ARTICLE
In a recent George Will column, he wrote about the current stimulus package and referenced the magnitude of the federal debt as follows. “When Andrew Jackson became president in 1829, the national debt was $58.4 million, and Old Hickory was as frugal as he was disagreeable, so his Treasury Department announced that on January 1, 1835, the debt would be zero. Almost: It was $33,733.05.” “In today's dollars, that would be about $1 million, which is what the federal government this fiscal year will pay in interest on the national debt every 1.4 seconds. If the government were not paying near-zero interest rates on borrowing, then rolling over the $21.8 trillion national debt, which recently rose above 100% of GDP, might be a severe challenge. At whatever interest rate, the debt threatens to crowd out crucial spending for national defense, science, etc. But perhaps today's low rates are not just the new normal.” The numbers involved in the federal government's finances have suddenly become unlike anything in the nation's prior peacetime experience. The Manhattan Institute's Brian Riedl notes that in combating the Depression after the stock market crash of October 1929, presidents Herbert Hoover and Franklin D. Roosevelt increased federal spending between 1930 and 1940 by 6% of GDP. In recessions between 1945 and 2008, Riedl says, "Stimulus legislation typically approximated 1 percent of GDP." Between 2008 and 2013, the cumulative $1.7 trillion in stimulus measures was approximately 3% of the multiyear GDP. Today, if Congress adds, as Democrats are pushing forward, another $1.9 trillion to the $3.4 trillion already passed, this spending would amount to 26% of GDP in just twelve months. This means that one-fifth of the national debt accumulated in the last 186 years since the debt was almost eliminated will have been added in twelve months. Now, let’s shift gears and talk about the flip side - the need for another round of stimulus funding. Yesterday, the Santa Cruz Sentinel editorial column discussed the need for Congress to act on the funding bill, The relief package would provide a $1,400 payment to many Americans, extend and enhance federal unemployment assistance, expand a child tax credit, send $350 billion in aid to state and local governments, and pour new funding into vaccine distribution, food stamps and schools. There are also funds set aside for infrastructure projects and broadband expansion.” Ironically, the very same Sentinel edition on March 2, 2021, included George Will’s column. Both of these opinion pieces arrive at two very different conclusions. Yes, small business, schools and local governments are hurting and could use the federal dollars to begin the climb out of the long economic hole created by the pandemic. Yet, there are examples that show how some individuals who would receive stimulus funding may not actually need the money to retain their standard of living. The Sentinel editorial comments: “And, we still have doubts about some aspects of the relief bill. Especially sending $1,400 per person checks to most households, as research has shown that many higher income earners just put this money into savings. We'd much rather see these funds go toward programs that directly affect working Americans, such as more money for reopening schools.” George Will writes: “The economy's problem is not inadequate aggregate demand. The surge in the saving rate signals pent-up demand poised to erupt when vaccinations allow the economy to open up and begin supplying demands, from restaurant meals to airplane tickets. A letter writer to the Wall Street Journal illustrates the folly of a gusher of non-targeted government spending: "How can sending checks to a retired couple whose combined income has remained steady at $150,000 a year in any way address the problems we currently are facing? It has been noted, a household with school-age children and adults who are now working at home and drawing the same salaries they did in 2019 would be much better served by programs aimed at getting schools reopened rather than receiving a stimulus check.” Diving deeper into the question of another stimulus package or a reduced stimulus bill, Beacon Economics Christopher Thornberg takes a broader sense of the stimulus package. You can read his analysis here: https://beaconecon.com/blog/budgets-deficits/miserabilism-and-money-why-more-stimulus-is-a-bad-idea-part-2/ Thornberg’s Key Points: > The structure of the stimulus efforts means most of the money will flow into the financial system rather than to current spending, reducing its intended and immediate value of growing the economy and creating new jobs. > The U.S. economy has already recovered substantially from the pandemic-driven downturn and has plenty of momentum coming into 2021. Moreover, the impact of the first stimulus on savings and bank deposits will provide the necessary fuel to help the nation reach full recovery now that effective vaccines are being distributed and the virus is being brought under control. > More stimulus will be potentially destabilizing for the U.S. economy. In the short-term. This cash could drive another asset bubble or create inflation. In the longer term, the massive increase in the Federal debt will drive up real interest rates and push the United States significantly closer to a fiscal crisis. The politics over this stimulus package will be drawn out in the US Senate during the next few days as pressure again mounts on both sides of the political aisle to get something before a March 14 deadline on current benefits. With national polls showing 70% of the American public support another round of stimulus funds, what the final package will look like will be considered a win for the Biden Administration but may come at the expense of an increased federal debt for our next generation.
In a recent George Will column, he wrote about the current stimulus package and referenced the magnitude of the federal debt as follows. “When Andrew Jackson became president in 1829, the national debt was $58.4 million, and Old Hickory was as frugal as he was disagreeable, so his Treasury Department announced that on January 1, 1835, the debt would be zero. Almost: It was $33,733.05.”
“In today's dollars, that would be about $1 million, which is what the federal government this fiscal year will pay in interest on the national debt every 1.4 seconds. If the government were not paying near-zero interest rates on borrowing, then rolling over the $21.8 trillion national debt, which recently rose above 100% of GDP, might be a severe challenge. At whatever interest rate, the debt threatens to crowd out crucial spending for national defense, science, etc. But perhaps today's low rates are not just the new normal.”
The numbers involved in the federal government's finances have suddenly become unlike anything in the nation's prior peacetime experience. The Manhattan Institute's Brian Riedl notes that in combating the Depression after the stock market crash of October 1929, presidents Herbert Hoover and Franklin D. Roosevelt increased federal spending between 1930 and 1940 by 6% of GDP. In recessions between 1945 and 2008, Riedl says, "Stimulus legislation typically approximated 1 percent of GDP." Between 2008 and 2013, the cumulative $1.7 trillion in stimulus measures was approximately 3% of the multiyear GDP. Today, if Congress adds, as Democrats are pushing forward, another $1.9 trillion to the $3.4 trillion already passed, this spending would amount to 26% of GDP in just twelve months. This means that one-fifth of the national debt accumulated in the last 186 years since the debt was almost eliminated will have been added in twelve months.
Now, let’s shift gears and talk about the flip side - the need for another round of stimulus funding. Yesterday, the Santa Cruz Sentinel editorial column discussed the need for Congress to act on the funding bill, The relief package would provide a $1,400 payment to many Americans, extend and enhance federal unemployment assistance, expand a child tax credit, send $350 billion in aid to state and local governments, and pour new funding into vaccine distribution, food stamps and schools. There are also funds set aside for infrastructure projects and broadband expansion.”
Ironically, the very same Sentinel edition on March 2, 2021, included George Will’s column. Both of these opinion pieces arrive at two very different conclusions. Yes, small business, schools and local governments are hurting and could use the federal dollars to begin the climb out of the long economic hole created by the pandemic. Yet, there are examples that show how some individuals who would receive stimulus funding may not actually need the money to retain their standard of living.
The Sentinel editorial comments: “And, we still have doubts about some aspects of the relief bill. Especially sending $1,400 per person checks to most households, as research has shown that many higher income earners just put this money into savings. We'd much rather see these funds go toward programs that directly affect working Americans, such as more money for reopening schools.”
George Will writes: “The economy's problem is not inadequate aggregate demand. The surge in the saving rate signals pent-up demand poised to erupt when vaccinations allow the economy to open up and begin supplying demands, from restaurant meals to airplane tickets. A letter writer to the Wall Street Journal illustrates the folly of a gusher of non-targeted government spending: "How can sending checks to a retired couple whose combined income has remained steady at $150,000 a year in any way address the problems we currently are facing? It has been noted, a household with school-age children and adults who are now working at home and drawing the same salaries they did in 2019 would be much better served by programs aimed at getting schools reopened rather than receiving a stimulus check.”
Diving deeper into the question of another stimulus package or a reduced stimulus bill, Beacon Economics Christopher Thornberg takes a broader sense of the stimulus package. You can read his analysis here: https://beaconecon.com/blog/budgets-deficits/miserabilism-and-money-why-more-stimulus-is-a-bad-idea-part-2/
Thornberg’s Key Points: > The structure of the stimulus efforts means most of the money will flow into the financial system rather than to current spending, reducing its intended and immediate value of growing the economy and creating new jobs. > The U.S. economy has already recovered substantially from the pandemic-driven downturn and has plenty of momentum coming into 2021. Moreover, the impact of the first stimulus on savings and bank deposits will provide the necessary fuel to help the nation reach full recovery now that effective vaccines are being distributed and the virus is being brought under control. > More stimulus will be potentially destabilizing for the U.S. economy. In the short-term. This cash could drive another asset bubble or create inflation. In the longer term, the massive increase in the Federal debt will drive up real interest rates and push the United States significantly closer to a fiscal crisis. The politics over this stimulus package will be drawn out in the US Senate during the next few days as pressure again mounts on both sides of the political aisle to get something before a March 14 deadline on current benefits. With national polls showing 70% of the American public support another round of stimulus funds, what the final package will look like will be considered a win for the Biden Administration but may come at the expense of an increased federal debt for our next generation.