Something To Be Thankful For: No Stimulus!

It’s Thanksgiving, and therefore it’s appropriate to find something to be thankful for. This crazy year 2020 makes that task much more difficult than usual. Coronavirus? No thanks. Joe Biden as incoming President? No thanks. But here’s something that we all ought to be able to agree that we are enormously thankful for: the failure of the Congress to pass the latest $3+ trillion round of Covid-19 “stimulus.”

It was way back on May 15 that the so-called “Heroes Act,” got passed in the House of Representatives by a vote of 208 to 199. Notice that there were 232 Democrats in the House, but this bill only got 208 votes. The bill would have fulfilled every conceivable wish of every government-dependent constituency you could ever think of, with handouts ranging from the tens of millions to the hundreds of billions. Here is a virtually endless list of the giveaways in this bill. $100 million for “Fishery Disaster Assistance”! $1.5 billion to “close the homework gap by providing funding for Wi-Fi hotspots”! And so forth ad infinitum.

But the Heroes Act never moved forward in the Senate, at least so far.

The centerpiece of the bill was clearly the trillion dollar plus gusher of funding for state and local governments: $500 billion “to assist state governments”; $375 billion “to assist local governments”; $101.15 billion to the Department of Education “to support the educational needs of States, school districts, and institutions of higher education” (that appropriation would have been way more than the previous entire annual budget of the DOE, which was only about $66 billon in the President’s 2021 budget request — but hey, teachers unions and academics are core Democratic Party constituencies); $15 billion to states and localities for highways; $15.75 billion to same for transit systems; and so on and on and on and on. Somehow of course the hundreds of billions of funds for states and localities were mostly “needed” by lavish-spending blue jurisdictions like New York, California, New Jersey, Connecticut and Illinois, while red states like Florida and Texas somehow had much smaller holes in their budgets, despite far lower taxes and spending levels.

In all the commentary I have read about the so-called Heroes Act, there has been almost no discussion of any possible negatives of the federal government going out and borrowing $3+ trillion — about 15% of annual GDP right there — and passing it out for what would normally be low-priority spending. Won’t this massive borrowing promptly turn into a permanent drag on our economy, and on our children's ability to get ahead in life? Even if the money can be borrowed today at an interest rate of around 1%, that’s not for an infinite term; and when the time comes to refinance, the market interest rate could easily be 5% or even 10%. Try if you will to find some intelligent discussion out there of these issues. Does anybody even care about such things any more?

The Wall Street Journal has two current opinion pieces on the subject of this “stimulus.” The two take completely the opposite positions on whether borrowing and then spending the $3+ trillion at this time is a good idea. Clearly the pieces can’t both be right, but neither takes any time to refute the position of the other:

• The first piece is an unsigned editorial with the headline “The Dow Hits 30,000. Another sign of economic resilience amid the pandemic.” The basic point is that indicators like the stock market, soaring third quarter GDP, and rapidly falling unemployment show that the “stimulus” was not needed: “[R]ecall the catastrophe if Congress didn’t pass another $3 trillion spending bill? Chuck Schumer and Nancy Pelosi issued almost daily press releases, echoed by the sages at Bloomberg. Didn’t happen. Then last week we were told that if the Treasury ended the Federal Reserve’s special pandemic facilities, the markets would reel. Some reeling. Instead the economy keeps growing, and the jobless rate keeps falling, despite the surge in new Covid infections.”

• Meanwhile, it’s not just Schumer, Pelosi and the “sages of Bloomberg” predicting doom and gloom in the absence of additional “stimulus,” but also Princeton economist Alan Blinder right there on the same editorial pages of the WSJ. Blinder’s piece has the headline “A Speedy Recovery Depends on More Aid. Will Trump Deliver?” Excerpt: “[M]ost of the Cares money has been spent and more will expire in late December; the Centers for Disease Control and Prevention moratorium on evictions will end Dec. 31; and Treasury intends to end its lending facilities by the end of the year as well. Americans are suffering from the tragic results of the Trump administration’s malign neglect of the virus. Will we now have to suffer from malign neglect of the economy? . . . [T]ens of millions of Americans need a lifeline. . . . It’s society’s underdogs: the unemployed, people of color, the poor and so on.  These folks have pretty straightforward needs: cash income, food, shelter and health care. The federal government knows how to provide these things.”

Blinder puts forth the standard progressive view of how the economy works. The people, other than maybe a few at top, have no ability at all to provide for themselves. All wealth comes from government spending and handouts, which are the only way to provide for the ordinary people and to prevent “suffering” and “tragic results.” If there is some potential downside to taking on trillions of dollars in debt and simply passing out the money in fistfuls to anyone with his hand out, such downside is not worthy of mention. This is polite company, after all.

As often on this blog, it is time to remember the great lesson of 1945 to 1948, when federal government spending rapidly dropped from 44% to 9% of GDP, and millions of people were de-mobilized from the armed forces and needed to be re-absorbed immediately into the civilian economy. In 1943 the famous economist Paul Samuelson had predicted that the end of the war and associated de-mobilization and reduced government spending would lead to economic disaster:

[W]ere the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties—then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.

But in fact the government went ahead and de-mobilized the troops, cut the spending, never engaged in the “stimulus” that Keynesian economists were demanding — and the economy promptly boomed like it had never boomed before.

Today, to the extent that the economy remains below peak performance, that is almost entirely the result of intentional restrictions on economic activity imposed by state and local governments. The Journal makes that point in its unsigned editorial linked above, and supports the point with the comparison of unemployment rates in Democrat-run states that continue to impose severe restrictions on economic activity (e.g., California, October unemployment rate 9.3%; New York, 9.6%) to the overall situation in the rest of the country (national October unemployment rate, 6.9%; examples of non-lockdown states Iowa 3.6%, South Dakota 3.6%, Georgia 4.5%, and so forth).

The remainder of the economy will clearly get right back to work as soon as the minority of dictatorial Democratic governors allow them to do so. A further “stimulus,” if anything, would only make it easier for these governors to continue with their current programs without any consequences. Meanwhile, we are not yet completely out of the woods on this non-sensical “stimulus,” but with every day that goes by without it we have more reason to hope.