A trillion here, a trillion there ...
Apr 9, 2020
Congress and the president recently took bipartisan action and agreed on a $2.2 trillion stimulus package for the U.S. to address the effects of COVID-19.
The bill passed virtually unanimously, although many griped before voting, with one member even referring to it as a “big crap sandwich” due to perceived non-coronavirus related funding inclusions. Well, it is not a “big crap sandwich” — the real question is what is the ratio of crap to sandwich.
This is a pandemic disaster of yet to be seen proportion. We are all experiencing fear, grief, and uncertainty. An aid package makes economic and humanitarian sense.
However, there are two ways of looking at the motivation and context for this package. The benign way is that our elected representatives came together quickly to extend aid in a time of crisis to sectors and people at risk/in need. They deserve our praise for leadership. The not-so-benign way is to see this as Congress (and the President) doing what they do best — spending money without the resources to pay.
We can all agree that $2.2 trillion it is a lot of money. It is half of the entire $4.4 trillion federal budget for 2019.
But what’s a couple of trillion dollars when you can just borrow it and leave it to the future? According to the Congressional Budget Office, the U.S. public debt we all owe as citizens is $17.8 trillion in 2020, or 80.9 percent of gross domestic product. Adding another $2.2 trillion to the total makes it an even $20 trillion and 90.9 percent of GDP.
It would take the average American about two years of their entire annual income to pay off their portion of the debt. (Note: The U.S. Treasury tabulates a higher public debt by factoring in other intragovernmental borrowing but the figures I use are the more conservative CBO numbers.) This is the largest external public debt in the world. There are lots of effects of high debt but in general it impedes economic growth — sometimes described as “driving with the emergency brake on.”
How did the national debt get so high? Structurally almost every year, the budget agreed upon by Congress and ultimately signed by the president does not have enough revenue to cover expenses (the budget deficit). Since 1968, federal leaders have produced a balanced budget only four times in 52 years.
The annual gap between revenue and planned spending is currently 20 percent of the spending amount. This gap is covered with borrowing — up front at the beginning of the budget year. States (except for Vermont) are structurally more responsible and are not allowed to budget this way. They are required to adopt balanced budgets with no borrowing at the beginning of the year. If an unanticipated deficit develops, borrowing becomes an allowable option later.
With essentially constant annual planned deficits, the federal debt has grown from $271 billion in 1957 and has never been reduced.
Why can’t our political leaders get a handle on this? Easy answer: because they are politicians. When it comes to spending, almost every politician likes to do it. If you were one, would you rather have voters protesting your cuts or your tax increases or be invited to dinners with admiring partisan/special interest fans and receive ceremonial plaques? On a strategic level it makes sense because these satisfied groups have sent and will send you campaign donations. Once elected, your most important motivation is to get reelected.
Consider the last hyper-polarized budget stalemate in 2018-19 between Trump and Congress. The two sides couldn’t come a consensus on spending priorities but they eventually “compromised” and funded both sets of priorities and borrowed the rest.
That result is not the exception it is the rule.
Reasonable people can disagree on the proper levels of spending or taxation. What is not reasonable — and is, in fact, patently irresponsible — is to continuously spend more than you can pay for and leave the bill to someone else.