Can we afford the stimulus?

Is there any limit on government spending? We don't know.

Just because Republicans are cynical and hypocritical in attacking the $1.9 trillion COVID stimulus act doesn't mean they aren't right.

There are lots of incentives in politics to do what is popular in the moment. Let the future take care of itself.

In 2009, at the bottom of the Great Recession, Obama couldn't get a big enough stimulus package passed to jump-start the economy. Banks weren't loaning money, unemployment was rampant, and there was idle capacity in the construction industry. Republicans opposed Obama's effort to borrow and spend big. Republicans said we couldn't afford it. Consider the deficit, they said. 

Then Trump got elected. During his presidency Republicans passed the 2017 tax bill which cut the tax rate on corporations and individuals. It raised the deficit $2.3 trillion. The bill started out being popular--it was a tax cut!--but became less so when the public understood that the rich did better than they did. Corporations used the windfall to buy back stock, not to invest in jobs. The bill was not unpopular because it increased the deficit, though. No one cared anymore. That fact was re-confirmed in 2020 when Republicans and Democrats both supported Trump's $2.1 trillion relief bill. No one made a fuss over deficits. 

Now that Biden is president, Republicans re-discovered thrift. They were unanimous in opposing the Biden $1.9 trillion bill. Mitch McConnell says the economy will rebound without it, and we can't afford it, and that Biden will claim credit for something that would have happened anyway.

Democrats had the votes, barely, to pass the bill. More important, they have public support for it. During the Trump presidency Americans learned the happy lesson that when there was a need, there was a federal backstop. Investors learned it, businesses learned it, politicians learned it, the public learned it. There was no political price paid by Trump for exploding the deficit, only for the fact that his tax cuts and COVID relief law helped businesses more than poor and middle-income people.

Democrats learned. The Biden COVID package targeted money to the poorest up through the solidly middle-class. At least eighty percent of Americans get something tangible and visible from the bill. It is popular--no surprise. The bill will stimulate the economy, and the credit may well go to Biden, as McConnell fears. 

There is no credible constituency for fiscal prudence and restraint. Economists aren't a restraint. They say Modern Monetary Theory allows unlimited spending-- after all, Japan's debt is 237% of GNP, and they seem to be doing OK. The business community is not complaining. Indeed, they celebrated the Trump stimulus. It was money for them. The Fed signals an all-clear. Public and private unions love it. 

Opposition--such as it is--comes from the lonely, worried people in the investment community. Noah Smith observes that we are committed to a one-way path, and we simply do not know how it might end. When in trouble, spend more. When that trouble makes new trouble, spend even more: Click 

John Maudlin notes "Just as the choices that Greenspan and Bernanke made about monetary policy created the Great Recession, Yellen and Powell's choices will eventually lead us to the next crisis and ultimately to what I call The Great Reset." Click  Again, the fear: Every recent policy decision puts more pressure to keep doing more of the same.

Within the commentary of investment people, a bit of dialog from Ernest Hemingway's The Sun Also Rises comes up repeatedly: 

"How did you go bankrupt?" Bill asked.
"Two ways," Mike said. "Gradually. Then suddenly."

A specter is haunting the investment community--the specter of another great collapse. Middle-aged and older adults, people looking after their own assets and those of others, have experienced the dangers of illusionary wealth and free money. The internet bubble created crazy valuations, and then a collapse. The supposed AAA-rated risk-free money of mortgage pools caused suicidal leverage, and then a collapse. Politicians of both parties assured budgeters that public-employee pensions could be paid effortlessly by investment gains, until they could not. We have seen a build-up and then disaster three times this century.  

Yet while it is looking good, who dares to question? Democrats can fulfill their long-delayed aspirations to lift up the poor and middle-income people of America. They can do good and be rewarded for it politically. 

Who am I to say it cannot last forever?  On the way up, it can be justified. Perhaps it will work out. So far, so good. Nearly everyone climbs aboard the elevator. Doubters look like clueless sore-heads. 

America needed a political party with credibility to express caution. Republicans threw away their credibility. Now they are just the hypocritical sore-heads, jealous that Biden might look good doing what Trump did, but targeted better to the voters who will swing elections. So America will ride this elevator--until the cables break.