E. J. Dionne writes in the Washington Post that President Biden will focus his State of the Union speech on “how to make the economy grow for everyone.” That’s a good topic. Unfortunately, Dionne’s column illustrates that Biden’s policies will not do that.
Dionne mentions “policies that see robust government investments, worker rights and a green tech economy as the path to a new American century.” And he recommends further initiatives such as “paid leave, universal pre‑K and child care, health coverage expansions, a beefed-up child tax credit, and steps to make housing more affordable.”
All those things sound nice, but they will not make the economy grow. They all involve the federal government extracting money from individuals and businesses, taking a cut for a larger bureaucracy, and directing the rest of the money to areas that consumers, families, firms, and investors have not chosen. Or new regulations that increase the cost of hiring workers. You learn in Econ 101 that if the price of something goes up, the amount demanded will go down. It doesn’t make sense to add extra costs on employment.
A new study finds that companies tend to stop hiring at 100, 200, and 500 employees, the points at which EEOC penalties increase. Other regulations that impede free-lance employment or add to employer obligations will tend to reduce job opportunities and wages.
Dionne’s challenge is a good one: “how to make the economy grow for everyone.” In the Cato Handbook for Policymakers Ryan Bourne urges Congress to “prioritize raising the country’s growth potential.” He notes that “faster growth would beget higher living standards, stronger public finances, and less zero‐sum politics.” Unfortunately, the policies that would increase growth are virtually the opposite of those that President Biden is pursuing and is likely to propose in his speech. Bourne recommends a wide-ranging pro-growth agenda:
Regulatory reforms that remove anti‐competitive product market regulation, reduce administrative burdens on firms, limit government interventions to alleviating genuine market failures, and sunset regulations to avoid their accumulation are a set of broad but important pro‐growth regulatory principles that could deliver higher market output at lower cost.
The current thicket of environmental, land‐use, and zoning regulations that inflate the cost of and delay new private‐sector infrastructure and housing being supplied in productive areas is especially ripe for an overhaul. They not only make the economy less adaptable to changing wages and prices, undermining efficiency, but also snuff out the benefits of dense, productive agglomeration of industries in certain cities.
Tariffs and other trade restrictions today heighten input costs and reduce competitive pressures on our producers to become more efficient. The Jones Act—a 1920 law that requires all intrastate shipping to use expensive U.S. merchant marine vessels—not only raises transportation costs, causing all sorts of downstream inefficiencies, but also causes enormous collateral damage. Then there are “Buy American” provisions, which waste resources by causing the U.S. federal government to overpay relative to world prices in procurement, while requiring an extensive bureaucracy to administer and police.
Plenty of government‐erected barriers stand between workers’ taking up employment or moving to new roles. Welfare and other entitlement programs create large disincentives to work or to earn more labor income. Labor laws and regulations drive up hiring costs. Occupational licensing requirements, compulsory unionization, regulatory compliance burdens, and more create entry barriers to new jobs.
Immigration restrictions choke off a crucial source of new entrepreneurship and labor supply, especially in areas where regulatory‐induced restrictions raise costs, such as health care and childcare. One consequence is the safety valve of a large illegal migration sector, with a lot of activity occurring in the shadow economy. We should make legally migrating to the United States easier, especially for the most talented researchers, scientists, and entrepreneurs.
The tax code (especially in its interaction with welfare programs) is littered with perverse incentives against work, production, investment, and innovation. Tax reform that eliminated distortions and lowered rates would increase efficiency and be pro‐growth.
If President Biden proposes more government spending, more regulations, higher taxes — and maybe more tax loopholes — he will intensify the decline in the economic growth rate that the United States has experienced in the 21st century. He should instead reverse that course and propose policies that would increase jobs, wages, and growth. He can find more ideas to help American workers in a new Cato study, Empowering the New American Worker.
