President Trump was all about the economy, but President Biden has other priorities. As the Biden administration begins to steer economic policy, it’s clear that focusing on growth is no longer fashionable. At least, not in Washington.
“Led by incoming Treasury Secretary Janet Yellen,” a story from Axios announced, “[Biden’s] economic policy team has signaled that it will be the first administration ever to construct economic policy around issues like race, gender equality and climate change, rather than around traditional indicators like gross domestic product or deficit ratios.”
On Biden’s first day in office, he put this new philosophy into practice by revoking the permit for the Keystone XL pipeline. Both climate activists and Native American groups had criticized the project, so he was able to virtue-signal on two issues at once. The optics may have been great for his base, but the decision destroyed thousands of jobs and won’t even help the environment.
Now, imagine that logic applied to the entire American economy. It used to be that a “good Republican,” from the progressive point of view, was a fiscal conservative who refrained from rocking the boat on social issues. But with social justice driving economic policy, even bringing up GDP might be seen as some kind of racist dog whistle. If you criticize the administration’s positions, you’re not just wrong, you’re also a bigot. This is ironic because a policy that shifts the emphasis away from robust and continuous economic growth would aggravate the very problems that Biden seeks to solve—climate change, racial disparities, inequality and others.
The idea of downplaying economic growth and instead concentrating economic policy on achieving political goals is not a new one. Some progressive economists have argued that growth is a poor indicator of economic well-being. Others have suggested replacing GDP growth with other indicators of progress, such as the distribution of income, crime levels, health and economic security.
But claims that growth is unimportant (or secondary to political aims) have rarely been taken seriously, and new claims that social justice and inequality should take priority in economic policymaking should be met with the same skepticism. The empirical evidence tells us that economic growth is associated with rising happiness and improvements in well-being.
Growth is the result of improvements in productivity. This allows people to achieve a higher standard of living without having to work more hours, leaving people with more leisure time to enjoy the things they value most. What’s more, small differences in rates of GDP growth make a huge impact on living standards.
Putting a political infatuation with social justice and inequality over economic growth and development will lead to worse outcomes for everyone. The aim of economic policy should be to bake a bigger economic “pie.” When the government tries to redistribute the existing pie to make everyone more “equal,” the pie doesn’t get as big as it should. Picking winners and losers never works out.
If tomorrow we were to double every person’s income, this would undoubtedly reduce poverty and economic hardship. At the same time, income inequality would increase significantly. Anyone who would have a problem with the rich getting richer in this example may be motivated more by a dislike of the rich than by compassion for the poor. A free society will always have ambitious and innovative individuals who rise to the top. The drastic measures needed to eliminate inequality would also eliminate much of the incentive to work harder and become more successful.
Those who look to government first to solve economic issues often do the same when it comes to environmental issues. However, this approach also overlooks the benefits of robust and continual economic growth. The greatest tools for improving environmental conditions are economic growth, technological innovation and the resulting improvements in efficiency. In his 2019 book More From Less, Massachusetts Institute of Technology scientist Andrew McAfee documents many of the environmental benefits of economic growth. He observes how improvements in technology and manufacturing have led to significant decreases in pollution and massive reductions in the use of water, fertilizer and other resources.
While the Biden policy wonks believe they can deploy government programs and regulations to reduce inequality by targeting gender, racial and other groups, there are endless government policies that increase inequality by acting as barriers to disadvantaged people. For example, occupational licensing requirements disproportionately act as a high hurdle to lower-skilled, less-educated groups; to immigrants; to non-English speakers; and to those with criminal records. In fact, much of what governments do serves to widen inequality, from running bad public schools and keeping the minimum wage too high to overcriminalizing the judicial code and enacting zoning restrictions that make housing too expensive.
In the end, the idea that the Treasury or any other government department can fight climate change, limit inequality and alleviate economic hardship without promoting economic growth is no more than virtue-signaling. As with any president, both Trump and Biden want social progress. But Trump knew that for real improvements in living standards, the focus must be on growth, while Biden thinks the country can make social progress by sacrificing some growth.
When economic policies get woke, everyone suffers, especially the people the policies are meant to help.