OPINION:
President-elect Joe Biden has an expansive regulatory and spending agenda and a lot more room to maneuver than conservatives admit.
Reducing policy goals to specific regulations is so complex that Congress mostly writes broad goals into laws and leaves detailed rulemaking to the bureaucracy. Even with a more conservative judiciary, many of Mr. Biden’s executive orders will stand up in court.
And Washington’s response to the COVID-19 recession absolutely demonstrates the federal government can spend and print more money without doing much harm — if done smartly.
The federal deficit jumped from $1.0 trillion in 2019 to $3.1 trillion in 2020 — the CARES Act, other pandemic-related emergency spending and the hit on tax collections from layoffs and shutdowns were largely responsible. The Federal Reserve printed money to purchase about three-quarters of the new bonds, and as EU governments boosted their debt, the European Central Bank did much the same.
Too much money chasing too few goods did not result in more inflation, but where did it all go?
Americans working from home drove less, couldn’t attend sporting events, ordered delivered meals that cost less than those consumed at downtown restaurants and generally saved the extra cash if they weren’t unemployed.
Corporate liquidity also swelled. With the future so uncertain, many cut dividends and held back hiring and spending on new projects until the contours of the post-pandemic economy could come into focus.
Going forward, online shopping, zooming and streaming will permanently displace many shopping malls, downtown offices and theaters. Economists who say they can precisely predict by how much are charlatans.
Mr. Biden can’t count on consumers and businesses sitting on their hands. However, with the vaccinations proceeding, the fiscal 2021 federal deficit is on track to fall to about $2 trillion with the passage of the bipartisan supplemental stimulus package and $1.1 trillion in fiscal 2022.
Going forward, three great trends give American and European leaders more head space to borrow than their predecessors enjoyed. China may be creating an ever-larger share of global wealth, but its currency is highly regulated and its weak legal protections combine to make Chinese government bonds a poor place to stash grandma’s nest egg.
Nowadays, business assets are more highly concentrated in intellectual property than buildings and machinery. New projects require fewer investor funds to create value and is an important reason why corporate balance sheets were so flush and share buybacks so much in fashion before the pandemic. The latter will resume after COVID-19 is squelched.
Even as businesses require fewer investment funds from households, an aging population is saving a lot more and needs low-risk assets — dollar, euro, yen and pound denominated government bonds — to balance stock investments in retirement portfolios.
Mr. Biden won’t be able to run $3 trillion deficits, but he can likely get away with doubling Mr. Trump’s $1 trillion pre-pandemic shortfall long after stimulus spending is no longer needed.
Without new taxes, the cost of Mr. Biden’s campaign promises ranging from broad expansion of the Affordable Care Act to breakneck spending on green energy projects is about $10 trillion over 10 years.
With central banks likely to keep interest rates low, financing $1 trillion a year in additional debt won’t have quite the same negative consequences as it would have had in the second half of the 20th century. But the wrong kind of spending or unwise regulations can discourage work, skew capital to unproductive uses and significantly drag on growth and wages.
It would be best if Mr. Biden focused on projects that save money as they spend. For example, benchmarking U.S. drug, hospital and physician services to prices in the efficient German system to provide universal health insurance would free up chronically wasted resources.
The same goes for tying higher education reform and lower tuition to student debt relief.
Overall, projects that improve infrastructure — charging stations for electric vehicles and better roads, rails and airports — would boost efficiency and growth. The same goes for reversing the decline in support for federal spending on R&D.
Thanks to government policies, the minimum required return on renewable energy projects is as low as 3%. Overall investment in solar and wind is outrunning the science of cost reductions and will leave the country with outdated equipment a decade from now.
Mr. Biden should be cautious of more projects like Solyndra. By constantly angling for higher taxes and woke regulations, Presidents Clinton and Obama suffered big mid-term losses and ultimately surrendered control of Congress to the Republicans.
• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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