Biden and the Democrats are Courting an Economic Implosion and Social Explosion with their Spending

America’s economy is in serious danger of inflation fueled disaster, driven by the misguided, Keynesian policies of the Biden Administration. Prices for energy, transport, and construction are up, and electronics are nearly impossible to find, while the service sector is suffering a major labor shortage. All of this coexists with historic levels of unemployment. Yet rather than resolving these issues, the Biden Administration seems determined to pour more oil on the first, having passed a more than $2 trillion dollars in stimulus spending, pumping money into the economy at a time when savings are at an all-time high.

Even by the dubious standards of Keynesian economics, this stimulus was unnecessary. Americans have been trapped at home for almost a year, unable to travel, to eat out, or spend money on a host of activities. The problem with the economy was never a shortage of money, but a shortage of things to spend it on, and this was likely to be remedied as restrictions lifted with the vaccine program. By pumping more money in, Democrats and Biden caused the government to compete with otherwise more efficient private sector activity, contributing to the persistently high unemployment rates existing alongside an unprecedented labor shortage across the country.

The Biden Administration has failed to learn from this experience. Rather than backing off in the face of rising prices for gasoline and outright shortages in other areas of the economy, especially involving electronics, they are preparing a multi-trillion-dollar infrastructure project. There is a viable argument that the country needs infrastructure, but timing is everything, and the consequence of pumping vast sums of government money into infrastructure would be to further compete for capacity with businesses and communities emerging from COVID-19.

From an efficiency perspective the timing could not be worse. The government would end up paying vastly more for the same projects and services than it would three years ago or three years from now, in effect getting less for more, while also increasing costs on the private sector. The economy is already running at or near 100% capacity (businesses are struggling to hire and many raw materials are running short). Increasing the number of orders will not increase capacity. It will merely increase prices.

The result, as it has been throughout history, is likely to be felt most by those at the bottom and in the middle. Homeowners will be able to ride out the storm, but renters will face vastly increased costs, local governments will face increased expenses for maintenance, consumers will be unable to buy products, and commuters will face greater difficulty getting to work. Fewer services will be available due to increased labors shortages, while those that are available such as restaurants, food and electronics will be more expensive. And all of these factors will be felt strongest in urban areas.

All of this combines to create an alarming situation. Riots and unrest are not unlikely, as minority communities are faced with high employment and being priced out of their communities, while millennials and younger progressives bemoan rising costs of living. While conditions will likely inspire the left to redouble their attacks on capitalism, in fact it is the government’s spending and intervention driving the troubles. Nonetheless, we can expect more of the left-wing agenda Biden outlined in his campaign—perhaps an insistence on cancellation of student loans, rent forgiveness, and even further unemployment support. If the left’s hardcore base does not get what they want, we already know they may be prepared to threaten violence. The summer of 2020 may well be nothing compared to what is to come if indeed the Biden policies push the nation into an economic crisis.

Economic history is full of examples of this sort of megalomaniacal economic behavior—and of the disastrous consequences which followed hubris on the part of government leaders who believed they could force the laws of economics to bow before them. Although the most cited example may be programs undertaken during the Great Depression, one particularly vivid example—one that eventually led to serious geopolitical consequences—was what the Shah of Iran did to his nation’s economy in the 1970s.

Between 1965 and 1973, Iran experienced one of the fastest rates of growth in the world, with Gross Domestic Product increasing by an average of nearly 11% a year. Predictions were made that by the 1990s, Iran would overtake Japan and become the world’s second largest economy. Following the 1973 Arab-Israeli war, and the Arab oil boycott of the West which followed, Iran was even more flush with money. This, in a sense, was Iran’s undoing.

The Shah of Iran was a tragic figure, a man who loved his country, and seemed to have extensively studied the records of Louis XVI of France and Nicholas II of Russia, and determined to do the opposite. While they surrounded themselves with cronies, the Shah embraced technocrats. Whereas they embraced tradition, the Shah allied himself with what he saw as the forces of progress, launching a “White Revolution” to breakup landed estates and give equal rights to women. He was deeply committed to economic development. The Shah believed that a successful country was a rich one, and he was determined to turn Iran into a “great civilization.”

For this reason, the Shah decided to overrule the advice of his advisers that the Iranian economy was already growing at capacity, and responded to the influx of oil wealth by pumping the funds back into the economy. This came in the form of development projects and programs. The Shah, having seen how his economic policies had produced 11% growth, assumed that if he merely increased the spending on every existing project it would increase the returns, and quite literally added zeros to items in the budget.

The result was the opposite of what he hoped. Iran, like any country, had limited capacity in the economy. Highways and roads could only carry so much transport, and there was a limited amount of construction materials, steel and other goods. Any major public works or infrastructure products that the government launched competed with private sector activity for those scarce resources. While Iran had achieved success with a degree of public sector investment in the 1960s, all of the most worthwhile projects had already been funded, so the additional funding that the Shah poured in was motivated not by any productive value the projects might have, but by the Shah feeling the need to “spend” the money he had on hand from rising oil prices. The result was predictable.

The government spending drove up prices of raw materials, transport, and construction, causing mass inflation while also pricing private businesses out of the market. They could not compete with the Iranian government, flush with oil money, for scarce transport or construction, and the result was that it became impossible for any company to ship products. Shipments rotted in boxes for weeks or even months waiting to be unloaded as highways were backed up with traffic jams, and buildings were left uncompleted. All of this caused rising unemployment at the very same time prices were rising.

By overstimulating the economy in the 1970s, the Shah crashed it. The aftermath, as we well know, was mass protests by unemployed workers against a government that was unaccountable and seemingly incompetent. These protests were hijacked by radical Islamists, but they were inspired by high unemployment paired with high inflation, both caused entirely unnecessarily by the decisions of the government.

Are the Biden administration’s steps down the same road followed by Iran’s deposed leader deliberate? It is hard to say. But if Biden was pursuing policies designed to deliberately radicalize urban populations, they could not chose better ones than those they are pursuing, and which were so effective at radicalizing Iran’s urban population in the late 1970s.

It is not just America’s economy which is under threat by Biden’s economic policies—it’s the entire social fabric of society.