In responding to the coronavirus pandemic and the health and economic catastrophes that it has wrought, politicians from both parties may have found their dream: a problem you really do have to throw money at.
Already, Congress has passed three rescue packages totaling more than $2.2 trillion in new spending and is in the process of negotiating a fourth, all of it financed by borrowing. At the same time, the economy has collapsed, meaning that tax revenues have all but evaporated. As a result, this year’s deficit is predicted to reach $3.8 trillion, 2.5 times the record set after the 2008 recession. Our national debt has already been pushed to more than $24 trillion, and the debt-to-GDP ratio is expected to exceed World War II levels by 2023.
Of course, some will point out that if we are going to borrow massive amounts of money, now is a reasonably good time to do so. For one thing, even most hardcore fiscal conservatives agree that the COVID-19 crisis warrants it. For another, interest rates are extremely low, and the shutdown-induced reduction in consumer demand, which could extend for some time, means inflation is not likely to be a problem in the short term.
Still, we shouldn’t pretend that there won’t be long-term consequences to this federal spending spree. It is vitally important that necessary responses to this crisis not become an excuse for pork-barrel spending or bailouts of favored constituencies, and that temporary measures don’t become permanent new programs.
Indeed, what comes after the crisis is just as important as what we do to combat the crisis. Federal spending went from 55 percent of GDP in 1944 to 16 percent in 1947, as the government cut back after World War II. Combined with post-war economic growth, that led to around a 50-point reduction in the debt-to-GDP ratio within a decade. Today, however, we face constraints that are likely to make a similar draw-down of spending more difficult.
First, our economy is not likely to boom in the immediate future. President Trump can’t just snap his fingers, reopen the economy, and return everything to normal, however much he might like to have that power. The post-coronavirus recession may well linger for some time.
Second, we face a demographic challenge that post-war America did not. Our population is considerably older and aging rapidly. Entitlement programs such as Social Security and Medicare have tens of trillions of dollars in unfunded liabilities that aren’t going away. There will be no reduction in the federal debt without reforming those programs, something for which no one with any power has shown much real appetite.
Neither President Trump nor former vice president Joe Biden seem interested in balancing the nation’s books. Trump, having squandered an opportunity to reduce deficits while the economy was good, seems oblivious to the problem, having himself called for a $2 trillion infrastructure bill. Meanwhile, desperate to secure the support of Bernie Sanders’s voters, Biden has careened leftward, calling for one new program after another. In just the last few weeks, he has proposed an expansion of Medicare and embraced a plan for free college for students from families earning less than $125,000 annually.
The failure to keep federal finances in order was reckless even before this pandemic. And though it may be politically unpopular to say so at the moment, continuing down the road to fiscal ruin is likely to make the pandemic’s aftermath more painful and the recovery slower than they otherwise would be.