By Judge Glock
Sunday, December 06, 2020
Joe Biden’s prospective Treasury secretary nominee, Janet
Yellen, is a long-time supporter of government stimulus spending to spur
recovery from recessions. Right now, she has supporters among both Republicans
and Democrats in Congress, who agree that the economy needs hundreds of
billions of dollars in additional stimulus and are only debating the size of
the package.
But a fiscal stimulus in this particular recession is
nonsense. Members of both parties seem to assume that the problem with our
economy is insufficient spending money, or consumer demand. This is false. This
is the most obviously supply-side recession in modern history. Many Americans
(those lucky enough to still be working, that is) have the money and the will
to buy things, but they can’t, because the coronavirus and the government
response have caused stores, restaurants, planes, and more to shut down.
That’s not to say government aid isn’t necessary here.
Congress must distinguish between “stimulus” — which is just pumping more money
into the economy, say, in the form of checks given to every American — and
“relief,” which aims to help those individuals who have suffered the most in
the crisis. The government should not offer broad-based stimulus in the next
bill, and should focus instead on targeted relief for those directly affected.
Meanwhile, the only money that would truly stimulate the economy would be spent
rolling out more vaccines,
drugs,
and tests.
Despite pleas from policymakers such as Federal Reserve
chairman Jay Powell, the International Monetary Fund, and others, there is no
evidence that Americans need more spending money in general. In every previous
recession in the past 50 years, personal income either dropped or, at worst,
stayed stable. By contrast, personal income jumped from an annual rate of $15
trillion to $17 trillion in April, the greatest jump in recorded history. It’s
still higher today
than it was before the beginning of the “recession.”
Yes, that income rose in part thanks to an early round of
government spending. But today, even after the end of the previous stimulus,
most Americans aren’t desperate for cash or dipping into their savings. In
fact, the savings rate jumped
from 7 percent in February to well over 20 percent just months later, and for
the year will be the highest it has been since records have been kept.
Well, some people say, Americans are still refusing to
spend that money. That is no longer true. Retail sales are above their February
level, and recently saw their biggest
jump in history. The remaining sectors that lag are precisely those still
impacted by the coronavirus, such as restaurants, travel, and some types of
manufacturing. More stimulus will do nothing to get those moving again.
We also know that stimulus is neither necessary nor
sufficient for recovery. When Congress couldn’t agree on a new stimulus bill
and the current version expired in August, the economy surged ahead faster. The
reason was that we, at least, temporarily, had gotten the virus somewhat under
control.
It makes little sense for the government both to tell us
to stay home and then also try to shovel cash out with the demand that we spend
more money at the places government closed. It’s like pushing on both the brake
and the accelerator at the same time. The only effect of more stimulus will be
to further distort the economy and to burden future generations with tremendous
levels of debt.
The budget deficit for the fiscal year 2020 was $3.1
trillion, or over 15 percent of our whole economy. As many commentators noted,
this was the largest deficit since World War II. Yet in that case we were spending
our money to fight the war, a most necessary cause. In this case, we are
spending a pittance to fight the virus itself, but are spending trillions
giving bailouts to businesses and already-comfortable families.
But Congress can still spend some money productively.
First, it should spend almost anything to control the virus. Even shortening
the impact of the coronavirus by just two months could increase economic output
by over $100 billion. Therefore, spending tens of billions on contact tracing or
more expansive drug trials would stimulate the economy more than any cash
program.
Yet the fact that the stimulus bill passed by the House
in October proposes $350 million in fisheries support compared with only $1.5
million to the Food and Drug Administration to approve more drugs shows where
Congress’s priorities lie.
Second, although in total Americans are earning more than
before the coronavirus, many families have lost everything. Congress should aim
to help those specific individuals who have lost jobs, businesses, or health
coverage. But this is directed “relief,” not overall “stimulus” aimed at the
whole economy.
Previous coronavirus bills, such as the March 2020 CARES
Act, included a blend of both relief (extending the time for unemployment benefits)
and stimulus (the $1,200 check given to almost every American).
The bill revealed by a bipartisan group of senators last
week is better than previous versions, since it provides $16 billion for
vaccine distribution and testing, and no checks to average Americans. But it
also provides $160 billion in unnecessary stimulus money to state and local
governments, and $288 billion to the Paycheck Protection Program, which funnels
cash to small businesses. A recent
study found that the program cost almost $225,000 per job saved, since so
much of the money went to businesses that were open and successful.
America doesn’t need thousands of dollars going to
already well-off middle-class families who can work from home, or to
still-successful businesses. The problem today is “supply,” not “demand.” We
need to help those who have lost jobs, and we need to control the virus. But we
don’t need any more stimulus, and Congress should not provide it.
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