Biden ‘stimulus’ will shrink economy in the long run, researchers conclude

Biden ‘stimulus’ will shrink economy in the long run, researchers conclude
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University researchers say Joe Biden’s expensive $1.9 trillion “stimulus” plan will hurt our economy in the long run. As the Foundation for Economic Education explains:

Scholars at the University of Pennsylvania’s Wharton School of Business analyzed the plan and found that the massive spending splurge—which costs roughly $13,260 per federal taxpayer—would only cause a “slight uptick” in economic growth in 2021. The analysts warned that this minor boost would just be “instant gratification,” and that the skyrocketing government debt caused by the blowout legislation would undermine any gains in the medium-to-long term.

“The existence of the debt saps the rest of the economy,” Wharton analyst Efraim Berkovich said. “When the government is running budget deficits, the money that could have gone to productive investment is redirected.” “Effectively, what we’re doing is taking money from [some] people and giving it to other people for consumption purposes,” he continued; “longer-term, you’re taking away from the capital that we need to grow our economy in the future.”

Biden’s costly plan would explode the national debt. This, per Wharton, would lead to a “crowding out” effect over the coming years as more loan money is taken away from productive business/private sector investments and instead consumed by government debt. As a result, the analysts find that workers would see a small decline—not an increase—in their hourly wages by 2022 and a slightly larger decline in their hourly wages by 2040…Biden’s spending binge would actually lead to a smaller economy in 2022.

Although it is economically harmful, Biden’s stimulus will probably help the political fortunes of the Democratic Party. That’s because the stimulus plan’s beneficiaries will be told or learn that they are beneficiaries, while its more numerous victims often won’t know what harmed them. People harmed by the stimulus often won’t be able to tell that they lost their job because of the stimulus rather than because of something else, like an economic trend. Citizens often won’t be aware of the fact that the stimulus plan is why they are paying higher prices or local taxes than they did before. As FEE’s Brad Polumbo notes:

Biden knows that the short-term benefits of his proposal—like $1,400 checks in many peoples’ mailboxes—will be seen and felt by millions of voters who will directly credit him for it. (His name will even be on the checks). Yet the vast and diffuse costs imposed on people by the plan over time will most likely never be directly traced back to the legislation itself, instead observed only by economists and analysts who parse broad economic data and trends.

So, Biden’s proposed stimulus can simultaneously be economically destructive and a political winner. One of the most popular provisions of the stimulus plan is its $15 minimum wage, which has both winners and losers. As Polumbo notes, a $15 minimum wage “would eliminate millions of jobs, devastate struggling small businesses, and lead to higher consumer prices.” But it is popular because people only think about the beneficiaries of a minimum wage increase — those who get higher wages as a result — not the more numerous losers from a minimum wage increase: the general public that pays higher consumer prices as a result, and the people who lose their jobs as a result.

Minimum wage hikes raise prices. For example, “establishing a $15 minimum wage would hike child care costs by an average of 21% across the U.S., which translates to $3,728 per year for a family with two children,” says economist Rachel Greszler.

A $15 minimum wage also will drive up the cost of state government, since a few state employees are paid less than $15, and others are paid a multiple of the minimum wage. California’s gradual adoption of the $15 minimum wage increased its state budget by billions of dollars, which means increased taxes. A $15 minimum wage is also projected to increase the federal budget deficit by $58 billion.

Minimum wage hikes also eliminate some jobs. For example, grocery store chains like Kroger and QFC are closing some stores in Seattle and Long Beach after those cities increased the minimum wage for grocery employees.

(The $15 minimum wage may be removed from the Biden stimulus plan before its passage. Congressional experts say it probably cannot legally be passed as part of the expedited “Reconciliation Process” needed to pass measures on a party-line vote. Republican Senators view Biden’s stimulus as extreme, and won’t vote for it in its current form. So if it passes, it will have to be on a party-line vote, with Vice President Kamala Harris casting the tie-breaking vote in favor of it.)

The Wharton School is not the only place where researchers found that Joe Biden’s stimulus plan will be costly to the economy in the long run. The Congressional Budget Office reached the same conclusion, finding that “the additional public debt resulting from the Biden plan would decrease” the size of our economy in the long term.

A better way to stimulate the economy would be getting rid of harmful regulations, that reduce economic growth. For example, after Republicans took control of Congress in 1946, government price controls that had shackled the economy were abolished. That led to an economic boom.

Hans Bader

Hans Bader

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law. He also once worked in the Education Department. Hans writes for and has appeared on C-SPAN’s “Washington Journal.” Contact him at


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