During the Great Depression of the 1930s, the British economist John Maynard Keynes offered the revolutionary idea that governments could diminish economic downturns by increasing spending.
In general, governments in free market nations have been guided by his ideas ever since. In the United States, Democrats tend to be more loyal Keynesians than Republicans, but Republican administrations have adhered to Keynes’ ideas in hard times. That includes the deep recession that began a year ago as the world struggled with the COVID-19 pandemic.
This year Democrats are in charge, and they too leaned on Keynesian principals with their American Rescue Plan, signed by President Joe Biden in March.
But the Rescue Plan is turning out to be an exemplar of Keynesian incompetence, as Democrats have managed to increase federal spending, and debt, in a way that may actually be stifling a recovery that was going to occur anyhow as more Americans get vaccinated and return to their normal routines.
One acknowledgment of that came this week, when John Bel Edwards became the first Democratic governor to cut off the Rescue Plan’s enhanced unemployment benefits. Many Republican states had already done so.
Employers complain that they have hung out the “hiring” sign, but workers are not knocking on the door because it’s more lucrative to sit on the sidelines than come back to work. The impacts have rippled across the economy, from food service to trash pickup.
Democrats note that there may be other reasons why employees are staying on the sidelines, like concern about low COVID-19 vaccination rates and child care issues. And in New Orleans, many workers in the tourism industry have not seen their jobs return.
In Louisiana, the enhanced benefits will end July 31, as part of a compromise between the Democratic governor and the Republicans who control the legislature.
This week, Edwards signed legislation that will increase the state’s unemployment benefits by $28 a week starting next year in return for agreeing to withdraw from the federal enhanced benefits program.
Both sides of the deal are sound public policy. Louisiana’s jobless benefits are among the lowest in the nation, so a modest increase is a step in the right direction. The permanent $28 bump brings the weekly payment to the qualified unemployed to $275 — what Alabama and Florida provide.
The governor says he always intended to end the enhanced benefits in early August, around the time school starts, so cutting off the money July 31 won’t make much difference.
The Rescue Act was popular when it was passed and contains important provisions such as aid to keep entertainment venues afloat after being shut down for many months, as well as aid to localities and the stimulus payments that economists say helped fuel a resurgence in consumer spending. Louisiana is basically balancing its state budget on cash flowing from Washington.
As for the extended unemployment benefits, even Biden noted this month that they’ll expire soon; that’s a tepid defense of his own plan, which has produced disappointing job gains and a worrying increase in inflation.
And there may be more to come. Democrats are teeing up legislation to spend trillions more.