Liberal political commentator Bill Maher has made a name for himself as a critic of conservatism, but the potty-mouthed comedian recently emerged as an unlikely critic of the trillion-dollar federal bailouts passed in the wake of the novel coronavirus pandemic.
In a recent interview with House Speaker Nancy Pelosi, the HBO television host wondered how the federal government could keep printing money to bail out corporations and mailing checks to people considering the federal government is already $22 trillion in debt.
“I know Congress controls the purse strings. I can’t imagine there’s much left in the purse,” Maher quipped to Pelosi. “I know we can bail out certain sectors, as we have done in the past. I don’t know how you can just keep indefinitely writing checks.”
Pelosi lamely responded that lawmakers were responding to “a matter of life and death.”
Indeed. But what the speaker and virtually everyone else in Washington appear to miss is that their actions will also have life-and-death consequences.
The Congressional Budget Office recently updated its deficit forecast. The numbers are not pretty. The CBO is projecting a $3.7 trillion deficit — nearly double the record $1.9 trillion deficit in 2009 following the last financial crisis. By the end of this fiscal year, the CBO projects, the percentage of federal debt held by the public will exceed 100% of gross domestic product. That’s frighteningly close to the GDP-to-debt ratio Greece had in 2008 before its economic meltdown.
These numbers should scare taxpayers. Can the United States correct its course? Of course. But evidence suggests it won’t.
First, as economist Antony Davies and political scientist James Harrigan have argued, it’s unlikely the U.S. will ever return to pre-coronavirus spending levels. Based on recent history, it’s likely that multitrillion-dollar deficits will be the new normal, and the Federal Reserve will emerge as the “lender of last resort.”
Second, the federal bailouts aren’t over. On April 24, President Trump signed another coronavirus relief bill, this one a $484 billion package for small businesses and hospitals, after the original $2 trillion was deemed insufficient. Now, state and local leaders are calling for their own bailouts.
This is no surprise. Even before the coronavirus struck, many state and local governments were fiscal calamities. State pensions collectively faced a $1.3 trillion funding gap before the market collapsed in February, according to data from the Pew Charitable Trusts. Some states, such as Illinois, were careening toward insolvency well before the coronavirus struck.
Nevertheless, the political pressure to bail out state and local governments will be immense, especially since voters will remember that the federal government has spent trillions of dollars in corporate bailouts. Why should CEOs and their stockholders get bailed out but not the (million-dollar) pensions of public workers?
The bailout precedent has been set, and deficit hawks will have a hard time making the case that the pensions of teachers, bus drivers, and municipal workers shouldn’t be bailed out too. Most federal lawmakers are likely to cave at the first whiff of public protest, especially those representing states approaching insolvency. After all, what’s one more bailout?
The problem is that the Federal Reserve, the “lender of last resort,” is already carrying a balance sheet that’s projected to hit $10 trillion early next year. There’s little indication that the Federal Reserve has the ability or the inclination to shrink its balance sheet, and the central bank’s actions are not without consequences.
Basic economics shows that expanding the money supply faster than actual outputs is a recipe for inflation. That’s likely where we’re heading, analysts point out.
“We’ve never seen the central bank create this much inflation in its history,” financial analyst Peter Schiff recently observed, who correctly predicted the 2007-2010 financial crisis. “To think that it’s not going to affect consumer prices, I think, is completely ridiculous.”
Printing money doesn’t change the basic economic reality of scarcity. We only have so much stuff — iPads, strawberries, water, housing units, automobiles, and everything else. Printing more cash doesn’t change this or add anything of value to the economy. The government can bail out one sector, but it can’t do so without taking from another.
These basic economic realities have long been pointed out by crusty economists and financial gurus like Schiff, but in light of the recent spending orgy, even political commentators like Maher are finally starting to ask the right questions.
“All world governments, who are already in debt, are doing this,” Maher said to Pelosi. “How can the whole world be writing this funny money?”
The answer is this: We can’t. Not without severe consequences.
When Maher is becoming the voice of fiscal sanity, it’s time to start worrying.
Jon Miltimore is the managing editor of the Foundation for Economic Education.
Correction: This piece previously said the research mentioned on the state pension funding gap came from the Pew Research Center. The research actually came from the Pew Charitable Trusts. The Pew Research Center is an independent subsidiary of the Pew Charitable Trusts that was not involved in the pension research.
