GOOD MONEY AFTER BAD

May 15, 2020

We are down for the count. We have received a sucker punch out of the blue and it has hit us harder than anything after Pearl Harbor. The corona pandemic was not in our planning and it has caught us by surprise, just like Japan did on December 7 of 1941. But, to our credit, and in spite of the political polarization and paralysis, Congress has acted quickly to fund the repair and recovery effort and mitigate the impact on the economy and its public and business participants. As of this date, Congress has authorized the spending of $3.6 trillion, which - according to the Committee for a Responsible Federal Budget – will add $2.4 trillion to this year’s deficit. To put this number of $3.6 trillion in perspective, it is roughly 18 % of our total economy as measured by GDP. And, this will not be the end of it. With a faltering economy and unemployment approaching or surpassing 20%, a lot more money will have to be spent to prevent this crisis from turning into the next great depression. No doubt, in an election year, that Congress will be prepared to let Treasury borrow that money. Nobody can, given the situation we find ourselves in, reasonably argue against the need for massive fiscal and monetary stimulus at this time, but the pace at which we are now adding to the national debt should make us think about the carelessness with which we have managed fiscal policy during normal times.

Let’s consider the numbers for the last three decades. In 1990, under H.W.Bush’ term in office, the national debt stood at $3.2 trillion (less than what we have now already spent on the corona crisis) and it took six years to cross the $5 trillion line. The next milestone of $10 trillion in debt was not reached until 2008, twelve years later. But then, fueled initially by the stimulus enacted to get us out of the great recession of 2008 and now by the extraordinary steps taken to combat the corona crisis, the national debt has exploded to over somewhere in the range of $25-30 trillion, where we will end up before 2020 is behind us.

Over the last thirty years we have had many good years, economically speaking, interspersed with a few years of economic setbacks, but the one constant is that through all this, our national debt has never been reduced at any year and just shown accelerated growth. That should have been unacceptable to all of us and it is a shame that we have never had the courage to hold our legislators and administrations accountable for their failing to be willing to live within their means. This is not a partisan failure. The record shows that the national debt has been growing under the Democratic administrations of Bill Clinton and Barack Obama as well as under the Republican Bush and Trump administrations. We have consistently refused to either cut spending or increase taxes and never even considered to do both at the same time. The worst part of all of this is that, in spite of all the deficit spending, we have not seriously addressed the main challenges the nation faces. All challenges that can be grouped under the larger umbrella of the problem of persistent and increasing inequality. We have, in the public sector, been mortgaging our financial future without buying anything of substance with the money we have received on loan. The cause for this fiscal misbehavior is to be found in a fundamental unwillingness of our politicians - on either side of the aisle - to approach budgeting the appropriate way of first assessing the policy needs of the country and then funding these needs by adjusting tax measures as needed to balance our books.

Our needs are rising and generally well recognized, but we are stubbornly unwilling to pay for the solutions that present themselves, so we kick the can down the road and yet keep borrowing to merely keep the doors open. We have ourselves to blame: we reward, with our votes, our lawmakers for the goodies they provide us and punish them for not lowering our taxes. But there will come a day of reckoning. We just learned that 40% of family income earners of less than $40,000/year have lost a job in the aftermath of the corona crisis. And, although good hard numbers are hard to come by, we have ample anecdotal evidence that the corona virus has hit our most vulnerable, the elderly, the incarcerated, the disabled, racial minorities, and low-income earners, much harder than the rest of the population.

This may be about the only good thing coming out of this crisis. It puts the effects of inequality in such revealing limelight, that we can, much as we may want to, no longer ignore it. The low-income earners are taking it on the chin, not only in terms of unemployment and susceptibility to the virus. Case in point: healthcare. Our dependency on employer provided healthcare worked passably well under full employment conditions that we have enjoyed for so long, but is wholly inadequate at the unemployment rate we are now facing and will have to deal with in the foreseeable future. The low-income earners are not only disproportionately losing their jobs, but also their healthcare insurance, at a time that they most need it. Other case in point: education. With the cost of education where it is today and the shifting towards more online learning, the most privileged 1% of income earners will feel no pain, but the bottom 40% will be handicapped by lack of income, no or poor broadband access, and little or no access to a working space conducive to studying and learning.

It is ironic, but deeply sad, that minorities are disproportionately represented among the lower echelons of healthcare work (EMT workers, nurses, and workers in nursing homes and long-term care facilities) and thus disproportionately exposed to the coronavirus. It is not unlike the foot soldiers at war: they are taking the brunt together with low income workers in retail and distribution. Inequality means that the people we need most in the fight against the virus and are most exposed to it, are denied the privileges that the better off in our society take for granted.

I can’t believe that I would ever say this, but in this case we should by all means throw a lot of good money after the bad money we have wasted when times were good. We need to protect the most vulnerable in our society from the worst impact of COVID-19 first, keep them a viable part of our economy by guaranteeing them a living income and shielding them from the virus. When we have that under control, we can begin to seriously address inequality in all of its aspects. But that may have to wait until after January 20, 2021.