I am the last one who should be explaining economics to anyone, and my apologies to readers who know this stuff better than I. Which is not a high bar.
But as one of those rare Americans who actually received a basic, barely adequate education in the subject, I feel obliged to bring up two common misconceptions that simply will not go away. Or rather, they will not be allowed to go away, since they have historically dovetailed quite nicely with the long-term aims of the Republican party. Who never met a misconception they didn’t like.
The first is that a balanced budget is always a good thing. It’s not, though we’re brought up to think otherwise. It’s intuitive to us that we all need to balance our personal budgets, and that towns, counties, and states need to balance theirs as well. And Republicans are thrilled to have you think that way.
Because they never tell you that the federal government doesn’t need a balanced budget, and that it should not be forced into one. Most legitimate economists will agree, generally, that governments should spend more when times are bad and less when times are good. There’s plenty of room for argument about the nuances, but the basic idea is not in dispute.
Yes, this is counterintuitive to most people. If you lose your job, you tighten your belt. Same with your company if it gets in trouble. Same with your city and state. And yes, there’s a lot of belt-tightening going on right now.
But what’s correct for them is not so correct for the federal government. It has been demonstrated time and again, in downturn after downturn, that when you inject money into a distressed economy — like, say, this one — you create a stimulus effect that ripples through that economy and gets its people working and spending once again. The trade-off is that you incur a deficit. You spend more than you take in.
Trouble is, this only works when Republicans are not running things. Or obstructing things. They have deliberately undermined the whole idea of deficit spending for well over half a century. And they have encouraged and exacerbated the natural confusion surrounding it.
And it’s worked well. For them, not us. Because the second misconception, widely held, is that deficits are always a bad thing. They’re not. They are a necessary part of any stimulus effort. But when deficit spending collides with rigid ideology and bad faith agendas, we too often get duped.
So whenever a Democratic administration spends more money than it takes in, and the government indeed incurs a deficit, Republicans, without fail, scream bloody murder.
When a Republican administration (2000-04) delivers two massive tax cuts to the wealthy, ballooning the deficit to levels never before seen, well, suddenly deficits are a beautiful thing.
But when a Democratic administration raises spending to stimulate an economy devastated by a recession largely caused by Republican mismanagement, thereby incurring a much larger deficit, well, Republicans are back to screaming, but louder, like you shot their dog. (This happened in 2009. Obama saved their ass. They compared him to Hitler).
But here’s the fun part:
When a Republican administration gives a massive tax windfall to corporations, (as they did in 2017), resulting in the biggest, multi-trillion-dollar deficit in living memory, well, guess what. No screams. Not a peep about the evils of deficits, which just four years ago had been the harbinger of the end of civilization. Do we see a trend here?
More than just a trend, it’s a basic principle of real-world economics in the age of the pandemic:
Deficits are only bad when Democrats are in charge.
Remember that next time Democrats are in charge, hopefully soon. Think of me when you hear the screams.
Why is this important? Because now that we’re running up an unimaginably massive deficit that might just be the most important, life-and-death, save-the-country action we have ever been forced to take in our entire history, a curious thing is happening. Republicans are running for cover. They’ve been caught with their pants down.
Their voters are finally starting to catch on that their criminally incompetent stewardship of the country — the decades-long starving of the federal government that long pre-dates Trump — has real-world consequences. That it’s actually killing people in unconscionable numbers. That the country was in no way prepared for this pandemic. And that even life-long Republican voters can see that.
But with citizens dying, the economy tanking, and a lunatic driving the bus, we will soon be looking at an almost inconceivably steep deficit. Managing that will be a massive and complex problem, one for which these felons have neither the aptitude nor the appetite. Their instincts are to obstruct and grift, though some of them (not all) seem at least mildly embarrassed that their constituents are dying.
Even so, we desperately need to be spending at unprecedented, dizzying levels. And it’s not even about stimulus. Not yet. It’s still about rescue, about dealing with the pandemic itself, about saving lives and livelihoods. The government is already more than $4 trillion in the hole, and very little of it is about stimulating the economy. That comes later. I’ve read we could need as much as $8 trillion just to get through the next six months.
As far as I know, no country has ever seen a deficit of this scale. Nobody knows how it plays out. And it’s easier to imagine bad scenarios than good ones.
Meanwhile, economists from the sublime to the ridiculous, from Nobel-prize winners to Fox News charlatans, will soon be weighing in on this subject (Hint: listen to Paul Krugman, ignore Larry Kudlow). But don’t expect any of them to really know anything, because we’re truly in uncharted territory. The good ones will admit that right up front.
But the deficit will loom large in the national conversation for a long, long time.