To fight the coronavirus and its economic effects, Congress has already spent nearly $3 trillion, a total to which lawmakers will add to over the summer. Democrats want the number doubled.
It has become conventional wisdom that during a time of national crisis, lawmakers should not worry about blowing up the debt, which is expected to reach unprecedented levels by next year.
There is, indeed, some truth to the argument that decisive action in this crisis should not be hamstrung by worries over deficit spending. Given that the pandemic has led the government to shut down large parts of the economy, significant government spending has been needed to cushion the blow to businesses and to tens of millions of people who have lost their jobs.
But it’s important to remember some context. Before the coronavirus ever appeared, federal finances were already in bad shape. That was during a time when unemployment was at a 50-year low. Now, the Congressional Budget Office says that the debt is going to surpass the record set during World War II by next year. And even that doesn’t anticipate the inevitable additional rounds of coronavirus spending.
Unlike World War II, however, debt will not simply go away once the immediate crisis is over. That’s because the retirement of baby boomers, coupled with rising healthcare costs, is going to keep adding to the debt in coming decades. The coronavirus simply accelerated America’s grim fiscal reckoning, bringing it a decade earlier than it otherwise would have been.
While there isn’t a magic amount of debt that triggers a crisis, there is broad agreement among economists that such large and growing debt makes a fiscal crisis more likely. When it arrives, investors will become alarmed about the federal government’s ability to service the debt and consequently reluctant to buy more without earning high interest rates. And those push the debt higher faster. Lawmakers will be trapped in a vicious cycle, having to choose among undesirable options such as crushing tax increases and sudden and severe cuts to spending. Either of these could cripple the economy, making it yet more difficult to generate the growth necessary to pay down the debt principal.
In other words, if lawmakers throw caution to the winds in responding to our current crisis, they could set the country up for an even longer period of economic stagnation.
After decades of ignoring rising debt, it would be imprudent to tighten the purse strings suddenly in a time of crisis, when spending is desperately needed. But the danger of reckless spending is that it will lead to a misallocation of resources, and dig a deeper hole for future congresses to deal with.
If lawmakers believe the coronavirus gives them a blank check, they will try to take advantage of the crisis to spend money on wish-list items unrelated to the nation’s genuinely pressing concerns. Much less care will be given to how programs meant to respond to the crisis allocate money.
This has already become apparent. House Speaker Nancy Pelosi, who spent much of the past year and a half trying to convince everybody she was keeping the radical Left of her caucus at bay, recently shepherded through the House a $3 trillion abomination of a bill that was ostensibly a response to the immediate needs of the pandemic. In reality, it was a wish list that included, among other things, a rescue of perennially mismanaged union pension funds. The bill also would have extended the temporary and excessive $600 weekly supplement to unemployment benefits until the end of January and removed the cap on deducting state and local taxes, to benefit wealthy blue states such as Pelosi’s home.
President Trump, for his part, has talked about spending $2 trillion on a massive infrastructure bill that he’s struggled to get off the ground throughout his time in office.
Meanwhile, the money is flying out the door so fast that there has not been adequate oversight, which resulted, among other things, in large corporations receiving assistance that had been meant for small businesses.
There’s an argument to be made for lots of spending as long as it is accurately targeted and fairly allocated. But when everybody operates as though they have limitless sums of money to play with, excessive spending and a misallocation of the nation’s wealth are going to become more prevalent.
That’s why, even though the debt should not handcuff policymakers and prevent them from taking truly necessary actions to pull America out of its present crisis, concerns about debt must be made an important part of the conversation.
