Although President Joe Biden's $1.9 trillion aid and stimulus package now appears likely to pass, the current state of the economy suggests that a much smaller program would suffice. Vaccines are on the way, many state budgets are in OK shape, household balance sheets are robust including many for the poor, real estate is booming and retail sales are above where they were a year ago.
Make no mistake: A faster and better public health response is imperative, both to save lives and to drive a recovery. It is not necessary, however, to "juice the economy" at the scale being proposed. Both Lawrence H. Summers and Olivier Blanchard, two of the best Keynesian macroeconomists in the world, have said so. But in the current debate, they are not being refuted so much as dismissed because they are not left-wing enough.
There are, to be sure, arguments for such a large package. But they do not represent the best economic advice.
The first principle of economics is opportunity cost, namely that any policy should be compared with possible better alternatives. Under this analysis, the current plan falls short. It has far too much for consumption, and not nearly enough investment. Major plan components include a $1,400 cash transfer, a lot more unemployment insurance, aid to schools, paid leave provisions, aid to state and local governments, and temporary transfers to families.
A lot of this cash will be saved, diminishing its effect as stimulus. There is also the risk that distributing goodies will become a periodic vote-buying mechanism, a practice that will be abused but would never be popular if the public had to pay for it upfront. At the very least, some elements of this package should be linked to future economic conditions.
Nonetheless, after the failures of the response to the Great Recession more than a decade ago, the notion of spending almost $2 trillion, much of it on the poor, represents a kind of catnip for progressives. It is so geared to their natural inclinations that they cannot help but support the proposal.
Leave aside the political question of how aggressively to pursue an agenda of a larger, more activist government (and keep in mind that I am more libertarian than many of the participants in this debate). Take a Big Government as a given. History shows that consumption still ought not be the priority.
First, wise public sector investments are better for the poor than one-time wealth transfers. The U.S. is still reaping the benefits of the great public health and public works achievements of the 20th century. Second, the most enduring and beneficial government-transfer programs, such as Social Security, have been built on sustainable majorities.
Progressive societies are fundamentally based on a valorization of investment — in physical structures, in software, in sustainable policies. This argues against a "Let's grab this policy win while we can" attitude, no matter how popular that stance may currently be on social media. It's foolish to think that no other policy combination is politically feasible, and if the president's advisers and supporters really believe that, they are in for a long and unsatisfying four years.
It's not as if there aren't obvious candidates for alternative investment: green energy, broadband and public health infrastructure for the next pandemic, to name a few. Yes, I am familiar with the argument that spending the extra trillion or so now will make it possible to spend more trillions later, including on such policies. But whatever kind of complicated political story you might tell, the basic laws of economics have not been repealed. Increasing current expenditures does, in fact, involve foregone future opportunities.
Another possible direction would be to rework Sen. Mitt Romney's proposed child support plan and turn it into an enduring policy. It is an expensive idea, but at least it would represent a greater investment in America's future than mere one-off cash transfers.
The defenders of the president's plan argue that inflation and an overheated economy are not major risks. Maybe so, maybe not — but that is not the crucial issue. Instead, ask yourself this question: Does this program, or this rhetoric, recognize the paramount importance of investment, whether public or private? If not, you needn't look much further.
Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "Big Business: A Love Letter to an American Anti-Hero."