By Rudy Barnes, Jr.
I grew up with a piggy bank. I was taught that saving was a virtue and unnecessary debt a vice. Today things have changed. Paul Krugman and his Keynesian disciples assure us that we should not worry about increasing America’s astronomical national debt. Most Americans seem to agree and support President Biden’s $1.9 trillion COVID spending bill.
The Federal Reserve has set interest rates near 0% to prop up Wall Street and to encourage consumers to use credit cards to buy things they don’t need with money they don’t have. Few in Congress seem concerned with a national debt approaching $30 Trillion, and most support “going big” on more debt with President Biden’s $1.9 trillion stimulus bill.
Americans are encouraged to spend more and save less to keep the economy going. With Democratic majorities in the House and Senate promoting the forgiveness of student debt there is little incentive to save for higher education, and institutions of higher learning continue to raise tuition. Students are learning that saving is not necessary and that debt is OK.
If, however, personal and national debts are real obligations that one day will have to be paid, even as we now routinely renew and increase them, the future of the American economy looks bleak. This isn’t just a passing phenomenon; it’s a cultural change in our concept of economic virtues and vices that will have significant future consequences.
Debt as a vice is not a new issue. The ancient Hebrews proclaimed a Jubilee every 50 years to forgive debts, liberate slaves and restore property ownership; but it didn’t last long and was ignored after 600 BCE. Even Christians experimented with a form of communism, but it didn’t last long either. Worldly realities intervened to end those ancient religious ideals.
The attitudes of those born before 1945 emphasized savings over debt and were shaped by memories of the economic deprivations of the Great Depression. That began to change after World War II when government insured FHA loans enabled Americans to buy homes, and banks provided personal and business loans that brought unprecedented prosperity to America.
Until recently, most Americans limited their debts to what they could repay, but no longer. Personal bankruptcies have increased. Edmund Burke once told Americans that “In a democracy you will forge your own shackles;” and we have done just that. Unless we limit our increasing national debt, it will become an oppressive burden on our grandchildren.
Debt and freedom are related. People and nations forfeit their freedom when they have debts beyond what they can repay. Americans tend to ignore the connection between their freedom and the astronomical national debt. Unless our profligate attitudes change, we may soon be beyond the point of no return, having sacrificed our freedom to the bondage of debt.
Brad Polumbo has provided a rejoinder to Biden and the Democrats insistence on “going big” with the $1.9 Trillion Stimulus bill, warning Congress that We Can’t Keep Ignoring the National Debt Forever. “With COVID-19 ravaging the country and government pandemic lockdowns devastating our economy, the national debt has understandably slipped to the back of many Americans’ minds. But the federal government continues to fall deeper into the red at a dramatically accelerating rate. Free-market economists have warned that we can’t continue like this forever without grave consequences. Even before the potential passage of President Biden’s $1.9 trillion stimulus proposal, the national debt officially exceeded the size of the economy in 2020. This means we will soon owe more than we produce in an entire calendar year. And it’s only going to get worse. The nonpartisan Congressional Budget Official now estimates that we will hit a 200 percent debt-to-economy ratio in 30 years, a truly unthinkable and unprecedented level of debt. And that’s under “a rosy scenario that assumes no new spending programs, no wars, no recessions, all temporary tax cuts expire, and interest rates remain low,” Manhattan Institute economist Brian Riedl tells me. “By that point in 30 years, CBO projects an annual budget deficit of 12.6% of GDP (the equivalent of $2.5 trillion today),” Riedl says. “Half of all taxes will go towards interest on the debt. Again, that is the rosy scenario.” “Too many people believe interest rates can never rise again, or do not realize that nearly the entire national debt would reset into the higher interest rates,” he said. “Basically, we are gambling America’s economic future on the hope that interest rates stay below 3% or 4% forever.” So, what does this all mean for Biden’s proposal for nearly $2 trillion more in COVID spending and other big-spending policy proposals? Well, we’ve already spent an astounding and unprecedented $4-5 trillion on COVID relief, much of which proved fraud-rife and inefficient. In light of this, “keeping our debt under control is a better priority,” says economist Veronique de Rugy. “The more in debt we are in, the harder it becomes to respond to future emergencies, and the more we risk slowing down growth and burdening future generations.” See https://fee.org/articles/economists-warn-we-can-t-keep-ignoring-the-national-debt-forever/.
Max Boot has observed that Biden keeps looking at the 2009 stimulus debate, but that it’s not the right lesson for the relief package. “The House is about to pass $1.9 trillion in economic stimulus on top of the $3.7 trillion already approved since March. This comes even though the economy already grew at 4 percent in the fourth quarter of 2020 and the IMF projects the United States will grow at 5.1 percent this year — the fastest rate in nearly 40 years. Moreover, long-term bond yields are rising (the yield on 10-year Treasury bonds was 1.37 percent on Monday, up from just 0.51 percent in August), signaling that the days of cost-free borrowing for the government are coming to an end. So why go so big now?
Lawrence H. Summers, former president Bill Clinton’s treasury secretary and Obama’s director of the National Economic Council, argued convincingly if controversially in these pages, that it is not. Summers pointed out that in 2009 the economic stimulus package was roughly half the size of the “output gap” (the difference between potential and projected economic growth), whereas the current package is at least three times larger. He also noted that unemployment is now falling, “rather than skyrocketing as it was in 2009,” and that the economy is about to receive another major boost when “covid-19 comes under control,” and consumers start to spend money they accumulated over the past year. (The household savings rate almost doubled last year to 12.9 percent, which could translate into $1.5 trillion in consumer spending.) Summers worries that the economic stimulus package could be so large that it overheats the economy, leading to a return of inflation and a rise in interest rates. He is also concerned that it could crowd out the infrastructure spending that the administration wants later in the year — which could total another $3 trillion. Summers is hardly the only liberal economist to air such concerns. Olivier Blanchard, the former chief economist of the International Monetary Fund, also says $1.9 trillion is “too much.”
The Committee for a Responsible Federal Budget has suggested some sensible fixes that would reduce the cost of the overall package to $1.1 trillion.” See https://www.washingtonpost.com/opinions/2021/02/23/biden-keeps-looking-2009-stimulus-debate-its-not-right-lesson-this-relief-package/?
Taking the opposite view, Paul Krugman has written, Learn to Stop worrying and Love Debt. See
See also, Biden is the Big Spender America Loves; his plans are overwhelmingly popular, at https://www.nytimes.com/2021/02/11/opinion/biden-economic-plan.html?searchResultPosition=4.
On a poll that finds that two-thirds of Americans support Biden’s $1.9 trillion Covid relief plan, see https://www.cnbc.com/2021/02/03/biden-1point9-trillion-covid-relief-plan-has-wide-support-poll-finds.html.
On the ancient Hebrew Jubilee that dictated that debts be forgiven every 50 years, see https://en.wikipedia.org/wiki/Jubilee_(biblical).
A national debt is normally paid off with tax revenues, but the U.S. has extended and increased its debt by renewing treasury bills as they come due, some of which have been purchased by the U.S. Federal Reserve. President Trump once said that if necessary, the U.S. could print new dollars to pay the national debt, but increasing the money supply would be inflationary by reducing the value of all dollars in circulation. The Federal Reserve has created new dollars through its monetary policies in the past, and recently its chairman, Jerome Powell, defied traditional economic principles when he said that printing money does not lead to inflation. “In response to a questions posed by Congressman Warren Davidson about whether ‘M2 [money supply] going up by 25% in one year’ is going to ‘diminish the value of the U.S. dollar,’ Powell responded, ‘there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time.’” See https://www.kitco.com/news/2021-02-24/Jerome-Powell-says-money-printing-doesn-t-lead-to-inflation.html.
German hyperinflation in 1923 illustrated how printing money to pay a large national debt can undermine an economy, and it opened the door for Hitler and his Nazi Party to assume power in Germany. See https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic.
On the danger of economic disparities and excessive debt in America, see http://www.religionlegitimacyandpolitics.com/2021/02/musings-on-danger-of-economic.html.