Thursday, March 19, 2020

Yes, We Must Throw Money at the Problem

Note to Readers: My new Verdict column, published today, is titled "Can the Republicans Cancel the Elections, Even Though Trump Can’t?There, I discuss an unusual route by which one or two Republican governors could "win" the election for Trump by shutting down their states' voting.  Enjoy!  My column below discusses a completely different issue.


by Neil H. Buchanan

Today, I am going to say something good about the Trump Administration.  There is no need to reach for the smelling salts, however, because I readily acknowledge that the good thing that they are doing -- throwing money at the economy when that is exactly what is called for -- is entirely cynical and poorly thought out.  But credit is due for breaking with orthodoxy, especially their own particularly pernicious orthodoxy about the national debt.

There are some habits of mind that are simply hard-wired.  One particularly damaging one is for political pundits -- including self-identified liberal pundits -- to use terms like "fiscal responsibility" and "balanced budgets" reflexively as proof of their own seriousness.  Years ago, for example, a New York Times writer chided then-Senator Barack Obama for being too ambitious, saying that rather than running for president, Obama should have stayed in the Senate and fixed America's problems, such as Social Security's supposed crisis.

The fact is that Social Security does not face a crisis and never did.  Among many, many of my columns on this topic, this one from 2012 (!) is representative.  And as I discussed at length in a 2017 law review article, younger generations are not being cheated by Baby Boomers via Social Security.  Even so, one of the safest thing for any pundit to do -- especially pundits who know virtually nothing about economics and must hide behind bromides that they have absorbed but do not understand -- is to intone solemnly that "we must fix Social Security for the good of future generations."

And so it is with budget deficits and debt more generally.  Just this week, Washington Post columnist Dana Milbank -- the quintessence of a self-satisfied neoliberal centrist -- wrote this: "The government, and the U.S. political system, had failed for years at such routine tasks as balancing its books and forging policy consensus. Now, it is failing catastrophically at its most basic function: protecting the American people."

All I could think was: What a tool!  For one thing, the reference to book-balancing was entirely irrelevant to the point that he was making.  For another, he was writing in an environment that screams for us to break out of bad habits and see things clearly.  Even though I agreed with Milbank's major thrust -- that while Trump "has unquestionably made things worse ... he merely exploited a political system that has been unraveling for a quarter-century or more" -- reinforcing the conventional wisdom about balanced budgets was simply irresponsible.

Here, I will explain why balanced budgets (which are never a good idea) are a particularly terrible idea now, and that we should be "busting the budget" like there is no tomorrow.  Along the way, I will explain how and why Trump and the Republicans will screw this up.

Earlier this week, Professor Dorf called for extraordinary legal measures in the face of the coronavirus crisis, with Congress requiring state governments to lock down their citizens and stripping courts of jurisdiction over any challenges to such action.  He even called for suspending habeas corpus.

In a followup column, Professor Dorf explained that he would not normally call for this kind of action, but we do not live in normal times (to say the least).  As usual, I completely agree with him on all counts.  But as I noted above, my call for unbalanced budgets is not unusual for me.  Indeed, I once wrote an article with the title, "Why We Should Never Pay Down the National Debt," and I actually argue that we should add to the national debt every year.

Maybe, then, this is a case in which I am simply using the current crisis to push for what I have always wanted?  Not at all.  I have never argued that there is no upper limit on how much debt the government should issue.  Most importantly, I have always argued that it matters why and when we borrow money.

Regarding the "why": Borrowing money to, say, fund pandemic preparedness (before there is a pandemic) is a wise reason to increase the debt.  But borrowing money to give huge tax breaks to corporations and the very wealthy -- as Trump and the Republicans did with their 2017 tax bill -- is a terrible reason to increase the debt.

Even that general rule -- borrowing is good if it is used to fund important public investments -- can change as we think about the "when": Borrowing money when the economy is tanking (or is in danger of doing so) is absolutely a smart thing to do, but borrowing to expand the economy when it is already at capacity is a bad idea.

Just to be clear, this is simply standard stuff: Someone loses her job, which causes her to cut back spending on things that other people sell, which causes those other people to lay off workers and potentially themselves to go out of business, which multiplies on itself.  Spending by the federal government, financed by borrowing (in an economy where people are saving too much and spending too little) is exactly what we should do to prevent further harm and to bring the economy back.  Prosperity builds on itself, but to get the economy moving in the right direction, only the federal government has the tools to turn things around.  People need money, and the government can make sure that they have it.

In other words, Keynesian economics is (still) right.  Conservatives (of both the economic and political kinds, to the extent that there is a difference) have long disparaged Keynesians by saying that we are irresponsible spendthrifts, but to adapt an old saying, there are no non-Keynesians in foxholes.  Trump is in a foxhole now, and even Mitch McConnell is telling his party to "gag" and vote for a one trillion dollar stimulus package.  Why?  Not for the good of the country or to save people's live -- except incidentally -- but because the election is only eight months away!  Self-preservation is a wondrous thing.

It is also quite amusing to see Republicans contort themselves to explain why they are suddenly doing the exact opposite of what they have long claimed to hold sacrosanct.  After all, they fought tooth and nail to block Barack Obama's stimulus package in 2009, and even the three Republicans who pushed that bill over the top did so only after making it far too small and diverting it to regressive tax cuts rather than truly stimulative measures.

One now-Senator who won election based on his supposedly principled opposition to Obama's "irresponsible bailouts" is Pennsylvania's Pat Toomey.  Here is an excerpt from a Post article:
"Sen. Patrick J. Toomey (R-Pa.) — who built a national profile years ago as the head of a hard-line small-government advocacy group — said this crisis 'is not like an ordinary recession or even a severe recession. This more like an act of God or war footing.'

"Toomey said comparing current proposed legislation with the financial industry bailout of 2008, which he opposed, is misguided because 'those were caused by a bubble in real estate and financial institutions being overleveraged, all kinds of human error.'

“'It’s a different thing when a lethal pathogen affects large numbers of Americans,' Toomey said."
Let us leave aside the fact that there is a lot of human error involved in this situation, with Trump and the Foxiverse having spent months playing down the pandemic and allowing it to become immeasurably worse.  No matter Trump's revisionist claim that he always knew it was a pandemic, he is still the same irresponsible ignoramus that he always was, which has turned a terrible situation into a catastrophic one.

But what about the substance of Toomey's claim?  How is the argument for economic stimulus "a different thing" depending on what caused the economic crisis?  After all, in "an ordinary recession or even a severe recession," many people lose their jobs, their homes, their health, and so on through no fault of their own.  The "human error" that created the real estate bubble and overleveraged financial institutions was not an error jointly committed by all humans but by a tiny, privileged few.

So what Toomey was saying in 2009 was: "Hey, you people who were planning to retire and sell your houses for financial security but now cannot do so, we can't help you, because your pain is a result of human error.  And you millions of people who just lost your jobs and are turning to alcohol, opioids, and thoughts of suicide?  You're out of luck.  If only the reason you're suffering were something that I deem to be morally unproblematic -- and if only a Democrat weren't currently president -- then I'd be fine with helping you.  But hey, life's unfair, right?"

And the problem is that Toomey's thinking is actually on the high end of the coherence spectrum within his party.  At least he understands, after all, that borrowing "on a war footing" is justifiable.  Which brings up the key Keynesian point here: Franklin Delano Roosevelt's New Deal is thought of as the original "Keynesian moment," but FDR actually was fainthearted and listened to his orthodox advisors who told him to balance the budget in 1937 while the economy was still very weak, causing a "double-dip" recession within the Great Depression.

Only when World War II came along did we actually emerge from the Depression, and we did so by pushing up the national debt to unprecedented levels.  Beating Hitler and (at least temporarily) keeping fascism at bay was a good reason to "break the bank."  Future generations, even though they had to service the wartime debt, have been better off for it.

Moreover, prior to the current crisis, we were already in a rare and strange situation where there was too much saving in the world, even at low interest rates and with no recession in sight.  When private entities are willing to lend money to the federal government for literally decades at zero real interest rates, the government should be saying, "Thank you very much, we'll be happy to borrow that money and put it to good use."  Even without a war or a pandemic, this would simply be wise financial management, that is, true fiscal responsibility.

But what if we do not take the borrowed money and "put it to good use"?  Keynes himself offered a memorably sarcastic suggestion to those who think that the private sector is more efficient than the government.  He argued that the government could hire people to put money in tubes and bury the tubes in the nation's forests, at which point "entrepreneurs" would jump in and -- seeing a profitable opportunity -- create tube-mining companies and hire workers to dig up the money.

Keynes's point was that, in some circumstances, even stupid ways of throwing money at a problem are better than not throwing money at the problem at all.  Just so today, which means that I will end up supporting any stimulus that comes out of Congress, no matter how much stupid crap is in it.

In 2009, I argued (along with many others) that Obama should have driven a much harder bargain with the banks and other companies that needed bailing out.  Allowing the perfect to be the enemy of the good (or even of the not-entirely-pointless), however, would have been stupid.  Democrats paid the political price for years for seeming to let elites off the hook while everyone else suffered in the Great Recession and its Republican-prolonged aftermath, but I am still glad that they did something -- just enough, it turned out, to prevent the Great Recession from turning into Great Depression II.

We can and should do better this time.  The world's most prominent Keynesian, Paul Krugman, argued earlier this week that Trump and McConnell should simply turn over economic policy to Fed Chair Jerome Powell (until recently a favorite punching bag for Trump) and Nancy Pelosi.  As Toomey's quotes above indicate, Republicans are incoherent at best when they are thinking about economics.  For them, it is all about morality plays and punishing poor and unlucky non-rich people for being poor, unlucky, and non-rich.  I agree with Krugman that it would be better to let the adults run monetary and fiscal policy.

To be specific, there is no reason to bail out airlines rather than restaurants, hotel workers, taxi drivers, or any other particular sector.  There is no reason to structure the current stimulus package in a way that will allow corporate executives to buy back stock and further pad their own portfolios.  What we need is simple: money in the hands of people who will spend it on goods and services, because only that will put other people to work producing and delivering those goods and services.

One perversely positive aspect of the political dysfunction on the right is that Trump's carnival barker nature is causing him to request "the biggest" response.  He actually pushed Senate Republicans to go up from $850 billion to $1 trillion in their package, just because it would be a big, impressive number.

What about fiscal responsibility?  The Post's article included this: "Trump 'doesn’t give a [expletive]' about how his rescue plan affects the federal debt, according to a White House official who spoke on the condition of anonymity to be frank. ‘It’s all about the markets and the economy for him. It’s all about the jobs numbers.'"

Good for him!  Of course, he understands so little about this that he will almost surely be happy to have the money all go to corporate tax cuts and rich people, undermining the economic stimulus.  But at least he will be able to say "one trillion dollars" as if that is all that matters.

And honestly, if they mess it up and this package ends up being inadequate, the only thing to do will be to spend even more money to make up for today's failures.  It is not as if we lack plenty of good things to spend money on: support for truly universal sick leave, producing more and better medical equipment as quickly as possible, and frankly just giving money to people who will spend it.

Do you know who most reliably spends money when they receive it?  People who have none.  Just like the victims of the Great Recession, these people did not cause their own problems.

Dealing with this public health crisis will stretch us to the limit even if the economy remains strong.  It will be immeasurably harder if Trump and his friends use the crisis as a reason to line their own pockets (again).  Trump might get some credit if the economy strengthens, but so be it; he has already given people more than enough reason not to trust him with a second term.

1 comment:

CEP said...

One must always acknowledge future costs and the lengthy preparations needed for them; failure to do so is behind the climate crisis.

That said, one doesn't get to long-term problems without surviving the short term. Historical example: Just how many of these centrist/neoliberal ignoramuses have looked at the effect on the US budget — at a time when the US was struggling to emerge from the Great Depression — of Lend-Lease... and then considered what the long-term consequences of not having "just done it" in response to an emergency might have looked like?

The problem with the climate crisis is that the long-term costs being built into the system for short-term benefits are most emphatically not about actual survival (or anything close to it), but about mere economic advantage to actors who already are economically privileged. The proposed economic response(s) to COVID-19 are imperfect, but better balanced toward the survival aspect.