Bailout fatigue is real

It seems impossible these days to find any common ground between the leadership of the GOP and the Democratic Party. But they do have one very big thing in common: incredibly short time horizons.

Trump – 73 years old

Mitch McConnell – 78 years old

Nancy Pelosi – 80 years old

Chuck Schumer – 69 years old

Joe Biden – 77 years old

48 senators are over the age of 65

147 representatives are over the age of 65

Anthony Fauci – 79 years old

Deborah Birx – 64 years old

Not even heart attacks and strokes will persuade this generation to retire from politics, which for them mostly consists of swimming around obliviously in their own decadence. And all they do is break the world over and over again. We are in our second financial crisis in the past 12 years, and this one is somehow even closer to the Great Depression than the last one. We are a country governed by senior citizens, and they put over 30 million people out of work over a new seasonal illness.

These folks really have no problem writing endless checks to prop up [insert group here] because they won’t be around to clean up the cumulative mess of their crisis mentality.

They want to stay in power until they die, and they will treat younger generations as their personal ATM until that happens. Oh, they want to bail out pensions now? The same pension systems they have been raiding for decades with the sense that one day they can force a federal bailout? Right, because stealing from the young to give to the old is their raison d être.

From a recent editorial in the Wall Street Journal:

The U.S. Congress has appropriated an astonishing $2.9 trillion in a mere six weeks to counter the coronavirus, and Democrats and some Republicans want trillions more. President Trump talks as if he’s eager to go along, but if he does he may have a Senate Republican revolt on his hands. The better strategy is to pause, see how the country’s reopening goes, and then decide where the money is needed if it still is.

To put $2.9 trillion in perspective, that’s 60% of what the feds had expected to spend for all of fiscal 2021. The Congressional Budget Office says the federal deficit this year is now expected to quadruple to $3.7 trillion, or a stunning 17.9% of GDP. Even after the $800 billion Obama-Pelosi spending bill in 2009, the deficit reached only 9.8% of GDP. The 2008 TARP money was repaid; most Cares Act spending and loans won’t be.

Not since the end of World War II has debt as a share of the economy risen so fast, as the nearby chart shows. In 1946 the debt held by the public stood at 106.1% of GDP. Slowly but surely the postwar growth boom worked the debt down to a low of 23.2% in 1974. The response to the recession of 2008-2009 set debt climbing again, and both parties have kept it rising during the Trump era. Debt was expected to be 79% of GDP this year, but CBO now says it will rise to 101% by September 30.

We’ve never been deficit scolds as long as policies promote economic growth, and the U.S. has the advantage of paying off its debts in its own currency. Treasury Secretary Steven Mnuchin likes to say the debt is no problem because interest rates are near zero. He’s right, at least for the near term, but he overlooks that so much federal borrowing makes an outsize claim on the world’s limited capital.

Every dollar the federal government is spending, and having to finance with Treasury bills, is a dollar that won’t be available for lending to private citizens or investing in new businesses. Unless you believe that the government can replace the private economy as an engine of growth, as many Democrats now believe, where will the investment come from to drive the recovery?

On that point, Casey Mulligan, the University of Chicago economist formerly on the White House Council of Economic Advisers, has calculated in a new paper the real cost of shutting down the economy as the government has done. He estimates about a $6 trillion loss of private market production a year, plus another $2 trillion for the future costs (i.e., higher taxes) of paying for current relief efforts. Subtract for black market effects and other things and he figures a $7 trillion net cost per year of shutdown.

As Mr. Mulligan puts it, “Without any improvement in our techniques for fighting the war [on the coronavirus], the sacrifices by households and businesses will be staggering and historically unprecedented.” The larger point is that no amount of public spending can substitute for the economic losses to private production and human and financial capital.

This means reopening the economy first and foremost and finding a vaccine. But it also means thinking more thoughtfully about the government response, rather than spending willy-nilly on Democratic priorities plus Republican priorities to reach what Washington calls a compromise.

This is the message that Senate Majority Leader Mitch McConnell has been sending to his party in Congress—and to the White House. No one is more attuned to the mood of his own Members than Mr. McConnell, and he knows the rumblings of dissent are growing. Behind the scenes many are starting to ask if signing onto every Chuck Schumer-Nancy Pelosi priority is good for the country.

Mr. McConnell made a tactical mistake last week in floating the idea of state bankruptcy, which runs into constitutional problems. But at least he got everybody’s attention. He is right that Democrats want to use the virus to achieve non-virus-related priorities, especially bailing out the public union governance models that have done so much economic and fiscal harm in states like Illinois.

He was also right Tuesday to warn Mr. Trump about a big budget blowout on public works. None of that money would be spent in time to help the economy this year. Mr. Trump needs the recovery to begin this summer if he wants to have any chance to win a second term—or if Republicans want to have any chance of keeping a Senate majority.

If Mr. Trump sends Mr. Mnuchin to negotiate another trillion-dollar spending deal with Democrats, he runs the risk of dividing his own party in Congress. A divided GOP will make his re-election chances well-nigh impossible.

Mr. Trump doesn’t have to rule out all new spending. He can say let’s spend what Congress has already appropriated, including $150 billion for the states, see how the Federal Reserve lending programs work, and how well the economic reopening goes. Then we can see what the urgent needs are and respond. Our guess is that millions of taxpayers would applaud.

Bailout fatigue was a force to be reckoned with in this country before the current crisis began. Crisis – bailout – crisis – bailout is not simply a boogeyman for political conservatives. It has created lost generations.

GOP lawmakers are kidding themselves if they think they will not lose big in November by bailing out pension systems with federal taxpayer money. There are many conservatives who are done with this mentality. And many, many more conservative-leaning independents who are done with it. The whole “but muh corporations need a teeny tiny step toward tort reform” argument is not going to suffice. They do this and Amash really might be a spoiler in the next election.

A lot of people were okay with bailouts when it seemed like the lockdowns were a short-term effort to “flatten the curve.” But that’s not what they’ve become. Now they’ve become a months-long vacation from having a legitimate economy. And they are destroying our country. The states that refuse to open their economy will be coming back to the federal government over and over asking for handouts, because they insist on annihilating their tax bases. McConnell can hold the line now or toss in the towel on November.

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