Tuesday 6 April 2021 1:00 pm

Joe Biden's $2.3tn spending spree will stifle competition and make business the bogeyman

Eliot Wilson is co-founder of Pivot Point and a former House of Commons official.

Last month, the White House began to lay out the President’s new economic investment programme, the American Jobs Plan. It is the partner of the American Rescue Plan, the ambitious plan to vaccine the entire population, rebuild the economy and the country after the damage wrecked by the pandemic.

The plan pledges to spend $2.3 trillion and sells itself as the modern cousin of Franklin Roosevelt’s New Deal. It is an enormous opening of the federal taps to drench the US economy in spending to create “millions of jobs”, rebuild national infrastructure, and “position the United States to out-compete” China. To provide some context, that is a whisker over the UK’s gross domestic product for a year.

Big Spender Biden is in tune with the times. Many of the challenges the world currently faces, from climate change and poverty to ageing transport links and crumbling real estate, require big solutions – a political euphemism for high public spending. Voters are no longer as frightened by high price tags as they were ten years ago. 

The pandemic has distorted our view of numbers. Politicians have doled out sums so large, so frequently, and many people have lost all sense of proportion. It is important, however, to sound a temporary alarm at the prospect of Uncle Sam simply turning out his pockets.

For anyone in doubt: northwards of two trillion dollars is a lot of money. In a given year, the US collects around $3.5 trillion, so this plan represents about two-thirds of a year’s income. 

The plan is then obviously unsustainable, and some kind of sweeping readjustment of federal taxes will inevitably follow. Where the burden will fall is clear: the White House briefing notes that “91 Fortune 500 companies paid $0 in federal taxes on US income in 2018… the average corporation paid just 8 percent in taxes”. Big business is the bogeyman, so who would be surprised at finding large corporations bearing the brunt of more taxes? Spend money with one hand while taking it with the other: the perennial progressive prestidigitation.

It is not even as if the $2.3 trillion is to be spent on the open market. We are told “the plan will require that goods and materials are made in America and shipped on US-flag, US-crewed vessels”, and workers traditionally disadvantaged in the free market will have a “fair shot” at getting “good paying jobs”.

This is, in effect, a massive programme of economic and social engineering. Competitive tenders will be secondary to protectionism, competitive wages will be distorted by racial profiling and the promotion of unionisation, and the direct use of federal expenditure will lead to subsidies for US industry.

We know where this leads. US industry will be protected from fair international competition by its benevolent benefactor, which will rob it of the incentive to seek new and innovative ways to do business. Wage bills will be inflated by the government’s desire to right historical wrongs through employment policy. Research and development will not be measured against the world’s best because it will not need to compete: its investment from Uncle Sam is locked in by warm words and fine ambitions.

Thirty years ago, free-market supporters looked around the world and concluded that they had won the intellectual war. The corporate state was in retreat, and its ultimate expression, the Soviet Union, had hollowed itself out trying to keep pace with Western defence expenditure and capability. As late as 2002, Peter Mandelson, the avatar of a social-democratic future for the British Left, remarked “we are all Thatcherites now”.

But lessons are hard to learn and easy to forget. Plenty have left-wing politicians around the world have styled themselves around a different world where the state is the ultimate force for good, where a planned economy need not end in disaster and where we can have high spending without high taxation. In other words, they have forgotten the lesson most of us learnt as toddlers: you can’t always get what you want. 

Surely, you cry, there’s no other way. Big problems require big solutions. And so they do. But experience has taught us, even if we refuse to acknowledge it, that the state is almost always the most inefficient, if sometimes the only, way of doing anything. 

Millennials may try to create a new narrative, but anyone who remembers British Telecom, British Airways, British Leyland or any of the other “great” nationalised institutions recalls how bad it was. With capital markets across the world trillions deep, and uninvested money earning little to no return, surely we need to look to the private sector as the motor of development and progress, rather than the government’s hoarse and asthmatic rallying cry. We’ve dealt in money for six hundred years: why set aside one of our true geniuses when we need it most?

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.