President-elect Joe Biden bumps fists with former President Barack Obama during Biden's inauguration as the 46th President of the United States on the West Front of the U.S. Capitol in Washington on Jan. 20, 2021.
President Joe Biden likes to associate himself with Barack Obama and in some ways models himself on the still popular ex-president. In many respects, Biden’s penchant for imitation might be a good thing. With this administration’s infrastructure effort, however, the imitation is unfortunate. Obama’s 2009 infrastructure effort failed horribly. The economy experienced the slowest recovery on record even as his infrastructure spending added considerably to the nation’s indebtedness. Now Biden has loaded his own infrastructure initiative with the same flaws that destroyed Obama’s effort. The current legislation may yet fail to get through Congress, but if it does, President Biden, if he genuinely wants to help the economy, should hope that whatever compromises become necessary will cleanse the bill of its Obama-like mistakes. Otherwise, Biden’s effort will fail as completely as Obama’s effort did.
This issue turns on a well-established economic fact. The impact of government infrastructure spending has always depended heavily on business response. As the great economist, John Maynard Keynes explained when he first advanced the idea that such spending could help lift the economy out of the Great Depression of the 1930s, the economy benefits most when businesses see opportunities in what the government has done and follows on with its own spending on facilities and expansion. This follow-on “multiples,” as professional economists say, are the effects of the initial government spending and ensures that the economy can maintain the facilities built by the government effort. Without such an enthusiastic business response, the immediate economic boost quickly fades, leaving little lasting impact on growth or levels of prosperity.
Obama blamed the failure of his effort on the lack of the “shovel-ready” projects that the New York Times columnist Paul Krugman referenced continually when advocating infrastructure spending. And Obama had some truth on his side. There were and are no such things as “shovel ready” projects, at least not in modern America. The need for public hearings and zoning decisions hold up projects for months, sometimes years, not to mention environmental considerations. However warranted such things are, they helped scotch any immediate effect from Obama’s plan and would from the Biden plan should it pass Congress. Perhaps immediate needs will offer some employment opportunities to bureaucrats, consultants, and lawyers, but not to the guys with the shovels.
But as much as this unfortunate reality impeded Obama’s success, the biggest problem facing the Obama effort was the president himself. He undermined his own program by actively discouraging the critical business follow-on spending. Even though the United States at the time had the highest corporate tax rate in the world, Obama threatened to raise those rates by continually complaining that corporate America failed to pay its “fair share.” So instead of enjoying the expected follow-on support from private investment spending, the president’s rhetoric and the tax code encouraged businesses to do their expanding abroad, where tax rates were lower. They left their earnings overseas as well because Washington only promised to tax them at a higher rate than foreign governments did. There was no follow-on spending and the Obama effort faded quickly.
President Joe Biden likes to associate himself with Barack Obama and in some ways models himself on the still popular ex-president. In many respects, Biden’s penchant for imitation might be a good thing. With this administration’s infrastructure effort, however, the imitation is unfortunate. Obama’s 2009 infrastructure effort failed horribly. The economy experienced the slowest recovery on record even as his infrastructure spending added considerably to the nation’s indebtedness. Now Biden has loaded his own infrastructure initiative with the same flaws that destroyed Obama’s effort. The current legislation may yet fail to get through Congress, but if it does, President Biden, if he genuinely wants to help the economy, should hope that whatever compromises become necessary will cleanse the bill of its Obama-like mistakes. Otherwise, Biden’s effort will fail as completely as Obama’s effort did.
This issue turns on a well-established economic fact. The impact of government infrastructure spending has always depended heavily on business response. As the great economist, John Maynard Keynes explained when he first advanced the idea that such spending could help lift the economy out of the Great Depression of the 1930s, the economy benefits most when businesses see opportunities in what the government has done and follows on with its own spending on facilities and expansion. This follow-on “multiples,” as professional economists say, are the effects of the initial government spending and ensures that the economy can maintain the facilities built by the government effort. Without such an enthusiastic business response, the immediate economic boost quickly fades, leaving little lasting impact on growth or levels of prosperity.
Obama blamed the failure of his effort on the lack of the “shovel-ready” projects that the New York Times columnist Paul Krugman referenced continually when advocating infrastructure spending. And Obama had some truth on his side. There were and are no such things as “shovel ready” projects, at least not in modern America. The need for public hearings and zoning decisions hold up projects for months, sometimes years, not to mention environmental considerations. However warranted such things are, they helped scotch any immediate effect from Obama’s plan and would from the Biden plan should it pass Congress. Perhaps immediate needs will offer some employment opportunities to bureaucrats, consultants, and lawyers, but not to the guys with the shovels.
But as much as this unfortunate reality impeded Obama’s success, the biggest problem facing the Obama effort was the president himself. He undermined his own program by actively discouraging the critical business follow-on spending. Even though the United States at the time had the highest corporate tax rate in the world, Obama threatened to raise those rates by continually complaining that corporate America failed to pay its “fair share.” So instead of enjoying the expected follow-on support from private investment spending, the president’s rhetoric and the tax code encouraged businesses to do their expanding abroad, where tax rates were lower. They left their earnings overseas as well because Washington only promised to tax them at a higher rate than foreign governments did. There was no follow-on spending and the Obama effort faded quickly.
Workers resurface a road by pouring a new layer of asphalt in Los Angeles, Calif., on June 24, 2019. (Frederic J. Brown/AFP via Getty Images)
Now Joe Biden seems determined to recreate the same impediments to success that Obama suffered. The White House has called for higher corporate taxes to “pay” for its infrastructure plans. Because President Trump had lowered corporate tax rates, Biden seeks to raise them by a whopping one-third, from 21 percent today to 28 percent. If that were not reason enough for companies to pass on any investment spending of their own as a follow-on to the federal effort, the president would also impose a 21 percent minimum tax on any company with a lot of deductions–the sort that arises from large capital spending projects. Effectively, Biden would single out for special punishment any firm that might expand aggressively in the way that would multiply the favorable economic effects from federal spending. What is more, the general tax hike would again give American businesses an inducement to do their expansion overseas. Nor would a business have any incentive to repatriate foreign earnings, because the White House has promised that it would tax that money at the higher American rate.
Not only would Biden’s plan miss any of the general economic boost–the multiplier–but the plan has an additional flaw. It includes nothing on what comes after the building. New roads and bridges need constant attention, as do recharging stations for electric cars and modernized homes and factories. Biden’s plan looks to corporate tax hikes to pay for the initial building but offers nothing on how America will maintain all this. If the White House were to promise to return business to lower tax rates after a period of time, firms might then have the incentive and the wherewithal not only to maintain all these new things but also to expand on them. But instead, the White House looks to keep the higher tax rates in place, presumably to finance some other grand project while the infrastructure built over the next few years suffers its inevitable depreciation.
If then, Congress passes something like this plan, the nation will first see little, as it waits maybe a year or two for the paperwork that allows the shovels to arrive at the projects. America’s economy will then see an economic boost, perhaps just in time for the 2024 election, after which all will wind down, as President Obama’s great infrastructure effort did. Unless your only focus is the next election, this is as poorly a structured deal as Barack Obama’s was.
On Infrastructure, Biden Readies to Make the Same Mistake Obama Made (theepochtimes.com)
Now Joe Biden seems determined to recreate the same impediments to success that Obama suffered. The White House has called for higher corporate taxes to “pay” for its infrastructure plans. Because President Trump had lowered corporate tax rates, Biden seeks to raise them by a whopping one-third, from 21 percent today to 28 percent. If that were not reason enough for companies to pass on any investment spending of their own as a follow-on to the federal effort, the president would also impose a 21 percent minimum tax on any company with a lot of deductions–the sort that arises from large capital spending projects. Effectively, Biden would single out for special punishment any firm that might expand aggressively in the way that would multiply the favorable economic effects from federal spending. What is more, the general tax hike would again give American businesses an inducement to do their expansion overseas. Nor would a business have any incentive to repatriate foreign earnings, because the White House has promised that it would tax that money at the higher American rate.
Not only would Biden’s plan miss any of the general economic boost–the multiplier–but the plan has an additional flaw. It includes nothing on what comes after the building. New roads and bridges need constant attention, as do recharging stations for electric cars and modernized homes and factories. Biden’s plan looks to corporate tax hikes to pay for the initial building but offers nothing on how America will maintain all this. If the White House were to promise to return business to lower tax rates after a period of time, firms might then have the incentive and the wherewithal not only to maintain all these new things but also to expand on them. But instead, the White House looks to keep the higher tax rates in place, presumably to finance some other grand project while the infrastructure built over the next few years suffers its inevitable depreciation.
If then, Congress passes something like this plan, the nation will first see little, as it waits maybe a year or two for the paperwork that allows the shovels to arrive at the projects. America’s economy will then see an economic boost, perhaps just in time for the 2024 election, after which all will wind down, as President Obama’s great infrastructure effort did. Unless your only focus is the next election, this is as poorly a structured deal as Barack Obama’s was.
On Infrastructure, Biden Readies to Make the Same Mistake Obama Made (theepochtimes.com)
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