On March 10, I underwent an operation to replace my right knee. When I came out of the anesthesia, I spent a few days in a recovery fog, somewhat unaware of the dramatically changing world outside. When I was ready to fully rejoin society just a few days later, it seemed as though I was no longer living in the same country. While physical therapy has worked its wonders on my ability to resume normal activity, the changes wrought by the leaders of our government in response to the COVID-19 pandemic will cripple the economy for years to come.
Last week, Federal Reserve Board Chairman Jerome Powell reportedly made a “blunt call” for Congress and the White House to “spend more money.” This came on the heels of Treasury Secretary Steven Mnuchin’s comments that “this is a war, and we need to win this war, and we need to spend what it takes to win the war.”
These statements come after Congress has already added a whopping $2.9 trillion in so-called emergency spending to this fiscal year’s annual budget of $4.6 trillion. This will push the national debt close to $25 trillion, which comes out to roughly $75,000 per capita, according to the U.S. Debt Clock. More importantly, that is more than $200,000 per taxpayer.
On Thursday, it was reported that House Democrats are on the verge of submitting another stimulus package worth some $750 billion. This latest package would include aid for state and local governments, vote-by-mail programs, broadband internet, and the Postal Service.
These events show that both political parties have bought into the myth that this level of spending and debt accumulation doesn’t matter. This is little different than saying the future doesn’t matter. Debt is an obligation that must eventually be repaid. The trillions the U.S. government borrows are claims against the private property of current and future taxpayers.
The economist John Maynard Keynes dismissed concerns about deficits and debt by noting that “in the long run, we are all dead.” But our children and grandchildren will be living in the future we leave for them. It is the height of irresponsibility to saddle them with the burden of paying off debts for massive spending we refuse to pay for with the resources at our disposal today.
Some economists say there is little risk in adding more debt because interest rates are at historic lows. But once again, that logic ignores the future. Interest rates can, and inevitably do, rise. In its January 2020 budget review, issued prior to the latest spending spree, the Congressional Budget Office warned that net interest costs would rise steadily over the next ten years due to accumulating debt and rising interest rates. Couple that with an aging population and rising healthcare costs, and we face a perfect storm as interest payments consume a significant portion of the annual federal budget.
Congress will then be forced to make tough decisions, something it has proven to be incapable of doing. When faced with a choice between spending money on popular social programs such as Social Security, Medicare, and food stamps, or on more traditional but less flashy functions of government such as defense, protecting our borders, and infrastructure repair, one can easily guess what the votes will be. Do we want our children to live in a country that can no longer afford to spend on national defense, as Defense Secretary Mark Esper just warned about?
Our government absolutely has the responsibility to protect the lives of its citizens in the face of a major threat, such as this pandemic. Experts will debate for years about whether a lockdown on much of the economy was the correct course to take. But we should be able to agree that the fastest path to a revitalized economy that creates jobs and prosperity for all is to return to a minimal level of government spending and interference in the private sector.
Markets have time and again proven to be nimbler and more resilient than politicians in allocating resources and growing the economy.
With an annual deficit that will exceed 17.9% of GDP this year and total federal debt topping 100% of GDP by Sept. 30, we can only hope that our leaders will pause and consider the long-term consequences of their actions. But that may be too much to ask of any politician, especially in an election year when votes are won by making ever-grander promises of government support and intervention led by Washington.
Roger Ream is the president of The Fund for American Studies, a nonprofit educational organization.
