Thursday, October 29, 2020

Move Fast and Spend Big

Quick--what's the biggest problem Biden (assuming he wins) is likely to run into in the early part of the administration? Republican opposition, sure that'll be a problem. But Paul Krugman makes the case that a potentially huge problem is deficit hysteria, which could derail big spending plans precisely at the time where they're needed the most. Don't think that could happen? Think again and cast your mind back to the lunatic obsession with the deficit that hit centrists and the news media back in 2010-11 when the economy was still on its knees. It could happen again.
"Given the current and likely future state of the U.S. economy, it’s time to (a) spend a lot of money on the future and (b) not worry about where the money is coming from. For now, and for at least the next few years, large-scale deficit spending isn’t just OK, it’s the only responsible thing to do....
If Biden is inaugurated in January, he will inherit a nation still devastated by the coronavirus. Trump keeps saying that we’re “rounding the corner,” but the reality is that cases and hospitalizations are surging (and anyone expecting a lame-duck Trump administration to take effective action against the surge is living in a dream world.) And we won’t be able to have a full economic recovery as long as the pandemic is still raging.
What this means is that it will be crucial to provide another round of large-scale fiscal relief, especially aid to the unemployed and to cash-strapped state and local governments. The main purpose of this relief will be humanitarian — helping families pay the rent and keep food on the table, helping cities and towns avoid devastating cuts in essential services. But it will also help avoid a downward economic spiral, by heading off a potential collapse in consumer and local government spending.
The need for big spending will not, however, end with the pandemic. We also need to invest in our future. After years of public underspending, America desperately needs to upgrade its infrastructure. In particular, we should be investing heavily in the transition to an environmentally sustainable economy. And we should also do much more to help children grow up to be healthy, productive adults; America spends shamefully little on aid to families compared with other wealthy countries.
But how can we pay for all this investment? Bad question."
Bad question indeed. But we will hear it loud and long, certainly from the GOP, but much will depend on whether and how buy-in Republican born-again deficit hawks will get from the "responsible" media and centrists and whether and how much Democrats are willing to stand up to this nonsense.
"Nonpartisan private-sector analysts are...remarkably high on the economics of Biden’s spending proposals. Moody’s Analytics predicts that real G.D.P. would be 4.5 percent higher under Biden’s plan than under a continuation of Trump policies; Goldman Sachs says 3.7 percent. Neither is worried about the effects on debt.
So there’s an overwhelming economic case for Biden — if he wins! — to go big on spending, first to get us through the pandemic he’ll inherit, then to build a better future. But will politics get in the way?
It’s a given that Republicans, who turned silent on deficits under Trump, will suddenly declare debt an existential threat with a Democrat in the White House. The real questions are whether centrists and the news media will buy into deficit hysteria, the way they did in the Obama years, and whether members of the Biden team will lose their nerve."
However much you already feel this could be a problem, you're likely underestimating it. Everything will depend on Democrats plowing through this problem and sticking to their plans.

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