A new report from the nonpartisan Congressional Budget Office (CBO) projects a $2.3 trillion budget deficit in 2021. This is $900 billion less than the 2020 deficit, but as a percentage of GDP it is still the second largest since World War II. In addition, the report states that the national debt will reach 102 percent of GDP this year and rise to 107 percent by 2031 – an all-time record.

Critically, this report does not account for the $1.9 trillion stimulus package that President Biden is proposing, which will further worsen the U.S. fiscal imbalance. The CBO report does project shrinking deficits in the next several years, with the New York Times reporting:

The 2021 deficit projection has grown compared to the office’s September forecasts, largely as a result of a $900 billion economic aid bill Congress passed in December. But projected deficits for the ensuing several years have shrunk by even more as a result of faster-than-expected economic growth, which is projected to increase tax and other federal revenue.

This rosy outlook, however, is not warranted. Focusing on the short-term is tempting, but the crucial issue is the long-term fiscal imbalance. Research finds:

The current fiscal path is unsustainable. The primary drivers of America’s growing debt burden are Medicare and Medicaid, which are projected to grow faster than GDP indefinitely. Social Security is projected to grow faster than GDP for at least the next 20 years. Thus, stabilizing the debt‐​to‐​GDP ratio requires lowering the growth rate of spending on these programs. The recent wave of COVID-19 spending has pushed the debt‐​to‐​GDP level past 100 percent for the first time in multiple generations. In the long run, however, the pandemic will not dramatically alter the debt burden’s path. Rather than focusing on cutting spending for COVID-19 relief, Congress should focus on curbing the growth in mandatory entitlement spending.

Predicting when the U.S. will have a fiscal meltdown – if we fail to slow entitlement growth – is tricky. Many countries have been on what appeared to be unsustainable paths for decades before their financial and fiscal situations collapsed. But that does not mean they escaped eventual reckoning, nor that the U.S. should risk the same fate.

New data on Roman Catholic school enrollment is out, and it confirms what Cato CEF survey and closure tracker data have suggested since the start of COVID-19 lockdowns: private schools, especially Catholic, are hurting.

The National Catholic Educational Association just announced a 6.4 percent enrollment drop in Catholic schools between the 2019–20 and 2020–21 school years. That is basically what we found in our survey of private schools generally: the average school reported roughly a 6 percent enrollment loss, though notably Catholic schools were only 20 percent of our respondents. And the survey sample was itself quite small.

Our COVID-connected permanent closure tracker – the latest summary is below – is dominated by Catholic schools, accounting for 105 of the 126 announced closures since March. The NCEA reports that more than 200 Catholic schools closed or consolidated since the 2019–20 school year. Many of those were closed in part due to COVID’s economic impact, but many preceded COVID or would have occurred regardless.

So are enrollment losses a Catholic school problem, a COVID-and-Catholic-school problem, or a COVID-and-private-school problem?

Catholic schools have been losing enrollment for decades for numerous reasons, including declining numbers of low-cost clergy, Catholics becoming “mainstream” and feeling more comfortable in public schools, priest scandals, and more. They also tend to be the lowest cost private schools and to serve more low-income communities, sometimes without a whole lot of Catholics in them, putting them in especially precarious financial positions. Thin margins are always a problem, but they likely rendered Catholic schools especially susceptible to COVID economic hits. That COVID had its own effect is corroborated by the NCEA reporting that this was a record loss year in over five decades of tracking.

This is in part a Catholic school problem, but exacerbated by COVID.

It is also a broader private school problem. We likely hear more about Catholic school struggles because the schools are typically parts of much bigger organizations – dioceses. Dioceses are likely to produce public reports of closures and enrollment trends that get picked up by media, while other private schools, which more often function independently, may have lower profiles. We know from surveys, though, that at least some other private schools have experienced appreciable enrollment losses under COVID. This is not just a Catholic school problem.

A major underlying problem, of course, is limited school choice. While the latest EdChoice data show about 610,000 students enrolled in private schools via choice programs – a record – it is as nothing compared to the approximately 54 million school-aged Americans. So all but a sliver of Americans have to pay twice if they want private schooling – once in taxes for public schools, a second time for private.

As far as COVID relief has gone, I am working on an estimate of how much public and private schools have received in federal relief to determine if private schools have been treated equitably, and how they might fare under the developing Biden proposal. So far it appears that the Paycheck Protection Program, which private schools could access but public could not, has greatly assisted private schools, perhaps outpacing public school relief, but I have more number crunching to do. And nothing in the PPP could compensate for private schools being at a huge funding – and hence competitive – disadvantage to public schools for basically the entire existence of public schooling.

The news for private schools under COVID is turning out to not be so good. If we want to maintain a healthy, diverse education system, there is only one vaccine: a lot more school choice. And we may need it very soon.

President Biden seems determined to pass his “American Rescue Plan” without any Republican votes. It’s $1.9 trillion or bust, he says, on top of the unprecedented $3 trillion coronavirus relief bill from March and another $900 billion in December, some of which still hasn’t been spent. In fact, Republicans don’t have the clout to stop the bill. But the plan is also drawing some sharp criticism from non-Republican sources. Two big articles in the Washington Post Thursday and Friday urged that the plan be pared back to presumably necessary measures, with other components to be considered through the normal non-emergency congressional process of hearings and floor debate.

On Friday Lawrence Summers, secretary of the Treasury for President Clinton and director of President Obama’s National Economic Council, weighed in. Summers said that “safety-net measures for those suffering and investments in vaccination and testing” need to be implemented immediately. But he warned that the total size of the package “is at least three times the size of the output shortfall” and thus six times the relative size of Obama’s 2009 stimulus bill — which itself was dubbed “Porkulus.” He warned that the massive injection of borrowed money into the economy might well spur inflation and would surely crowd out further Democratic wish-list programs. Questioning the administration’s first big bill is unpopular with many Democrats, and Politico reported that the article was “being circulated on the left like samizdat.”

Meanwhile, longtime Post reporter and columnist Steven Pearlstein, who like Summers is no Milton Friedman devotee, bemoaned that Democratic “message discipline” was covering up “exaggeration, misconception and faulty economic logic.” He too agreed that “the funds for coronavirus testing and vaccination, extending unemployment benefits and the eviction ban, and getting cash to restaurants and other genuinely small ‘small businesses’ ” are “so good and so urgent that they could pass the Congress this week with bipartisan support.” So pass them, he said, and leave the “less-urgent and more-controversial policy initiatives” such as increasing the minimum wage and expanding the earned income, child, and child-care tax credits to “extensive hearings and thoughtful debate” rather than “ramming them through on a party-line vote” under the cloak of emergency.

Pearlstein points out that the money Biden is proposing for schools and state and local governments alone is “more than the annual discretionary spending of the Departments of Agriculture, Commerce, Education, Energy, Housing and Urban Development, Justice, Labor and Transportation combined.” Is that really necessary?

All of this is about getting the economy moving again. But the way to revive the economy is to stop the pandemic. So speed up the testing and especially the vaccinations. Spend prudently on relief, with due attention to the cautions raised by Summers, Pearlstein, and others.

This demand to pass a bill now; it’s an emergency is an old Washington story. The late, great Bill Niskanen wrote in 2009 that he had witnessed four times in his professional life “that the president has asked for or asserted unprecedented authority on an expedited basis with little or no congressional review. Each of the prior occasions turned out to be a disaster.” He cited the Gulf of Tonkin Resolution that led to the Vietnam War, President Nixon’s “New Economic Policy” of wage and price controls and closing the gold window, the Iraq War resolution, and the Troubled Asset Relief Program (TARP) of 2008.

At the time Niskanen wrote, Obama White House chief of staff Rahm Emanuel was declaring, “You never want a serious crisis to go to waste. And what I mean by that [is] it’s an opportunity to do things that you think you could not before.” That’s often true of these huge emergency bills that don’t get much congressional or media scrutiny. Much of the Patriot Act just after the 9/11 attacks has been described as “a longstanding law enforcement wish list that had been previously rejected by Congress, in some cases repeatedly.” And as Gene Healy and Steven Horwitz wrote in 2009, the stimulus bill was the Democrats’ Patriot Act, “an opportunity to enact a whole variety of programs that they’ve wanted to pass for years.” Robert Pear of the New York Times called it “not just a package of spending increases and tax cuts intended to jolt the nation out of recession. For Democrats, it is also a tool for rewriting the social contract with the poor, the uninsured and the unemployed, in ways they have long yearned to do.” And more: aid to local school districts, job training, high-speed rail, slow-speed rail (Amtrak), rural sewers, broadband, new computers for Social Security, $90 billion for “green energy.” An interest-group wish list and a lobbyists’ bonanza.

And now the Biden plan — the American Rescue Plan — again offered in the name of emergency and including another wish list of items that haven’t made it through the normal congressional process. Beyond the actual Covid-related measures regarding testing, vaccination, and relief — which may be too high, as Summers argues — the plan includes a sharply higher minimum wage, new OSHA enforcement, an eviction moratorium of dubious constitutionality, increased food stamp funding, and hundreds of billions of dollars the federal government doesn’t have for businesses, Tribal governments, public transit, local schools, and more. 

In November I urged President-elect Biden not to overreach. He has a narrow mandate to not be Trump and to deal with the pandemic, which will revive the economy. If he doesn’t want to listen to me, he should listen to Larry Summers, Steve Pearlstein, and other allies who are urging him to focus his plan on the country’s immediate concerns and the resources available.

I wrote last week in this space about government’s longstanding tendency during dangerous outbreaks of contagious disease to assert control over public discussion of medical matters on the rationale of preventing the spread of misinformation. (Some members of Congress are currently trying to browbeat platforms into taking down social media posts that promote erroneous notions about vaccines.) Citing the flu pandemic of 1918–19, I pointed out that “rather than quieting the rumor mill and the popular spread of false ideas about the virus, the tight control of information [often does] the reverse.”

There’s a less visible and more politically sacrosanct way in which modern government also tries to curb discussion of disease outbreaks, namely privacy law. If a co-worker you see regularly at your workplace comes down with the illness, for example, there’s a good chance you’ll receive a cryptically worded message from management that awkwardly half-anonymizes, rather than names, the colleague (“someone on the fourth floor”) in line with guidance from the federal Equal Employment Opportunity Commission or its state counterparts. “Oh, must be HIPAA,” people chuckle, which is not strictly accurate, since that health privacy law (the Health Insurance Portability and Accountability Act of 1996) covers only those in the health business. The practical difference doesn’t matter that much, however, since broad privacy rules in other federal laws such as the Americans With Disabilities Act (ADA) do apply to workplace settings.

Note that these laws will not in fact necessarily shut down the rumor mill among your co-workers, if only because people want to know where to send get-well cards; some will also be anxious to know whether the person who just fell ill was someone they’d spent a lot of time with lately. It can, however, work to prevent managers from speaking up to correct a rumor mill that has gone astray.

Things can be worse in workplaces that are subject to additional layers of privacy regulation. Universities, for example, are governed by the Family Educational Rights and Privacy Act of 1974 (FERPA), a federal law that sharply limits disclosure of information about students, even to people with some plausible interest in knowing, such as family members. In a provost’s letter last year, Boston University stirred controversy when it announced that “Faculty will not be notified if a student in their class has tested positive unless they are deemed to be a close contact through the contact tracing effort.” That’s one of many issues I discuss in my new paper for Cato’s “Pandemics and Policy” series on how regulation can make it harder to follow prudent safety practice against COVID-19 spread in the workplace. You can read the full paper here.

Over the course of the COVID-19 pandemic, the model of a marketplace of ideas in which strong arguments drive out the weak has sometimes taken a beating. Erroneous theories of the virus and how it spreads, bogus data interpretations, and ineffective therapeutic ideas have spread faster than sober correction could keep up. Although the federal government was itself the source of no small amount of misinformation and confusion — most notably, though not solely, in former President Trump’s rambling White House briefings on the virus — some progressive thinkers remain convinced that the most serious way to fight a pandemic is for Washington, D.C. to lay down a central messaging line based on the thinking of authentic experts. With that line set down, so the theory goes, the other institutions of civil society, from the media to professional groups to local officialdom, should fall in line and reinforce that messaging. (Today, members of the House Energy and Commerce Committee pressured Facebook, Google, and Twitter to do more to take down misinformation about Covid vaccines.)

Trouble is, when governments have achieved serious control over conversation about pandemics in the past, they’ve been known to make things much worse. Front and center is America’s experience during the lethal flu pandemic of 1918, which occurred during the wartime presidency of Woodrow Wilson. John M. Barry, author of the magisterial The Great Influenza (as well as a religious studies scholar who has spoken on Cato programs) tells the story in a 2009 Nature piece:

The U.S. government used the same strategy for communicating about the disease that it had developed to disseminate war news. The essence of that strategy was described by its main architect, writer Arthur Bullard: “Truth and falsehood are arbitrary terms … There is nothing in experience to tell us one is always preferable to the other … The force of an idea lies in its inspirational value. It matters very little if is true or false.” Fellow adviser Walter Lippmann, another architect of this strategy, sent President Woodrow Wilson a memo saying that most citizens were “mentally children” and advising that “self-determination” had to be subordinated to “order” and “prosperity”. In 1917, the day after receiving Lippmann’s memo, Wilson issued an executive order to control all government communication strategy during the war that was premised on keeping up morale.

As a result, when the full-blown and lethal pandemic wave arrived in the United States in September 1918, Wilson never made a single statement about it, and lesser public figures provided only reassurance. US surgeon general Rupert Blue declared: “There is no cause for alarm if proper precautions are observed.” Local health officials echoed this message. Chicago’s director of public health, for instance, decided not to “interfere with the morale of the community”, explaining: “It is our job to keep people from fear. Worry kills more than the disease.”…

Unfortunately, Philadelphia’s communication strategy [of inappropriate reassurance] was the rule, not the exception. Local officials and newspapers across the country were either deceptive or said nothing.

And note well one consequence: rather than quieting the rumor mill and the popular spread of false ideas about the virus, the tight control of information did the reverse:

Lies and silence cost authority figures credibility and trust. With no public official to believe in, people believed rumors and their most horrific imaginings. …Under that pressure, society first drifted, then threatened to fall apart.

Yes, it’s messy and frustrating to have a so-called cacophony of voices, many of them flatly wrong, sounding at once. But it’s more dangerous to leave things to a single official voice.

Yesterday the White House announced it was buying 8.4 million Ellume at-home, self-administered diagnostic tests it hopes to get to consumers across the country starting later this month. The at-home test is cheap and rapid and will enable people who have no COVID symptoms but are nonetheless infected and contagious, to test themselves for the disease. It has been a great challenge to stop the virus from being spread unwittingly by people who are asymptomatic carriers, who may make up 30 percent or more of people infected with the virus. This test should therefore be a great help in getting the pandemic under control. The Ellume at-home test received Emergency Use Authorization from the Food and Drug Administration in mid-December 2020.

At-home self-administered tests have actually been available at least since last November, when the FDA granted Emergency Use Authorization to the Lucira at-home self-administered test. But incomprehensibly the FDA requires people to get a prescription from a health care practitioner in order to purchase the test to self-administer at home. And providers are instructed to give a prescription only to patients who are symptomatic. These requirements, of course, cancel out any advantages an at-home test provides controlling the pandemic.

As we discussed last week at a Cato online policy forum, the FDA has a history of restricting the public from at-home tests that directly provide them with information about their health status—ranging from at-home pregnancy tests to at-home HIV tests to at-home salivary diagnostic genetic tests. The FDA is paternalistically concerned that autonomous adults may improperly apply the information they learn about themselves—an overly-broad interpretation of its responsibility to assure the “safety” and “efficacy” of newly developed tests.

It is good that we will finally get to see at-home tests make their way to the general public. It is a shame that the public needlessly waited so long.

As part of his $1.9 trillion relief plan, President Joe Biden proposes to double the federal minimum wage from $7.25 per hour to $15 per hour.

If enacted, the higher mandated wage would eliminate jobs for younger and less-skilled workers. In 2019, 58 percent of minimum wage workers were age 24 or younger. Biden’s website says that he wants to create jobs for young people to “reach full employment as fast as possible,” but his minimum wage plan would do the opposite. Young people need entry-level jobs to start climbing the career ladder but raising the minimum wage would break the bottom steps.

A minimum wage increase would also damage labor-intensive small businesses. Biden’s website promises: “Building back better means helping small businesses and entrepreneurs come out the other side of this crisis strong … Biden will help small businesses manage through the pandemic and recover.” But Biden’s minimum wage plan would do the opposite, and it would be very ill-timed as small businesses have been hit hard by the crisis.

Federalism

Minimum wages are set higher than the federal minimum in 29 states and dozens of cities and counties. The highest state rate is Washington State’s at $13.69 an hour.

All 50 states could impose a $15 rate on their own. A small number are phasing that rate in, but most are not. There is no reason to think that federal politicians have better judgment than state politicians on this matter, so there is no basis for them to override state choices.

Minimum wage mandates are a bad idea in general, and they are more harmful when imposed nationwide since they do not account for regional variations in living costs, policy preferences, and economic structures.

The political left likes to think that it supports diversity and democracy but imposing a nationwide minimum wage hike would undermine both.

Small Business Impact

Small businesses have relatively more minimum wage workers because they tend to pay lower wages. In 2019, average wages in private sector establishments with fewer than 100 workers was $976 a week, which compared to $1,914 a week for establishments with more than 1,000 workers. That is a big difference. Almost half of minimum wage workers are employed at businesses with fewer than 100 employees.

Small businesses were hit harder than large ones by the crisis, and low-wage employment was hit harder than high-wage employment. A Bureau of Labor Statistics analysis found that “occupations with lower wages are more common in the shutdown sectors than elsewhere in the economy.” So Biden’s proposal would particularly hurt occupations and businesses damaged by the crisis.

Over the longer run, businesses adjust to higher minimum wages by substituting machines for workers, cutting entry-level positions, reducing benefits, raising prices, and other changes. But in the near term, business finances take a hit.

A 2019 study by Sudheer Chava, Alexander Oettl, and Manpreet Singh examined how minimum wage laws affect small businesses. They used a large dataset of small business finances over the 1989 to 2013 period and studied variations in minimum wage rates. They found that

increases in the federal minimum wage worsen the financial health of small businesses in the affected states. … Increases in the minimum wage also lead to lower bank credit, higher loan defaults, lower employment, a lower entry and a higher exit rate for small businesses. … Our results document some potential costs of a one-size-fits-all nationwide minimum wage, and we highlight how it can have an adverse effect on the financial health of some small businesses.

After a brutal year, the unemployment rate remains high and the economy is still recovering. We need startups to fill the void of lost jobs and output. We need, for example, more than 110,000 restaurant startups to replace the eateries lost over the past year. But Biden’s minimum wage hike would sabotage startup activity.

A 2017 study by Xiaohui Gao examined minimum wages and startup survival rates across the states from 1982 to 2014. She found that “a 1% increase in the minimum wage is associated with a 3.5% decline in the survival rates of startups.” Biden’s proposed increase is a lot more than 1%. The problem Gao noted is that “new and young firms tend to have a workforce with [a] higher proportion of minimum-wage workers. They often tend to operate on thin or even negative profit margins, leaving them exposed to mandated increases in labor costs in their incipient years.”

In sum, Biden’s proposed minimum wage increase would hurt startups and small businesses, undermine the recovery, and be a blow to the industries hit hardest by the crisis.

Further reading on the minimum wage is here, here, here, here, and here.