Congress passed an historic $2 trillion stimulus package last week to stabilize the faltering U.S. economy through the COVID-19 pandemic. The good news is that Congress has proven that it can act expeditiously when it wants to, which is nothing short of miraculous given its usual gridlock and partisanship. Such a swift and sweeping response is reminiscent of Congress’ declaration of war against Japan on December 8, 1941, just one day after the attack on Pearl Harbor or its passing the Authorization for Use of Military Force, signed into law one week after the attacks on September 11, 2001. The country has been mobilized and the gears of government are turning.
But let us not confuse action with prudence. Nor movement with progress. Doing something is not the same as doing the right thing, particularly when the only thing that Congress seems able to do is to agree to spend money that we do not have. The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is a case in point. This was the largest spending bill ever in American history. It was passed unanimously in the Senate and by voice vote in the House of Representatives with minimal discussion or debate. The bill includes a $500 billion bailout to big corporations. It will distribute approximately $500 billion to individuals—including individuals without children making up to $99,000 and married couples without children making up to $198,000—regardless of whether or not they have lost their jobs due to COVID-19. (That would be much too sensible.) Several hundred billion dollars will go to small businesses, state and local governments, and towards public health, which seems prudent. But the devil is in the details. And our government tends not to care about those these days.
The Ever Increasing Federal Debt
The $2 trillion CARES Act is not at all unique. It is, rather, the continuation of a pattern of behavior by our elected officials involving spending beyond our means. True, there are situations where government stimulus is necessary. And, also true, this might be one of them. However, consider the following trend. The federal deficit (i.e. the amount the government spends beyond what it collected in revenue) approached $1 trillion in 2019. This spending occurred during a year of unprecedented economic growth and low unemployment, fueled by the reckless Tax Cuts and Jobs Act and a sheepish Federal Reserve unwilling to raise interest rates. Past presidents have not done any better. Barack Obama added $8.5 trillion and George W. Bush added $5.8 trillion to the federal debt. In fact, every single one of the past eight Presidents (Nixon through Obama) makes the top ten list for percentage increases in the federal debt.
Clearly, the political class does not care about the federal debt and deficit. Only with blatant disregard or utter ignorance towards this issue could you possibly approve $740 billion in defense spending or propose “structural change” that costs trillions of dollars (Green New Deal: $5-10 trillion per year; Medicare for All: $3.2 trillion per year; student loan forgiveness and free college tuition: $1 trillion). To those who support these programs, we ask: Do you know that your proposals dwarf the current level of federal spending ($4.1 trillion)? Do you know that we already spend close to $2 trillion annual on entitlements (i.e. Social Security, Medicaid, Medicare)? Are you aware that our federal debt is currently $23 trillion?
Some well-intentioned Americans might ask whether or not the federal debt and deficit matters. Fiscal doves argue that sovereign nations like the United States, who can create their own money, cannot go bankrupt because they can print more fiat currency to service their debts. Such claims are disputed and ignore the existential risk of inflation (see Venezuela and Zimbabwe today, or the Weimar Republic historically). Putting that academic debate aside, we know that ballooning debts and deficits hurt us right here and now. The United States currently pays over $300 billion in interest per year on our federal debt. That is almost $1 billion per day. And projections show that those yearly interest payments will reach to $1 trillion by 2030 if nothing changes. This increase in debt payments will crowd out discretionary spending on education, environmental protection, energy, health and human services, research and development, and more. In fact, the World Bank found that countries whose debt-to-GDP ratio exceeds 77% for prolonged periods experience significant slowdowns in economic growth and that every percentage point of federal debt above this level costs countries 0.017 percentage points in annual economic growth. (Note: Currently, the U.S. federal debt is about 105% GDP, which would translate to an 0.5% reduction in annual economic growth.)
The Problem is Politics
In our view, the underlying problem is a political one. Our elected representatives seem only capable of doing the easy thing, not the right thing. And it is a simple matter of incentives. Members of Congress run for office every two to six years and the President is elected every four years. It is much easier to choose to “stimulate” the economy by spending money that we don’t have than grapple with the difficult questions of prioritization and tradeoffs. On a future federal debt crisis, President Trump has said what many other politicians must be thinking: “I won’t be here.” Unfortunately for the younger generation of Americans, we will be.
Congress “did something.” Hurray. But all they did with the CARES Act was prove, yet again, that the only compromise they are capable of is one in which everyone gets everything they want. This is consistent with past budget “deals” where Democrats get significant increases in social spending while Republicans get more defense spending and tax cuts.
The People Demand Change
The American people are smarter than this, though. Families understand how budgets work. They know what it means to balance a budget based on what you have and borrow when you need it (as opposed to the federal government strategy of “balance budgets based on what you don’t have and borrow when you don’t need it.”) They see through these political games. When polled by Gallup, Americans consistently rank their level of concerns about the federal debt and deficit as a “great deal” (50-60%) and a “fair amount” (20-30%). Only 15-20% of Americans are have little to no concern. These results have been replicated across many other sources: the Economist found that 83% of Americans say the budget deficit is an important issue, POLITICO found that four out of five voters consider reducing the budget deficit to be an important priority for Congress, more than any other issues asked about in the poll, and more.
Congress would do well to listen to this silent majority. Their voices are quieter than others. They probably aren’t on Twitter or demanding change on the streets. But they vote, as we saw on Super Tuesday with Bernie Sanders’ stunning collapse and we saw in 2010 when Republicans retook Congress. The American people know the federal debt and deficit should be bipartisan. It is time our elected leaders start to listen.
Divided We Fall is committed to providing a platform for all political perspectives, especially those with which we disagree. C.J. Larabee, a graduate of Duke University School of Law, former Assistant U.S. Attorney, and editor of the Connecticut Criminal Procedure, provided a response.
Let me start by saying that I am very concerned about the federal deficit and debt. I don’t like the fact that 5-10% of my tax dollars go to paying interest on the federal debt. I would rather see this money go to expenditures that directly benefit Americans or just have my taxes reduced proportionately. I am concerned that whatever way the Federal Reserve decides to finance the growing deficit will lead to inflation. And I would like to see Congress exercise the same discipline and make the same difficult decisions that I have to make in balancing our family budget.
But I think that the benefits of the CARES Act outweigh the costs to our national finances. We are in the throes of a national coronavirus emergency and (likely) a recession. The question now is how to deal with it. I believe that we need a type of national Marshall Plan to alleviate individual hardship and avoid short-run national economic failure. I am willing to accept more federal red ink to enable people to stay at home and prevent community spread, to ensure that Americans can afford the proper testing and health care without crowding emergency rooms, and to avoid layoffs, foreclosures, evictions, and other adverse economic consequences. It appears that even the few remaining true deficit hawks in Congress have acquiesced.
I don’t even mind a bailout to some “big corporations” such as the airline industry. If American or United Airlines goes under during this recession, consumers will pay more and have fewer choices. President Obama bailed out the auto industry because they are an essential part of the American economy and it worked. As a result of, or at least after, the bailout, General Motors makes the Chevy Bolt and now will hopefully manufacture ventilators. I believe that the CARES Act provides oversight to prevent bailout money from being used for executive pay raises or stock buy-ups.
I am not suggesting that the CARES Act is perfect. My family and I will get a subsidy that, quite frankly (and fortunately), we don’t really need. I would rather see that money targeted to hardship cases or to hospitals. And now is not the time for a $25 million appropriation to the Kennedy Center, which the bill apparently contains.
But if we can’t expect perfection from Congress generally, then we certainly cannot insist on it now when time is of the essence. The CARES Act helps a Nation in need. I realize that the deficit will balloon, but I would just suggest that we read the above editorial again in six months (or hopefully sooner) when we get out of this mess.
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