A cartoon by Tom Toles in the Washington Post shows an elephant flinging money out of a box. The caption: “Socialism wins the Republican Primary.” He is referring, of course, to the Great Coronavirus Bailout.
At the top of an economic cycle, with unemployment the lowest in 40 years, the Trump administration, the Republican Senate and the Democratic House were already running trillion-dollar annual deficits. Now our Republican president doubles down. He proposes emergency borrowing of another trillion, which will push the annual deficit-to-GDP ratio higher than in any year of Franklin Roosevelt’s New Deal.
The markets don’t mind. As I write, the cost for the Treasury to burrow 30-year money is at an historic low of 1.55%, and for short money it is effectively zero. The market’s message: take all you want.
The president proposes emergency borrowing of another trillion, which will push the annual deficit-to-GDP ratio higher than in any year of Franklin Roosevelt’s New Deal.
The Democrats love it. This is something they understand. On CNN, Senator Chuck Schumer, Democrat of New York, suggests spending $2 trillion. At least $2 trillion. Gene Sperling, an economic expert in the Clinton and Obama administrations, is asked whether there is any reason to worry about the size of this. Absolutely not, he says. No time for that! Just do it!
You’d think that Republicans would object. I note that Henry Olsen, the house Republican on the editorial page of the Washington Post, has a column titled, “Republicans Need to Go Bigger on Coronavirus. Much Bigger.” Even Megan McArdle, the Post’s columnist closest to my way of thinking, has a column titled, “A Libertarian’s Unlikely Pandemic Plea: Subsidize Everything.”
The market’s message: take all you want.
Stop. Let’s think about this first.
Two arguments are offered, practical and moral, for this eruption of dollars. The practical one is that if it is not done, America will fall into a depression. That is presented as a matter beyond discussion.
Is it? This is not like the Great Depression. That one did not begin with people suddenly shunning restaurants, sports stadiums, and international travel. There was a crash in the stock market, to be sure, but the more important event was the failure of national governments to pay the money they owed. Germany, which had been saddled with war reparations by the Treaty of Versailles, could not pay Britain and France, which in turn could not pay the United States. In the United States, investment bankers had been lending Germany the money to pay Britain and France, and that stopped, too. The whole structure of international debts fell apart. Wall Street had lent huge sums to Latin American governments, and they defaulted. In Seattle, where I live, the major office buildings and hotels built in the 1920s had been financed by bonds, and they defaulted. Thousands of owners of bonds — German bonds, Brazilian bonds, Cuban bonds, and local bonds — saw their assets shrink to pennies on the dollar. The bond market was shut to new borrowers on any kind of reasonable terms.
That is nothing like what is happening today. Today’s mess began with the government ordering great swaths of a strong economy to shut down to protect the public health. This is not an economic event at all, but a public health event with economic effects.
The Great Depression did not begin with people suddenly shunning restaurants, sports stadiums, and international travel.
This is more like an earthquake, a flood, or a fire, except that there is no tangible wreckage to clear away. No structures need to be rebuilt. The restaurant near my house stands ready for business, its tables set with napkins, silverware, and water glasses, except that no customers are allowed sit down.
What needs to be rebuilt are structures of an intangible sort: contracts. There will be startup costs, but how large can those be?
From my TV I hear no one suggesting that the restaurant owners, sports team owners, cruise ship owners, and airlines bear these costs themselves — that the costs are generally within their ability to bear and that the owners should bear them. Maybe I’ve missed the powerful appeals for self-reliance because I’m tuned to CNN, and CNN talks only to Democrats. I assume that if my concern for self-reliance were being voiced by public figures, the Democrats on CNN would be arguing against them, and they’re not. They are speaking as if no one would deign to dispute their superior wisdom.
The talking heads whose voices fill my home are making a moral argument that the shutdown is not the public’s fault. The government shut down the airlines, the cruise-ship lines, and the restaurants, and therefore the government should compensate them. But the government did that to protect people from a virus. Well, then, the matter is not one of fault, but of necessity. Does the government need to compensate for the side effects of life-saving action? If the government shut down one business because it was a threat to the public health, when the threat was not that business’ fault, an argument could be made to compensate the owners of that business by taxing everyone else a little bit. But when government shuts down a broad swath of industry across the entire country for a short time — and it is going to be a short time, right? — the argument for compensation is less convincing.
This is not an economic event at all, but a public health event with economic effects.
The voices I hear are arguing that government needs to help the little guy, who will be faced with the choice between paying for food and paying the rent. I am reminded of the assertion by Bernie Sanders — remember him? — that half of all Americans have no savings. I have known a number of persons who had no savings, and in every case, it was because they chose to live that way. Of course my experience is not everyone’s. Still, it is disturbing to hear political figures speak as if it’s wrong to expect people to have savings and to make hard choices.
If you cannot pay for food and rent, and you have no savings, you have a hard choice. You can borrow money from the bank, or from your family, or from friends. You can borrow food. You can ask the landlord to wait. You can stiff him and dare him to evict you, in the hope that he won’t because evictions are expensive, and take time. If you’re a good tenant, maybe he will cut you some slack, particularly if he’s under social and political pressure not to kick you out, or in a rental market in which too many other tenants have been kicked out. There has been a loss, and there may be a jockeying for power among you, your landlord, and your landlord’s bank, to decide who will eat the loss. And that’s life. It is not clear to me why the government should eat the loss.
And I now hear that government should make up all losses, even small ones. Unemployment insurance cannot meet the need because it covers close to half the lost wages. The aid package would have to cover it all. And the matter of school lunches: when schools started serving free and reduced-cost lunches (and breakfasts!) to children from low-income families, the argument was that if their stomachs weren’t full, they couldn’t learn. The free meals were an educational necessity. That was the argument — the entire argument. Now the schools are closed, and a wail goes up: What are the children to eat? Who is to feed them? And nobody dares suggest that children should be fed by the people who have been feeding children for millennia.
By Cuomo's logic, why should New York pay at all? Have the federal government pay!
Thus is 21st-century life. We have a disaster, and no American can be expected to absorb any losses, to make any hard choices, or to be self-reliant in any but the most trivial ways. The risk is all on the government — and the federal government, too, because only the federal government can vomit up cash by the trillions. Even the state governments are reduced to the status of children. As I write, the governor of New York, Andrew Cuomo, is on CNN (his brother, Chris Cuomo, works there) arguing that the federal government needs to nationalize the production of medical equipment through a Truman-era law called the Defense Production Act. The government of New York wants to buy surgical masks and ventilators, and the other state governments have bid the price up. Governor Cuomo finds this very unfair. It is much fairer and more equitable, he believes, to compel entrepreneurs to supply as many masks and ventilators as the state declares it needs at a price the state deems fair to pay.
By his logic, why should New York pay at all? Have the federal government pay! Like Tom Toles’ elephant, the federal government has the money box. It’s a federal box. It can produce money for nothing, money that is a claim on the labor of you and me and our descendants; it can fling one trillion, two trillion, many trillions into the air and watch it flutter down to the sad victims on the ground. Drop it on Carnival Cruise Lines! Drop it on Andrew Cuomo! Drop it on me! We all wait to be saved.