April 18, 2021 6:00 p.m. ET
Construction workers are replacing and upgrading a section of a bridge in Miami on April 13.
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President Biden’s $ 2.3 trillion infrastructure plan has excited many economists for the return of the old school Keynesian splurging. “Financial policy is back,” said Nobel Prize winner Joe Stiglitz. “That will create more demand and give people more confidence to invest.” But economic growth – which even Mr Stiglitz would probably agree with is the best way to fight poverty – depends on supply, not demand. And the Biden plan could stifle the innovation that drives it.
Public or private, spending does not create growth. Mr. Stiglitz and his allies have it backwards: Consumption takes place after production. Growth is about increasing the range of goods offered over time. You cannot spend if the goods are not produced. Production grows with the improvement of technology and production processes. Such improvement requires saving and investing rather than consuming.
The early details of Mr. Biden’s infrastructure plan are not promising in terms of incentives for savings and investments. The bill contains substantial tax increases for companies that would also harm households and investors. The president and his team deserve credit for trying to pay for the plan. However, increasing taxes, especially for businesses, weakens investment incentives. The result is a loss of growth.
Mr. Biden’s plan also largely diverts resources away from uses that would increase productivity. Improvements to roads and bridges can increase production, and therefore business growth, by making it easier to move workers and goods across the country. But that’s a minority of the bill’s expenses; other expenses have the opposite effect. Accept the proposal to invest in expanding clean energy charging stations and electric vehicles. This is a fairly elastic interpretation of the infrastructure and a wasteful one as well.
The government is not good at choosing investments. President Obama promised smart green projects. What we got was the Solyndra debacle, which consumed hundreds of millions of tax dollars while producing little value. These dollars are resources that could have been invested elsewhere. What Mr. Biden is proposing amounts to a great many Solyndras. That is an enormous amount of productive capital that must be wasted.
Mr. Biden positions himself as the initiator of a Newer New Deal and Greater Great Society, but the politicization of investment is neither new nor great. Policy makers have tried many times, and it is clear that all of the world’s funding will not increase productivity if not properly channeled. More efficient producers, no partisan expenditure, ensure economic prosperity. Although the president’s plans will consume a lot, they will only cause disappointment.
Mr. Salter is an Associate Professor of Economics at Texas Tech University’s Rawls College of Business and a Fellow at Texas Tech’s Free Market Institute.
Main Street: Pete Buttigieg’s definition of infrastructure is not what Americans think it is. Images: Bloomberg / AP / Getty Images Composite: Mark Kelly
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Published in the print edition on April 19, 2021.