I hate to be the bearer of this news, but the plan for the federal government to spend more trillions is current and a big deal. Because economics is a primary topic of this blog, I believe that I owe it to my readers to address the issue. The last thing we all need right now is something else to worry about, but the issue is too huge to be ignored. On the other hand, if you cannot handle more bad news right now, my advice is to find something else to read for the time being.
For many years (1) Republicans have donned somber faces and spoken in ominous tones about the national debt—as they did essentially nothing about it and have routinely voted for things that have exacerbated the problem, and (2) Democrats have scoffed at the national debt as unimportant except when it can be used to justly bash Republicans as hypocrites—as they have continuously proposed and voted on new spending, tax, and other proposals that increase debt and diminish the economy’s ability to produce enough wealth to service the debt.
Prior to the pandemic, the levels of national debt and unfunded liabilities were untenably high,[i] ineluctably growing, and the political will to slow the growth was nonexistent. Given the mal-informed public’s indifference to debt and pleas for more spending, for a politician to actually do anything to slow the growth of spending, much less reduce the country’s spending would have been an act of political suicide.
Worse, even if there had been such a political will, no plausible theory to reduce the debt to a tenable level exists (with the possible exception of a pandemic or other disaster that would wipe out a high percentage of people drawing social security and welfare benefits—which, of course, would be beyond terrible). There are plenty of reasons to believe that moves to reduce the debt would result in destructive civil unrest. Yet, Congress is in the process of passing a spending plan that will vastly increase the debt and the Federal Reserve is printing money with unbridled abandon. Here are a few images from Venezuela showing what the end of the above process looks like.
As a result of the history described above, the country may have already created such a powerful black hole of debt that being sucked into its vortex (i.e., suffering a financial collapse) is unavoidable. The closer mounting debt pushes the country toward the black hole, the more powerful its pull.
In light of the above, one might conclude that bailing out companies, sending checks to individuals, and “printing” money to deal with the current crisis is a mistake. After all, there is no question that each move will take the country closer to the black hole and will fortify the populous’ errant belief that government spending is excellent, unlimited, and harmless—thereby making it even harder to turn back from the brink.
Nevertheless, one would be wrong to conclude that spending and “printing” should not be done.
The country’s chances of avoiding a financial collapse in the (hopefully distant) future were low before the impending spending splurge. However, unless the country’s economy can be revived, its chances of avoiding an economic collapse in the near term are almost certainly zero. The economy weakens with every hour that it remains mostly shut down. The business interruptions have placed many large and most small businesses at or beyond the point of no recovery. Without a significant recovery by most businesses, the economy will surely collapse soon. If desperate people have no hope of receiving cash for an extended period, civil unrest could bring the whole thing to a stop. Keeping enough companies and desperate people afloat will not be possible without federal government action. The planned measures are desperate and unwise in non-desperate situations. Sadly, we are in a desperate situation.
Let’s hope and pray the bitter pill of more spending will allow us to have a chance gain a footing that will enable the country to push the economic collapse well into the future and that the country finds a way to convince a solid majority of voting Americans that socialism is both unsustainable and a huge step in the wrong direction. The alternative is too bleak to discuss.
UPDATE: Following the publication of this post, Peter Robinson of the Hoover Institution conducted this excellent and pertinent interview of John Taylor: “The Corona Economy with John B. Taylor”
[i] As I write, the reported national debt is almost $24 Trillion, is growing, and the clamor for more spending may be at an all-time high, not counting the $2 – 3 Trillion additional spending Congress is trying to get passed right now. The government’s commitments to pay money in the future are over five times larger than the reported debt.