Biden Is Practically Engineering a Recession

His regulatory and tax agendas seem designed to negate the good things the economy has going for it

By David R. Henderson and Casey B. Mulligan. Excerpts:

"increased regulation and increased taxation of capital—two Biden administration policy priorities—are supply-side headwinds that make recession more likely."

"In normal years, workers’ productivity rises by about 1%. That alone is a strong economic tailwind causing GDP growth, making recession by the reduced GDP definition less likely than otherwise. Unfortunately, Mr. Biden’s economic policies will likely cause productivity growth to fall. A 2020 analysis by one of us (Mr. Mulligan) and three co-authors concluded that Mr. Biden’s economic agenda would cause full-time equivalent employment per capita to be 3.1% lower than otherwise and real GDP per capita to be 8.5% lower than otherwise. If that effect were spread over five years, the reductions relative to the baseline growth would be 0.6% and 1.7% a year, respectively. That by itself makes a recession likely in one of those five years.

Mr. Biden’s regulatory agenda seems to be going ahead as expected. The good news is that the Senate rejected David Weil, the president’s nominee to the Labor Department’s Wage and Hour Division. But Mr. Biden’s mask mandates offset that good news by disrupting hiring and employee retention when supply chains are already strained. His regulatory agenda will likely cause employment growth to fall by 0.2 percentage point a year and real GDP growth to fall by 0.7 point a year."

"Mr. Biden is almost certain to let temporary capital-taxation provisions in the 2017 tax cut law expire. The effect will be to reduce growth of real GDP by about 0.4 percentage point a year.

The combined effect of increased regulation and increased taxation of capital is a reduction in employment growth by about 0.25 percentage point a year and of real GDP growth by about 1.1 points a year."