Gather around, kids. I want to tell you about the bird that used to rule Washington the way lions rule the jungle. It was called a “deficit hawk,” and it was a mighty creature. In its heyday, the deficit hawk could stop legislation, sway elections and shame presidents of both parties. There were Blue Dog Democrats and tea party conservatives, PayGo rules and government shutdowns.
But as Rep. Thomas Massie learned the hard way recently, the days of the deficit hawk in Washington are not just numbered, they may be over, as the economic shock from the coronavirus blasts the economy and Congress races in to save it in the fastest way it knows how — with lots and lots of money.
The totals so far are staggering — nearly $3 trillion appropriated in six weeks. In early March, as the virus began to force major changes to American life, Congress passed $8.3 billion in emergency funding for state and local health agencies, along with vaccine research. By mid-March, the Families First Coronavirus Response Act was passed to expand unemployment insurance, sick leave and free virus testing.
That was followed by the massive roughly $2 trillion CARES Act, including hundreds of billions for large and small businesses, hospitals, and state and local governments; direct payments to taxpayers; and the creation of the Paycheck Protection Program, or PPP, designed to keep employees on companies’ payrolls while the crisis lasts. With PPP depleted almost as soon as it passed, Congress moved in at the end of April with another $483.4 billion to shore up that program, as well as hospitals and testing.
This week, even with some $3 trillion out the door in the last two months, the prevailing question in Washington isn’t whether to spend more, but how much and in which ways? Speaker Nancy Pelosi says cities and states will need more help soon, and even $1 trillion might not cover the cost. The White House is considering a round of tax cuts and business-focused tax credits.
Saved by the stimulus
American history is full of examples of massive spending pulling a desperate economy into stability and eventually prosperity. Part of President Franklin D. Roosevelt’s New Deal, in response to the Great Depression, included the Civilian Conservation Corps, a government jobs program that lasted from 1933, when unemployment stood at 25 percent, to 1942. Huge amounts of war spending after that are credited with fueling a boom in later years.
More recently, the Emergency Economic Stabilization Act, the roughly $700 billion rescue package that passed in the wake of the 2008 subprime mortgage crisis, purchased toxic assets from American lenders to take them off the books and resell them after the market stabilized. The government actually made money off the program. Likewise, the auto bailout that President George W. Bush later added on to the stimulus package helped save the American automakers that were poised not only to collapse, but to take the entire Midwest down with them.
But how much government money will be enough this time? And is it possible that at some point, the galloping rate of deficit spending ($3 trillion on top of the $23 trillion debt we already had) could endanger the economy itself down the road? Is there a check that even Congress can’t write to get us out of this mess?
I posed those questions to Marc Goldwein, senior vice president at the Committee for a Responsible Budget.
“This is an unprecedented situation,” he said. “But just because a situation is unprecedented, it doesn’t follow that borrowing is limitless or that we don’t reach diminishing returns.”
The goal of the sort of massive amounts of spending that Congress is doing today, Goldwein explained, is to both spread the cost of the recovery over a longer period of time, but also to simply hold up the American economy until the health crisis is either over or more manageable.
“There are two kinds of ways it could be dangerous,” he said. “At some point, in theory, the debt could be so much, our lenders say, ‘At this level of lending, there’s no way you’ll ever be able to pay this money back.’ That’s unlikely to happen.”
The more real danger, in Goldwein and other economists’ opinion, is that the continued borrowing could create inflation and that increasing debts will cost more and more to service. “So there are risks. Where is that breaking point? I don’t know. I don’t think anybody knows.”
When Massie tried to force a vote on the CARES Act, which ultimately passed both chambers by a simple voice vote, he said he thought other members were too scared of the political consequences of the massive bill. “They don’t want to be on record of making the biggest mistake in history,” the Kentucky Republican said.
But history may show that Congress was right to do whatever it could, as soon as it could, to preserve the economy long enough for it to hopefully regain its strength later. That’s not the position of traditional deficit hawks, but it is the reality we’re living in today.
“Am I anxious about the amount that we’re spending? Yes,” Goldwein said. “But the trade-off is that not spending that amount could be worse.”
Patricia Murphy covers national politics for The Daily Beast. Previously, she was the Capitol Hill bureau chief for Politics Daily and founder and editor of Citizen Jane Politics. Follow her on Twitter @1PatriciaMurphy.