what Trump’s decision might mean for climate change, these groups have largely ignored the effect of the agreement on poorer American households. Here are three reasons why withdrawing from the Paris Agreement is good for the poor:

 

1. The Paris Agreement raises energy costs for hardworking American households.

Under the agreement, the United States pledged to reduce its greenhouse gas emissions by 26-28% below its 2005 level by 2025. This would be accomplished by transitioning from fossil fuels to renewable sources of energy.

Although renewable energy will likely become the technology of the future, prematurely transitioning to “greener” sources creates a problem for Americans struggling to make ends meet.

Right now, these alternative sources of energy are far more expensive (and less reliable) than traditional sources. A study published last year found that “electricity from new wind and solar power is 2.5 to 5 times more expensive than electricity from existing coal and nuclear power.”

Until the cost of green energy declines through technological advances and increases in productivity, transitioning to renewable energy too hastily will necessarily cause energy prices to skyrocket. Rising energy prices disproportionately affect those who already have the hardest time affording energy.

Every additional dollar that lower-income families spend on lighting and heating their homes is a dollar that is now no longer available to pay for housing, food, clothes, and books. By raising energy prices, the Paris Agreement would make it harder for these families to afford the things they need.

 

2. Regulations promulgated under the aegis of the Paris Agreement increase prices and harm the economy.

The Paris Agreement saddles producers with burdensome regulations that increase the cost of doing business. Ultimately, these costs are either passed to consumers or are absorbed by businesses, resulting in lower employment and less investment for the capital goods necessary to produce the goods consumers need.

Furthermore, developed economies like the United States rely on affordable, accessible, and reliable energy. Machines on the assembly line and the trucks transporting goods alike require energy to produce and deliver products to consumers.

Most affected by onerous environmental regulations are energy, manufacturing, and shipping firms. Imagine the mom and pop machining shop that would have to pay tens of thousands of dollars to comply with increased regulations originating from the Paris accord. That’s tens of thousands of dollars that now cannot be used to raise wages for their workers, hire new employees, purchase more inventory, or invest in capital (think: technology and machines) to produce tomorrow’s goods.

In the long run, total production will decrease, employees will make less money in wages and benefits, and consumers will face higher prices at the market. There will be less wealth, less prosperity, and fewer opportunities, especially for those struggling to find jobs or climb the economic ladder.

 

3. The Paris Agreement redistributes wealth from American taxpayers to international corporations and less developed nations.

The Paris Agreement also initiates a massive redistribution of wealth from developed countries to less developed countries. This will be orchestrated through the United Nations Green Climate Fund, which seeks to help developing countries purchase and construct alternative energy infrastructure.

The Green Climate Fund is the worst form of crony capitalism, guaranteed to benefit politically connected firms, especially those that stand to make millions of dollars in selling green energy technology. Like all government infrastructure programs, it will likely be highly inefficient and rife with corruption.

To make matters worse, the Paris Agreement assures that a significant portion of the multibillion dollar budget for the Green Climate Fund will be financed by American taxpayers. Astoundingly, the agreement places American taxpayers on the hook for bankrolling pricey green energy technologies for other nations.

Where do supporters of the agreement think this money will come from? Have they forgotten that the United States is already $20 trillion in debt with unfunded liabilities (promises of future services) totaling over $200 trillion?

Remember that every dollar taxed by government is a dollar that American families and businesses cannot use to purchase the things they need. Taxes divert money and resources from the private sector, where it is spent more efficiently and according to the needs of consumers, to the public sector, where it is spent inefficiently on programs (like green energy) deemed “worthy” by central planners (in this case, the international community) without concern for the needs of the people in these different countries.

The eventual result of increasing taxes will be less capital available to meet the future needs of producers and consumers. There will be fewer total goods produced and fewer jobs. Prices will rise, and families and small businesses will find it harder to get the credit they need for mortgages and small business loans.

 

Decades ago, Henry Hazlitt alerted his contemporaries about the error of ignoring unintended consequences when analyzing policies. His warning still rings true today:

“The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.”

Regardless of the truthfulness of claims made by climate alarmists, it is important to look beyond good intentions to see how policies, like those springing from the Paris Agreement, would affect the most vulnerable people in society in unintended ways. It is tragic that government policies designed to alleviate one problem create further problems that end up harming people.

It is indisputable that the Paris Agreement would have negatively affected lower-income American families. Fortunately for them, the United States is no longer beholden to the agreement, and it can now pursue environmental policies it considers to be in the best interests of Americans.


This article was originally published by the Mises Institute: https://mises.org/blog/withdrawing-paris-agreement-helps-most-vulnerable.