The True Costs of Government Spending

While all politicians exaggerate, US President Joe Biden’s claim that his proposed $3.5 trillion spending package “costs zero dollars” rises to a higher plane, and Americans aren’t buying it. Even if the legislation was fully covered by tax increases, the costs for the economy would be significant.

STANFORD – US President Joe Biden insists that his $3.5 trillion ($5 trillion without the budget gimmicks) “human infrastructure” bill “costs zero dollars” – nothing, nil, nada. While every president makes foolish statements, this must be the most economically illiterate presidential utterance since Jimmy Carter’s demand that the US Federal Reserve lower interest rates in the midst of surging double-digit inflation. In Carter’s case, the result was a dollar crisis. What will come of the Biden administration’s foray into nonsense?

Biden, along with other Democratic leaders such as Speaker of the House Nancy Pelosi, claims that the plan will be “fully paid for” with tax hikes. Apparently, the administration thinks that only budget deficits impose costs (which runs contrary to the “deficits are costless” argument offered by other “progressives”). Yet it has long been clear that the bill would leave a $1.5-3 trillion hole to be filled with debt even after the tax hikes.

In any case, Americans aren’t buying it. Polls show that roughly half want less government and lower taxes, and that three-quarters of Americans doubt that the $3.5 trillion bill would make them “better off.” Perhaps not surprisingly, a majority now disapproves of the Biden administration.

Students in introductory economics learn that the social cost of something is the value of the goods and services that could have been produced with the same resources (labor, capital, land, energy, materials). Usually, this “opportunity cost” can be measured by market prices – though sometimes these must be adjusted to account for other factors, such as pollution or monopolies.

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