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America’s economic outlook is complex right now. While economists and policymakers are exploring new terrain in covid-19 dominated world, democrats try to force their agenda after Biden’s triumph in the presidential elections and using the pandemic as an excuse for pushing their policies like a $15 minimum wage and college debt relief.
El American spoke with Brad Polumbo about his view of America’s economic outlook and the risks involved of pursuing one party’s agenda through the control gained in Congress and in the Oval Office.
Mr. Polumbo is a member of the Foundation for Economic Education (FEE), where he currently works as journalist and Opinion Editor. He was previously a Media and Journalism Fellow at the Washington Examiner and an editor at the libertarian media nonprofit Young Voices.
Congressional Budget office expects the U.S. economy to grow 4.6% after a contraction of 3.5% during 2020. Consumer spending is expected to have grown in January as aid checks of the Congress stimulus are still running, and a third stimulus of $1.9 trillion is expected to be approved soon. What are your views on that? Are we overheating the economy or additional aid is needed?
The current state of the U.S. economy is kind of a mix. It is interesting because the conditions in the 50 states and territories are very different. In some state you have basically wide open economies with some precautions, but they are back to business in most ways. In other states like New York and California you have massive covid restrictions chocking off a lot of economic activity in everyday life, and in those states the economic recovery is really not going well. Still, many states are actually close to their pre-pandemic unemployment level, which means that most of the recovery has happened.
The data that we have in the Congressional Budget Office (CBO) says that the economy will recover without any more stimulus spending. So Biden’s proposed stimulus, $1.9 trillion, is a lot of money, it is money we don’t have, we are alredy $27 trillion in debt, and the economists and the CBO, which is non-partisan, they say we will recover jobs and GDP growth without more spending.
The only thing that really must happen, in order for the economy to fully recover, is that the states that are still in various forms of lockdowns or restricting different industries at some point they have to let those get going again. Until they do, it doesn’t matter how much money we pass, if there are still lockdowns the economy is not going to recover.
Biden tried to pass an hourly minimum wage of $15 in his stimulus plan, but now he discarded the idea and says he will push for it on different legislation. Do you think Congress will pass a $15 minimum wage? And what are the implication if it is approved?
Most of the democrats in Congress are for a federal $15 minimum wage, whether would go in the covid-19 package it’s unknown, it might not because of some arbitrary parlamentary rules about what can go in a budget package and what can’t. Most likely they may end up taking it up from the covid bill, but they will likely passed it in a separate bill. The point is they clearly want to do this and there is a momentum to do it.
A federal “one size fits all” minimum wage it’s a terrible idea and will have horrbile consequences for the labor market. Even if you support minimum wages, you shouldn’t have one for every single state, they have very different cost of living, they have very different income levels and very different prices.
For example Puerto Rico has a much lower cost of living and a much lower average income than Washington D.C.. Imposing a $15 minimum wage in Washington D.C. isn’treally a big deal because price levels are very inflated already, however in Puerto Rico to impose a $15 minimum wage would be the same as imposing a $68 minimum wage in Washington D.C., even a total leftist can see that makes no sense. That is an insane wage that would lead to massive unemployment.
The CBO analysis show that a $15 minimum wage will eliminate at least 1.4 million jobs, and that’s a low end estimate, other estimates say 2 million, 3.7 million. I mean millions of people will find themselves out of work or on welfare because of this rule that is supposed to help them.
The economic studies on this subject show is not just job losses, but those job losses are disproportionately found among teenagers, low income people, women, minorties and people with less education. This is a progressive policy that hurts all of the groups is supposed to help.
Do you think there will be people lifted out of poverty with a $15 minimum wage?
There would be some. The CBO says that 900,000 will have their income raised above the poverty line, but it’s a trade-off, right? Some people get higher wage and some people lose their jobs all together. The people who get keep their job would bennefit, sure, but it is a net negative. 1.4 million jobs lost versus 900,00 see a rising income its not a good trade, that’s a negative outcome.
The other aspect is that even the ones who get a raise would not see as much of a benefit because companies respond to minimum wage hikes by increasing prices. So McDonalds responds to minimum wage increases a 100 % by passing all the cost of higher prices to consumer. So these workers who did see a lift out of poverty in terms of income level their money would also buy them less, so it’s a double edge sword.
President Biden seems to be gambling all his chips on renewables, while waging a federal war against fossil energies, with actions like blocking the last stage of Keystone XL. Do you think his energy policy will have results or it will backfire?
I think a lot of these actions Prom president Biden will make the problem worse actually. Things like blocking the Keystone pipeline don’t make any sense. Actually blocking the Keystone pipeline would lead to higher carbon emissions and more population, because instead of transporting the oil by pipeline they are going to transport it by rail, and that has a higher rate of emissions and polution.
A lot of this stuff is actually just virtue signaling, they just want to make the activists happy and make it seem they are fighting for a climate change reform. But in reality the things they are doing are eliminating thousands of jobs, good paying jobs, and they are not even making the climate any better off. So, I think is one of the most frustraiting executive orders Biden has signed to date, because it acomplishes nothing except a giant virtue signal to the environmentalist left.
Do you think banning fracking on federal soil will have an impact on the industry?
It will, so far it looks like they are not going to totally ban fracking but they will at least ban it on federal lands and that is not a good thing. Fracking has actually helped the U.S. to lower its carbon emissions in recent years and there’s a lot of good paying jobs in fracking.
I think this idea that the government is going to ban fracking and enforce progress doesn’t make any sense, if you want there to be new jobs in renewable energy you need to wait for the technology to evolve until the point where that technology can win in the market place.
You can’t just having the government come in and ban the stuff that works better right now, becuase if you do there’s unintended consequences with that, inluiding higher prices for low income people for power, electricity and heating. That’s a very expensive thing for low income people and they are the ones that will be hurt by higher energy costs.
College debt is again a hot topic. Many Democrats, including majority leader Chuck Schumer, support a pardon of $50,000 per person? What are your views on it?
I don’t support it. I don’t think it’s necessary, I do feel bad for the people that have a lot of student debt, but ther’s not such thing as cancelling student debt. There’s no such thing as free money. Cancelling the student debt means to enforce tax payers to pay it off. Working class taxpayers have ti pay higher taxes to forgive your student loan to be a doctor, or a lawyer, or businesswoman.
People who went to college tend to be wealthier, they tend to be a richer slice of society. Paying off their student debt with taxpayer money, makes working class pay more taxes in order to pay off the debt of a relative better off slice of society.
A study from the University of Chicago found that four times more benefits go to the top 20 %, from student loan cancelation, than to the bottom 20 %. It is progressive and leftists who are pushing this policy, but actually is a regressive policy that helps the well off, so I don’t support it at all.
FED Chair, Jerome Powell, says interest rates will be kept unchanged, and it is expected that interest rates will remain low until 2023. Are any risks involved with keeping low-interest rates or is the FED acting cautiously?
The big risk is that we got this huge huge debt in America. Right now it’s a problem but not a catastrophe, because interest rates are very, very low. As soon as interest rates go up, even to 3 % or 4 % when historically they’ve been as high as 10 % or 15 % just in the last 50 years, all of a sudden we will have enormous debt costs. Every year we will have to pay trillions and trillions of dollars to service the debt interests. That’s going to become a real problem because interest rates can’t stay at zero forever.
What is going to happen, because of the quantitative easings, is that inflation will start, and when inflation starts to happen, FED’s only response will be to raise interest rates, if inflation goes crazy that steals people’s wealth and hurt their savings. But if the FED raise interest rates to stop inflation then we will have the debt problem.
This going to come to an end here. It’s kind of a ticking time bomb, so I’m concerned that big national debt will explode at our face as soon as interest rates are forced back up to normal levels.