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Thoughts on an unprecedented, untargeted ‘stimulus’

When Andrew Jackson became president in 1829, the national debt was $58.4 million, and Old Hickory was as frugal as he was disagreeable — very — so his Treasury Department announced that on Jan. 1, 1835, the debt would be zero. Almost: It was $33,733.05.

In today’s dollars, that would be about $1 million, which is what the federal government this fiscal year will pay in interest on the national debt every 1.4 seconds. If the government were not paying near-zero interest rates on its borrowing, then rolling over the $21.8 trillion national debt, which recently rose above 100% of GDP, might be a severe challenge. At whatever interest rate, the debt threatens to crowd out crucial spending for national defense, science, etc. But perhaps today’s low rates are not just the new normal. Perhaps they are going to be, unlike the Roman Empire and every other human contrivance, eternal. Perhaps.

The numbers involved in the federal government’s finances have suddenly become radically unlike anything in the nation’s prior peacetime experience. The Manhattan Institute’s Brian Riedl notes that in combating the Depression after the stock market crash of October 1929, presidents Herbert Hoover and Franklin D. Roosevelt increased federal spending between 1930 and 1940 by 6% of GDP. In recessions between 1945 and 2008, Riedl says, “stimulus legislation typically approximated 1 percent of GDP.” Between 2008 and 2013, the cumulative $1.7 trillion in stimulus measures was approximately 3% of the multiyear GDP. Today, if Congress adds, as Democrats desire, another $1.9 trillion to the $3.4 trillion already passed, this spending would amount to 26% of GDP in just 12 months. And one-fifth of the national debt accumulated in the 186 years since the debt was almost eliminated will have been added in 12 months.

Riedl, a student of ancient (or so it suddenly seems) U.S. fiscal history, remembers that the 2009 stimulus included a $25 addition to weekly unemployment checks. In 2020, Democrats wanted $600 bonuses, and Republicans were considered skinflints because they favored only $300 — 12 times the 2009 sum. During the Great Recession, the typical family of four (a family with income below the $150,000 threshold where the phaseout begins) received tax rebates of $2,600 ($1,800 in 2008 and $800 in 2009). If legislation the Biden administration wants and the House of Representatives has passed becomes law, a typical family of four will have received $11,400 in 12 months. In previous deep recessions, state and local governments received up to $200 billion in federal aid. Today Democrats want to add $350 billion to the $360 billion approved last year.

Just 13 years ago, President George W. Bush, who was not notably averse to spending, vetoed a farm bill because it increased spending by $20 billion. Today, Republican frugality is expressed in wanting to add only $600 billion to the $3.4 trillion enacted last year.

Writing in the Wall Street Journal, John Greenwood, chief economist at Invesco in London, and Steve H. Hanke, professor of applied economics at Johns Hopkins University, note that by the Federal Reserve’s broadest measure of the quantity of money, the annual growth of the money supply averaged 5.8% over the 10 years from 2010 to 2019. Since last February, however, the quantity of money has increased 26%. And, they say, “we already know that the money supply will likely increase by at least another $2.3 trillion over the current year” — nearly 12%, which is twice as fast as the 2010-2019 average.

Should we call all this “stimulus”? The economy’s problem is not inadequate aggregate demand. The surge in the saving rate signals pent-up demand poised to erupt when vaccinations allow the economy to open up and begin supplying demands, from restaurant meals to airplane tickets. A letter writer to the Wall Street Journal illustrates the folly of a gusher of untargeted government spending:

“How can sending checks to a retired couple whose combined income has remained steady at $150,000 a year in any way address the problems we currently are facing? A household with school-age children and adults who are now working at home and drawing the same (if not higher) salaries they did in 2019 would be much better served by programs aimed at getting schools reopened rather than receiving a stimulus check.”

A trillion seconds ago was 31,710 years ago, which was 31,709 years before Congress decided that it is safe to increase federal spending in trillion-dollar tranches. Remember Ernest Hemingway’s last line of “The Sun Also Rises”: “Isn’t it pretty to think so?”

George Will’s email address is georgewill@washpost.com.

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