Are big deficits justified in a crisis?

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The federal government's unprecedented spending spree has economists worried about the eventual bill, said Jon Hilsenrath at The Wall Street Journal. After the recent economic stimulus package to keep businesses afloat with much of the country under mandatory lockdown, "the federal budget deficit is on track to reach a record $3.6 trillion in the fiscal year ending Sept. 30," with the total federal debt already standing at $23.5 trillion. That's more than a full year of national income, and such numbers haven't been seen since the period after World War II. The fiscal legacy of this coronavirus fight could be similar: higher taxes — the top federal income tax rate stayed above 70 percent from the postwar era until 1981 — as well as "sharp fluctuations in inflation" and "dramatic changes in the government's role in economic life." Low interest rates make the costs of borrowing more manageable now, but household and business debts were also "high and rising before the crisis," which will affect how quickly the economy is able to recover.

Where is the money going? asked Edwin Burton at the National Review. Cash is pouring from the government "into an economy in which it is a criminal act to expand output and production." Even when business starts up again, it will be sluggish, with surging demand for far fewer goods and services than before. That's the recipe for inflation. Economists have had their heads in the sand on deficits, said Robert Samuelson at The Washington Post. They've given politicians license to add to federal deficits because "until now, the debt has involved few adverse side effects" on interest rates, private investment, or the strength of the dollar. We should have been saving against the prospect of a crisis. Now we really do need to borrow money, and "the debt reckoning has arrived."

The costs of doing nothing would have been far worse, said Glenn Hubbard at The Hill. Intervening with "bold fiscal action" is the only way to prevent a "doom loop" of layoffs and business failures. Depending on the length of the shutdown, there will likely need to be more spending. But, as it did after the Second World War, "the debt-to-GDP ratio will fall over time once growth resumes," as long as a one-time intervention doesn't lead to a permanent expansion of social spending.

Actually, an expansion of social spending is just what we need — and now's the time to demand it, said Matthew Yglesias at Vox​. The U.S. faces "a long-term period of crisis," exacerbated by state budget cuts that "reduce the quality of public services." Democrats should seize this moment to push for measures that will better safeguard workers in 2021 and beyond. Policies like "hazard pay bonuses for essential workers and financial assistance to state governments" should continue until we have a full recovery. While Trump is president, Republicans are happy with deficits. If he loses, look for them to have a sudden change of heart. We will need to protect the economy from the "austerity mania" that's sure to follow.

This article was first published in the latest issue of The Week magazine. If you want to read more like it, try the magazine for a month here.