Biden is gambling with other people’s money

The Congressional Budget Office is now projecting that this year, debt will reach 102% of gross domestic product — meaning that our debt toll will exceed the size of the economy for the second straight year, at the highest level since World War II. This, however, does not take into account a penny of the $1.9 trillion bill that Biden is itching to pass. Neither does it include Biden’s proposals on climate, infrastructure, childcare, healthcare, and a host of other liberal wish list items.

Biden would, of course, argue that, despite the debt, it is necessary to “go big” to combat the coronavirus pandemic and its economic effects. This neglects the fact that there has already been $4.1 trillion in economic relief in response to COVID-19, including just before he came into office. It also ignores the reality that at this point, the major barrier to the economy is government-imposed lockdown policies, which Biden seems increasingly willing to extend even as vaccines become more readily available.

Even if one were to argue that there is an urgent need for more money to fight the pandemic, the Democratic proposal is poorly designed for that end.

As Maya MacGuineas, president of the Committee for a Responsible Federal Budget, noted, “Only about 1 percent of the entire package goes toward COVID vaccines, and 5 percent is truly focused on public health needs surrounding the pandemic. Meanwhile, nearly half of the package will be spent on poorly targeted rebate checks and state and local government aid, including to households and governments that have experienced little or no financial loss during this crisis.”

She adds, “More than 15 percent of the package — about $300 billion — is spent on long-standing policy priorities that are not directly related to the current crisis.”

Another analysis by CRFB found that nearly all of the pandemic-related losses from state and local governments have been covered by the nearly $360 billion in relief that has been provided in the previous rounds of aid.

As we noted previously, just $6 billion of the $128 billion in supposed emergency funding to get schools to reopen is allocated in fiscal year 2021, whereas $90 billion of it will be back-loaded between 2023 and 2028.

Biden’s proposal, in other words, is not what one would propose if one were actually trying to pass an emergency bill to deal with an immediate problem. Rather, it is using an emergency as an excuse to advance the liberal agenda and reward special interests such as teachers unions and pension funds that were desperate for a bailout even before the first coronavirus case in China.

By ignoring any debt concerns, Biden has effectively adopted the teachings of Modern Monetary Theory, which argues that debt never poses a problem to a major country such as the United States, which issues debt in its own currency.

Biden has been given cover by Republicans’ own fiscal profligacy, and bolstered by the fact that, for the past decade or so, debt markets have defied textbook economics. The Federal Reserve Board has flooded the markets with cheap money, debt has been soaring, and yet inflation and interest rates have remained low.

Biden is taking a risk that this will continue far into the future. Yet if history has taught us anything, as with the dot-com bubble and the housing bubble, reality eventually sets in.

The more Biden ignores the debt, the greater the chances of a fiscal crisis in which investors become more reluctant to purchase federal debt and demand higher interest rates. In that event, U.S. lawmakers will be forced to choose between toxic options such as massive tax increases and severe, sudden spending cuts that will have devastating economic consequences.

But hey, it isn’t his money he’s playing with.