In February, when the metaphorical sun was shining and people were blithely engaged in commuting, shopping and other everyday routines, Fed Chairman Jerome Powell gave Congress a sound piece of advice.
The economy is strong, he said. Now would be a good time to begin working on that federal deficit. Doing so would “ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” he said.
It sounded kind of like a parent telling a child that a holiday would be a good time to work on homework, before school starts and things get tough again.
One month later, the economy went over Niagara Falls without a barrel.
Whoops.
On Tuesday, Powell returned to Congress to say, reluctantly, this is a time to spend. Pumping money into a pandemic-induced recession will help the economy move forward, which in turn “will really help service the debt.”
But he couldn’t help reminding your representatives that the nation is on an unsustainable path. “The United States federal budget has been on an unsustainable path for years now,” he said. That’s the very definition of a situation in which debt is growing faster than the economy. It can’t go on forever.
COVID-19 has been especially dangerous for patients who already suffer from underlying health problems. It’s the same for nations. The United States may be having problems dealing with, and bouncing back from, the epidemic because of its underlying economic problems.
Call it fiscal obesity.
Antony Davies, an economics professor at Duquesne University, and James R. Harrigan, who directs the Center for the Philosophy of Freedom at the University of Arizona, recently put this into a perspective that’s a bit easier to grasp.
Imagine the federal government had all the taxes it collects for the entire year in one lump sum on Jan. 1, they wrote in an op-ed published by Insidesources.com. If it began spending this at its accustomed pace, given current pandemic-induced levels, it would run out of money on June 21 this year.
They cleverly labeled this as “deficit day.” Everything the government spends after Sunday will be with money it has to borrow.
But this year’s deficit day has meaning only when you compare it to deficit days in years past. Davies and Harrigan calculate that, before the great recession of 2008, deficit day typically fell sometime in mid-November. During the decade from 2009 to 2019, when the government spent more to pull the nation out of tough times, it came sometime in October.
It hasn’t been in June, they said, since the end of World War II, when the government had put spending into overdrive — temporarily — to defeat the armies of tyranny and fascism.
We might believe Washington will cut deficit spending, or even begin chipping away at the national debt, after the pandemic has ended, except that it wasn’t interested in doing that back in February, during what arguably was the strongest economy in anyone’s lifetime.
And that brings me to the other problem keeping Americans from fighting the novel coronavirus the way they ought to be. The nation has a deepening sense of mistrust in its institutions.
In a recent paper, Brookings Institution scholars Carol Graham and Sergio Pinto argue that this lack of trust is a symptom of the nation’s lack of well-being, which makes it harder to respond to the pandemic.
“Trust in our institutions is lower than that of most wealthy countries, and certainly than that of those countries that have successfully managed the crisis in Europe,” they wrote. “Managing a pandemic that requires coordinated social distancing by millions of people cannot succeed without public trust in the government.”
This, they add, isn’t helped when government officials provide inconsistent information or contradict health professionals.
In New Zealand, which has had great success fighting COVID-19, about 70% of people trust institutions. In the United States, the figure is in the high 30% range, they wrote.
It’s easy to see how years of deficit spending, fueled by the policies of both major parties, has contributed to a sense of cynicism about Washington.
Go to usdebtclock.org, which tracks deficit spending and the national debt in real time, and watch the numbers soar.
It’s true that the pre-pandemic economy was booming despite the imbalance between revenue and expenditures. It may be so that things boom again once a vaccine is discovered and made available. But it’s equally true that a day of reckoning is coming.
As Powell put it, future generations will have no choice but to pay taxes toward interest on the debt, rather than for things they really need. Let’s hope they don’t have to face another pandemic, as well.