It is not often a serving President can make a meaningful contribution to the advancement of economic, political science and social science theories or demonstrate those theories in practice. In only one year in office, Biden has done just that. Rather than pontificate about theoretical puts and takes, Biden took dead aim at five recent theories that have captivated millions of Democrats. He used a real world experiment to demonstrate convincingly that those theories are nonsense.
The theories are:
Modern Monetary Theory (MMT): Deficits don’t matter and governments can print as much money as they want without risking high inflation, using higher taxes to control any incipient inflation.
Renewable energy will not only fight “climate change” but also create millions of high paying jobs and lower energy costs: This theory is a favorite of the “woke” left wing who see an “energy transition” as an economic opportunity for Americans.
Low mortgage rates help citizens afford homes: Mortgage payments are the most significant barrier to home ownership, and lower rates with federal backing from Fannie Mae and Freddy Mac make it possible for millions to own a home that they could not afford without such policies.
Open borders will not cause a surge in illegal immigration: By making immigrants welcome, the theory is that highly qualified people will apply to immigrate and society will benefit.
A softer, kinder kind of policing will reduce crime: By eliminating cash bail; not prosecuting misdemeanours; and, using incarceration only as a last resort, respect for the law will increase and crime will abate.
1. Modern Monetary Theory:
Biden put these theories to the test by immediately committing to enact them and immediately on being sworn in started by canceling Keystone XL and proposing trillions of new investments in his climate change agenda, funded by increasing federal debt. While proposing another $3.5 trillion of spending, Biden dumped on Donald Trump for the $8 trillion rise in debt during the Trump years in office, much of which was income support during the pandemic. Biden ignored the fact that the added debt during the Trump years was funded by Americans (who then owed themselves) and resulted in rapid economic growth. Biden says higher taxes will pay for his spending plans so in his view they don’t cost the American people a dime. I guess Biden thinks taxes are paid by non-Americans. In his first year in office Biden’s administration ran up another $669 billion in debt and that number seems destined to grow sharply as Biden’s spending campaign gathers speed.
This morning’s news that U.S. year over year inflation was 7% came as no surprise to me. I listened to a comment from Hoover Institute fellow Niall Ferguson regarding Biden’s contribution to America since his election. Ferguson said inter alia that we should be thankful for Biden for proving that rampant spending by the federal government leads to inflation, putting a coffin nail in the “modern monetary theory” that unlimited deficits and borrowing don’t matter. The empirical test that modern monetary theory is left wing nonsense is proven by the speed with which inflation has taken off from less than 2% during the Trump years to a level not seen since 1982. We should be thankful to Biden for putting MMT to rest.
2. Renewable Energy
Like Trudeau in Canada, Biden promotes the “climate change” alarm as an “existential threat”, ignoring the inconsistencies between the theory of Anthropogenic Global Warming and the laws of physics. To “fight climate change” Biden is promoting rapid expansion of “renewable energy” sources like wind and solar and an end to the use of “fossil fuels”. After squandering billions on this Quixotic mission, CO2 emissions just keep rising but temperatures refuse to rise in parallel. Rather than “save the planet” Americans now need to use the savings to afford to heat their homes. Biden’s climate policy has contributed to rampant inflation and has created few jobs.
The “climate change” foundation of pervasive inflation has been built over the past few years as efforts to force world economies away from fossil fuels have captured the minds of world leaders who incessantly include “climate change” and “energy transition” in their public speeches. McKinsey & Company, Inc. does some pretty good research. Unfortunately, this famous consulting firm (and at one time my employer) buys into the Anthropogenic Global Warming fraud and thinks there will be an “energy transition”. Notwithstanding, McKinsey’s assessment of the demand for key materials to supply the “energy transition” seems quite accurate.
As left wing policy makers rush like lemmings to the “energy transition” cliff they create artificial demand for material where the supply cannot keep up with their deluded dreams. Copper, aluminum, nickel and cobalt will be very tight markets for a few decades and investors would be wise to own a handful of the lowest cost producers with clean balance sheets.
History will show that Biden’s “Green New Deal” and “Build Back Better” slogans will become “legacy brands” for Biden’s empirical proof that America cannot control global climate but can certainly disrupt markets with serious consequences for American consumers.
3. Low Mortgage Rates
Under Biden, the government pays you to borrow money. Inflation is running at 7% while interest rates are around 2% to 3%. Conceived as the way to make home ownership “affordable” the low mortgage rates have transferred wealth to homeowners from everyone else and driven the price of housing up beyond the dreams of many people. Allowing millions of immigrants is the handmaiden of low rates in creating more demand for homes while supply is constrained. Expert see these policies have created a
“housing bubble” and I expect when it bursts the carnage will make the 2008-2009 financial crisis seem quite mild by comparison.
Biden’s signal to migrants that they would be welcomed in America hasn’t improved the quality of the immigrants seeking asylum but has dramatically increased the number of applicants; created a new avenue of profits for cartels who have added human trafficking to their portfolio of criminal activities and used migrants as mules to smuggle opiods like fentanyl into the United States. Fentanyl related deaths are now the number one cause of deaths among persons aged 18 -45, more than COVID, vehicle accidents, cancer and suicide combined.
5. Softer, Kinder Police
Playing up to the “woke” left and its cries to “defund the police” led by Black Lives Matter and the “Squad” in Congress, Biden and left wing Mayors and Soros-funded District Attorney’s have promoted less police; shorter sentences; no prosecution for misdemeanours like theft of less than $1,000; and, an end to cash bail. The theory was that crime rates would fall and respect for law enforcement would rise if law enforcement showed a kinder face. The real motive was to pave the way for authoritarian socialism, but that is a matter for another article.
The result has been a dramatic increase in crime, evidences by gangs of thugs simply walking into pharmacies and jewelry stores and brazenly taking whatever they want in bold daylight while helpless store owner can only watch. It is not just petty crimes that have skyrocketed, the murder rate in Democrat led cities is going through the roof.
Advances in science require an hypothesis with predicted outcomes and subsequent empirical data that conform to the theory being tested. That is just as true of economic and political science as it is for physics and chemistry.
The bold and courageous steps taken by President Biden to test the left wing economic, political science and social theories is unprecedented. His contribution to our understanding that the left wing ideas are not only nonsense but also dangerous cannot be overstated. He deserves a Nobel Prize, if not for science perhaps for stupidity.