An immutable fact of life is that long-run benefits require costs to be incurred in the short-run. Whether it is to become a successful musician, athlete, tradesman, farmer, businessman, or professional of any kind, costs are required up-front.
And so it is with a prosperous nation. Up-front costs must be incurred for investments in roads, bridges, airports, seaports, streets, roads, and bridges. Provisions must be made for water supply and sewage disposal. Costs must be incurred for educating its people, for public health and safety, and much else. Over time, needs change, such as provisions for child care so that women — to remind, have at least half the nation’s energy and talent — can afford to get back to the paid work force and use that energy and talent to make this country more productive.
Regrettably, Republican politicians who claim to understand business, and how investment is required for success, fail to apply that logic to the nation. Republicans are actually disparaging these proposed investments as “a socialist agenda.”
There was a time when investment in roads, bridges, and ports, was supported by politicians of all stripes. They could claim credit for a new bridge in their respective districts, and the increased employment generated for its construction. It was a win-win situation.
Why did only 13 Republicans support the recent $1.5 trillion infrastructure bill that in years past would have attained unanimous support? Why are those few Republicans who supported the bill now being punished for voting for a bill that would clearly benefit them and their constituents?
The answer is simple. Donald Trump is outraged. He insists that Republicans, who voted for the bill that would traditionally be supported by all of them, are traitors to the party and must be punished. Republican House leaders anxiously oblige.
Trumped campaigned as “a builder,” promising infrastructure legislation. As president with Republican control of the House and Senate, and Democrats openly expressing support for it, Trump had every opportunity to pass a significant infrastructure bill. He failed. Under more difficult circumstances, Biden got it done, bringing out the worst of Trump’s vindictiveness.
Biden’s “Build Back Better” bill, passed by the House with universal Republican opposition, is more difficult for several reasons. Sometimes called the “social infrastructure bill,” it doesn’t have the same resonance as “hard infrastructure.” Democrats have fought over its size rather than emphasizing what would tremendously benefit so many voters and the nation at large.
The bill that Republicans trash as “a socialist agenda” includes universal pre-K education. The pandemic has knocked many women out of the workforce. Assistance for childcare would enable women to get back into the workforce and contribute their energy and talent to health and education institutions, and to businesses and the nation. Reduction in costs for insulin would be of tremendous financial assistance to diabetics. Reduced prices of prescription drugs would benefit all Americans who pay more for drugs than citizens of any other country. The bill includes tax reductions for middle class families with children, and much more.
When polled, these items are viewed favorably by Americans. So why does this bill generate such vehement Republican opposition?
Sometimes the simplest answer is the best. Given the political division of the nation, Republicans see it in their short run interest to oppose the bill; they see it as “a win” for Biden and the Democrats. Better for them to oppose it than to work with Democrats to make it bi-partisan and improve the lives of all Americans.
And the tactics? Just label the whole thing as “socialism,” a “wild spending spree that we can’t afford.”
Only our Republican politicians would portray universal pre-K, safe and affordable child care, and reduction in drug prices as “socialism.” They argue that such spending would add to inflation, and add to the public debt.
The spending would not be instantaneous, but over the next decade. The Congressional Budget Office concludes that the bill would only marginally add to the public debt, if at all, with additional tax collections resulting from needed auditing of high income recipients. And even if it would add marginally to the debt, just as with individuals and businesses, there is “good debt,” short-run costs necessary to reap long-run benefits.
Blaming the current inflation on government spending is a phony argument.
Current inflation resembles our experience immediately after WWII. During WWII, resources were restricted to wartime production. Full employment generated income that could not be spent on unavailable consumer goods. Savings were accumulated through bank deposits and war bonds. After the war, production could not instantaneously be switched from war material to consumer goods. As consumers, with pent up demand and flush with cash, faced still-limited supply, inflation was the inevitable result.
During this pandemic, production was curtailed through work stoppages and lack of consumer demand for services, especially including travel, hospitality, and restaurant services. At the same time, government expenditures under both the Trump and Biden administrations kept many from bankruptcy, and the economy from entering recession. The national savings rate actually increased.
Many of our production inputs come from abroad, where production was halted during the pandemic. The “just in time” method of inventory management was efficient — cost-saving, as long as there were no glitches in the system. But with production stoppages during the pandemic, retailers have reduced inventory. The previous shortage of truck drivers became worse during the pandemic. Resumption of supply and its transport is not like turning on a light switch — it takes time.
These pandemic-induced inventory and supply chain problems combined with spending induced by pent up demand naturally results in rising prices.
Similarly, oil production fell due to low demand and low prices during the pandemic. Reduced supplies are now met by increasing demand as people are traveling once again. Biden has no control over short run oil production. However, as President, he will be blamed for high gas prices.
Rising prices due to recovery from the pandemic is absolutely no reason for not investing funds over the next decade to bring about long run benefits.
— John Waelti of Monroe, a retired professor of economics, can be reached at jjwaelti1@tds.net. His column appears periodically in the Monroe Times.
