In June 2019, Republican's passed Donald Trump's signature tax bill, which was widely panned by critics for adding $1 trillion to the federal deficit over 10 years. Last month, in the ultimate "hold my beer" moment, Congress passed a $2 trillion stimulus bill to offset the near nationwide economic shutdown due to COVID-19.
While, this time, economists and members of both parties largely agreed this was the right thing to do, as with Trump's tax bill, the funding mechanism for the current bill is best summed as follows:
Earlier this year, I spoke with Tara Sinclair, Professor of Economics and Foreign Affairs at George Washington University, about the what now seems quaint $23 trillion national debt. With the recent uptick in that amount, she graciously agreed to come back and discuss the revised numbers, how this might alter our strategy for managing debt, and - more importantly - what structures need to be built into the economy to make us more resilient against future pandemics.
Pretty much all economists think this is a good thing
While we'll always have Rand Paul and the scattered assortment of deficit hawks warning of the future insolvency of America, pretty much every economist agrees the stimulus was the right thing to do. As we learned way back in January when Tara first came on the show, America's ability to borrow and pay off its debt is largely dependent on the idea that America's economy will keep growing over the long term and, for America's economy to keep growing, it needs to have an economy.
Since any metaphor around life support/oxygen/etc. would be in really poor taste right now, we'll say that the stimulus is the ice that will keep our cold cuts from spoiling while our refrigerator is under repair.
I'm going to put the above metaphor as one of the worst tragedies of the COVD-19 pandemic.
The Fed Seems to Have Learned Its Lesson from 2008
Government interventions of this size are as imperfect as the crises they're responding to, but it appears this one is less imperfect than the Fed's response to the financial crisis in 2008. Where the Fed spent much of the first half of 2008 listening to the train whistle and debating if it was their job to tell the economy to get out of the way, it took quick and aggressive action to prop up financial markets, open up lending to small and mid-sized business, and lending to municipalities, among other things.
The Economy Can Emerge Different, in Good Ways
In the last episode of YDHTY, we discussed how the Black Death impacted the economy of Europe for the better. In the same way, current structures in our economy that work against social mobility and economic justice.
Prior to March, the fact the person working in the kitchen of your favorite restaurant couldn't take a sick day without pay and had no health insurance was only bad news for the guy in the kitchen. Now, it's bad news for everyone.
Low wage jobs now deemed essential, such as frontline workers at supermarkets, will be more difficult to hire as their job becomes more hazardous.
The shutdown of meat processing plants across the country potentially impacts the price and availability of meat, as well as begging the question as to what our farms will look like when it's time to harvest.
Prior to COVID-19, debates about providing a livable wage, health care, and paid sick leave for all workers were couched in terms of whether it was the right thing to do for employees and for businesses. Now, they've become issues of public safety.