Biden’s Proposal

I suppose I ought to react to Joe Biden’s proposal, published in Medium. Reading around the persiflage, he proposes two things. First

I have directed my team to develop a plan to lower the Medicare eligibility age to 60.

Costs for the expansion are to be paid from general revenues. And

I’ve also directed my team to develop a plan to forgive federal student debt relating to the cost of tuition currently held by low-income and middle-class people for undergraduate public colleges and universities, as well as private Historically Black Colleges and Universities (HBCUs) and private, underfunded Minority-Serving Institution (MSIs).

Since these are the keystones of what he has proposed for some time, they are hardly surprising. I find continuing to paddle your canoe during a crisis ghoulish but on the positive side, these proposals aren’t as ghoulish as some responses to what is clearly being perceived as a “good crisis”. He also proposes grants to states to pay for “educators and health care workers and first responders”:

In addition to funds to keep workers on payroll, the next recovery package will need to provide significant funds to states, to make sure that educators and health care workers and first responders can keep getting paid. It will have to provide hazard pay to frontline workers putting themselves at risk. It will have to provide health care coverage for millions who lose their insurance, by allowing them to stay on their health care plans and covering the cost, as well as reopening enrollment for Obamacare and creating the public option I’ve been calling for. It will have to extend unemployment benefits, and provide further direct cash relief, and take care of the people left out of the CARES Act, through an immediate cancellation of a minimum of $10,000 of student debt per person, as proposed by Senator Warren, and Social Security boosts. And so much more.

as well as proposing that the federal government shoulder the costs for all testing for the “novel coronavirus” and all care for COVID-19:

And we must — must — make sure not only that every American can be tested for coronavirus free of cost, but also make sure every American can be treated for coronavirus free of cost. Period.

While I support a federal plan for epidemiological testing, I think that testing “every American” is a step too far. Not only do I think it would be much more expensive than its proponents anticipate (no less than $1 trillion), it’s a logistical nightmare. Would it actually tell us more than sampling would? To the contrary I suspect it would be the world’s largest and most expensive game of Whac-A-Mole. If you came back and retested a week later, you’d get different results. It would also take limited resources away from more urgent uses. As to paying for all of the care for COVID-19, under existing law the federal government will probably already pay for most of the costs.

Demanding that all care be paid for by the federal government is exactly why I opposed payouts to the victims of 9/11. We had not made such payouts to victims of war in the past and it set a precedent of which VP Biden’s proposal is an example. Benign as it may sound it’s unclear to me why the federal government should pay the health care costs of people who have private health care insurance.

I know I’m the dog in the manger on this subject but why provide grants to pay health care workers and not grocery store clerks? Health care workers who believe that they did not sign on to be around sick people, a complaint I’ve been hearing recently, really should reconsider their chosen careers. It’s exactly what they signed on for. It is not, in fact, what grocery clerks signed on for and they are keeping people alive as surely as health care workers are.

I note that there is no consideration as to how all of the spending will be paid for. I would presume that it will be paid in the same way that our budget has been paid during nearly the entire 40 years during which Vice President Biden has held political office—it will be borrowed. I think that should be reconsidered.

For 2019 the federal budget was about $4.5 trillion. Interest on the debt comprised 8% of that. At the end of 2019 the federal debt stood at about $22.7 trillion. The recently-passed CARES act will add $2 trillion to that. That will sharply increase interest payments which are already one of the largest line items in the federal budget. As I see it there are several different strategies for handling the spending:

1. We can handle it the way that Keynes proposed: we can reduce spending and/or increase taxation during an expansion subsequent to the sharp contraction that practically everybody presently envisions. We have never done that in the past and I believe there would be strong opposition to doing so now. Most Keynesians including economists who should know better are content with what I’ve called “folk Keynesianism” under which more spending is always good.
2. We can merely extend ourselves credit without actually borrowing it. No interest would be due. If there has ever been a good time for an experiment with Modern Monetary Theory, this is probably it. We could use a little inflation about now and I say that as a saver who stands to lose by inflation. The challenge will be in controlling the inflation.
3. We can increase taxes on corporations and individuals immediately to make up the difference. From an economic standpoint that’s probably the worst alternative but I suspect it’s the one that the class warriors who are wielding so much influence on the Democratic Party these days will seize on.