The Phantom Economic Crisis

By Kevin D. Williamson

Thursday, May 27, 2021

 

Washington is in an awkward period for good economic news — too late for Donald Trump to claim credit, too early for Joe Biden to. In Washington, news can’t just be good — the question is: Good for whom?

 

But the news is pretty good: New unemployment claims have just hit another COVID-era low, GDP growth in the first quarter was a robust 6.4 percent, and the growth in wages in that quarter was the best it has been in 20 years or more. There are some areas of concern, of course — worrisome inflation indicators, record public debt, and a workforce-participation rate that is stuck where it was last summer — but, given all that has happened, things look not at all bad — the American economy in the age of globalization has proved more resilient than many had thought.

 

So, why all the chicken-little stuff?

 

Governors Tony Evers of Wisconsin and Gretchen Whitmer of Michigan demand Washington-led “transformational change” of the U.S. economy, while Biden still talks about “putting America back to work” as though we were in the depths of the Great Depression. We aren’t — we aren’t even close. We aren’t even in a recession.

 

What do you do when you are enjoying strong growth, lower unemployment, and higher wages? How about . . . nothing? Or at least not very much?

 

Seriously. Slow down. The house is not on fire — and running around like it is on fire is dangerous.

 

The priorities coming from the Biden administration and congressional Democrats are would-be solutions to problems we don’t currently have — slow growth, high unemployment — that would raise the risks associated with the problems we do have: high levels of public debt, soaring commodities prices, and a Consumer Price Index that is rising faster than it has in more than a decade. None of these alone presents a sky-is-falling, code-red situation — though that national debt will eventually be a problem, almost inevitably — but why go out of your way to make things worse, and possibly much worse, in order to mitigate troubles that already are abating?

 

What is at play here is the usual politics of catastrophe. And you know that it’s just politics because the wish-list is always the same — only the crises change: war, “inequality,” climate change, etc.

 

Washington loves a big infrastructure program — something Trump-aligned Republicans and the Democrats’ socialist caucus largely agree about. But there is no such thing as “infrastructure.” Infrastructure isn’t some amorphous commodity; it is a collection of discrete projects, and should be handled as such. What matters is the state of x road and y bridge and z airport, not whether we spend $1 trillion or $2 trillion on the package. But politicians take the price-first approach, putting money on the table and then figuring out whether somebody will pick it up, rather than a project-first approach, which would mean making a prioritized list of needs and figuring out what it would cost to address them. Infrastructure work shouldn’t be like buying a new car — a big-ticket purchase that lasts for years — but more like routine maintenance. You don’t say: “I need $400 in maintenance, let’s see what I can get.” You replace tires and brake calipers and whatnot as needed. There’s a lot of infrastructure work to be done, but the best way to do it is not in lumps rounded off to the nearest $1 trillion. Infrastructure is not best handled through emergency management — unless you want to use the emergency to buffalo the taxpayers or their representatives into supporting trillions of dollars in poorly thought-out outlays.

 

If Democrats seem particularly sanguine about the threat of inflation, they are. Inflation is, in effect, a wealth tax managed through monetary policy, eating away the value of cash savings a few points per year — which is one reason why very wealthy people hold relatively little cash and why middle-income Americans who are able to do so often lock up most of their household wealth in a single asset that they expect to appreciate: their houses. As usual, the people whose interests are ignored are the working people who are not poor enough to receive welfare benefits as such but not sitting on several hundred thousand in stocks and housing equity, either. These workers often are those with the least ability to negotiate for higher wages in the face of rising prices for housing, food, transportation, and other necessities. If you’re on Wall Street, inflation is just one more thing you can bet on — but for many other people, inflation means higher prices that make life harder than it has to be. Sometimes, the government has good reason to take inflationary steps to goose the economy a little bit — but not when the economy is already growing at a fast clip.

 

The crisis mentality is an excuse to spend big now and then get gone before the bill arrives. There was an economic crisis associated with the coronavirus epidemic. We got through it pretty well. It’s over now.

 

We shouldn’t go creating a new one.