Supreme Court Justice Louis Brandeis called states “labs of democracy,” which meant US local governments were free to undertake policy initiatives that could help determine which ideas work and which don’t. The Biden administration’s US bailout will likely be the biggest funder of local government experimentation in the nine decades since Brandeis coined the phrase.
Far from a real rescue for local governments suddenly filled with cash, the hundreds of billions of dollars Washington is sending across America has sparked a flood of ambitious ideas designed to transform communities through vague, speculative agendas. and untested that local governments are often sick -adapted to achieve. Many of these initiatives are just versions of decades-old programs, with a new focus but the same questionable incentives. At best, the result will be billions of dollars wasted, although we should not overlook the government’s ability to make matters worse. In any case, that can’t be what Brandeis had in mind.
To understand where states and cities are heading, it’s helpful to think about how Biden’s plan evolved. When economic lockdowns were imposed in the spring of 2020, local governments witnessed unprecedented collapses in tax collection. They have started asking the Trump administration for help to bolster their shrinking budgets. Washington responded by sending targeted billions of dollars to help cover costs related to the pandemic, including money for hospitals, schools, transit systems, daycares and disaster relief. Most of the stimulus has been helping individuals and businesses through improved unemployment benefits and business loans. However, what local governments did not get was unlimited help for their budgets.
Many mayors and governors spent the following months complaining about their treatment by the Trump administration and pushing for budget support. Trump has been reluctant to send them money directly, although in December 2020 he signed a new $ 900 billion stimulus package extending federal benefits to individuals. By that time, tax collections in many places were already rebounding, killing any further talk about money to bolster spending by cities and states.
As a presidential candidate, Joe Biden sided with local governments in their budget advocacy. One of his first legislative achievements when he took office was the $ 1.9 trillion bailout, enacted in March, which included some $ 350 billion for states, cities and other types of government. municipalities. At that time, stories of the significant rebound in local tax collections were so common that the Biden administration changed the way it defined its “bailout” plan. White House officials admitted that the huge amount of money was supposed to be a stimulus, to ensure that the painfully slow economic rebound that took place during Barack Obama’s presidency does not happen again. Although the Obama administration passed its own nearly $ 800 billion stimulus package in 2009, it also raised taxes on high-income people, small businesses, investors, and healthcare corporations, and significantly expanded trade regulations, which stifled growth. . With a similar agenda in mind for his presidency, Biden decided to take the revival one step further.
The result may not be so stimulating. The Trump administration’s improved unemployment benefits, extended by Biden’s bailout until September, have turned out to be so generous that many companies and economists blame them for suppressing job growth because workers choose to collect benefits instead of returning to work. The Biden administration has now given state governments the green light to use stimulus funds to lure workers in with bonuses, even though the bailout pays them not to work. Connecticut offers long-term unemployed $ 1,000 if they find a job, but continues to pay generous unemployment benefits. In California, Biden’s stimulus, combined with a bullish stock market, helped produce a $ 75 billion budget surplus, arguably the biggest surplus a state has ever seen. Governor Gavin Newsom is spending $ 12 billion in direct payments to state residents, in addition to payments provided to them by relief bills in March and December 2020, even as the state struggles to remit residents at work. Even local Native American governments are going mad. The Cherokee Nation, which received $ 1.8 billion from the Biden Plan, sends $ 2,000 to nearly 400,000 of its members. So far, this free money has mostly produced more money in the bank, not economic stimulus. Last year, even in a double-digit unemployment rate, Americans’ savings rate rose to 17% of income, from 7% in 2019.
Some cities are looking to use federal money to help fund the latest progressive idea for the poor: unrestricted annual payments to low-income households. Presented as a universal basic income, the idea is to provide these households with a regular allowance which acts as a safety net. Milton Friedman once proposed something similar to replace welfare checks and government social service bureaucracy that come with anti-poverty programs. Today, cities like Chicago and Philadelphia are considering UBI payments not to replace the rest of the welfare state, but simply to add to it, based on a pilot program in Stockton, Calif., Which gives residents $ 500 per month. Chicago would spend $ 30 million to give monthly incomes to 5,000 low-income families as a form of “disaster relief” in addition to the generous individual benefits the Trump administration had provided.
Some programs seem even more ambitious but lack details. Detroit plans to use stimulus dollars to create a $ 400 million fund with goals that include ending intergenerational poverty. The federal government has spent billions of dollars over the past 50 years to achieve such a goal, to no avail. Do Detroit officials know something that not everyone knows? It seems not: they are planning to ask residents of the community how to spend the money. The idea is reminiscent of when President Richard Nixon took billions of dollars from the anti-poverty program and sent them to local activist groups based on the idea that they knew best what that their communities needed. This money did a lot of things, but poverty reduction was not one of them.
Local officials, who once spoke of needing the money to continue providing basic services during the pandemic, now predict that the Biden dollars will fund “transformational” programs. In zoom call Last month, hosted by the United States Conference of Mayors, city officials talked about building community centers or offering incentives to attract businesses like supermarkets to low-income neighborhoods in need. . Yet these are precisely the types of projects that federal block grant programs and empowerment zones have funded for decades to attract investment to underdeveloped neighborhoods. Collectively, such programs have rarely achieved overarching goals of dramatically improving neighborhoods, but the Biden Rescue Act provides a new, albeit temporary, source of funding for more of the same.
With so much money circulating, everything qualifies as a stimulus. Connecticut wants to spend $ 15 million in Biden money to send kids free to museums, aquariums and zoos during the summer. The state is also proposing to use stimulus funds to provide “safe, fun and healthy spaces for teens”, although it is unclear what this would imply.
It may seem almost out of date to complain about wasted federal money when Republicans and Democrats seem to have dismissed the idea that deficits and debt matter. The Trump administration, barely filled with tax hawks, unleashed a spending torrent with improved unemployment benefits and business loans that states and the federal government were clearly ill-equipped to handle. The result: one report after another of massive fraud in both efforts. Now the Democrats have engineered a Great Society-style blast that likely won’t produce much more long-term profit than the original Lyndon Johnson programs produced.
The Big Society did more than waste money: Outcomes among the poor, including employment and social mobility, declined over this period as the incentives to work diminished. Biden money can produce similar results. Take, for example, subsidized housing. California, among other states, is using the money to make massive investments in government-funded residential construction to offset the housing shortage. The real problem, however, is that places like California have created so many barriers and added costs to construction that the private housing market has not been able to meet demand at affordable prices. Even â€œaffordableâ€ housing supported by the government fresh, on average, a whopping $ 750,000 per unit in California. At these prices, Biden’s silver will produce far less housing than it should. And when the money is spent, California will still experience a housing shortage and a market that is even more dominated by government-funded housing because the state has failed to address the root causes of the problem.
Spreading the largesse of the federal government is easier than making painful reforms, but much less productive. This is not a new lesson, but we are about to relearn it.
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