Earlier this month, the “nonpartisan” Committee for a Responsible Federal Budget warned that measures enacted to provide relief to Americans amid the coronavirus epidemic will push the country’s debt and deficits to “never-before-seen levels”, both in absolute terms and as a percentage of GDP.
Now, I know what you’re thinking. Or, at least, I know what you should be thinking. You should be thinking something along the lines of “Who cares?”
That is, “Who cares about the deficit when 22 million Americans have filed for unemployment benefits in the space of just four weeks?” That figure, you’re reminded, effectively wipes out a decade of job creation.
To help illustrate the point, I’ve updated a visual which helps capture the scope of the malaise for America’s small businesses. As a reminder, the data I tap into for this comes from Homebase, a scheduling and time tracking tool used by more than 100,000 local businesses covering 1 million hourly employees.
According to the latest numbers, hourly employees working at local businesses are still down around 60% (and more, on weekends). Hours worked fell as much as 75% on April 12. The data compares a given day to the median for that day of the week for the period January 4 to January 31. That’s how Homebase captures the effect of COVID-19.
Homebase’s customers in the US consist mostly of restaurant, food & beverage, retail and services and are largely individual owned/operator managed. That makes this data particularly well-suited to this situation, given the pain is concentrated in the services sector, and particularly in food & beverage.
So, again, “Who cares about the deficit?”
Well, the above-mentioned Committee for a Responsible Federal Budget, for one.
“Last year, the budget deficit totaled $984 billion. Under current law, we project the deficit will be nearly four times as large this year, exceeding $3.8 trillion”, the organization says, adding that the deficit will total $2.1 trillion in 2021 while, as a share of the economy, the group sees the deficit hitting nearly 19% of GDP this fiscal year and nearly 10% next.
For those wondering, the following visual shows how those projections are derived, in terms of the individual contributions:
The CRFB then delves into the debt discussion. “During the Great Recession, debt grew by 21% of GDP between the end of 2008 and the end of 2010 [and] under current law, we estimate debt will grow a similar amount over just a seven month period”, the organization says, adding that on their estimates, debt “will grow from just under 80% of GDP prior to the crisis to over 100% of GDP by the end of Fiscal Year 2020, on October 1”. After that, debt “will continue to grow as a share of GDP… exceeding the prior record of 106% set just after World War II by 2023 and exceeding 107% of GDP by 2025”.
Fortunately, Donald Trump is the “king of debt”. By the president’s own account, nobody does debt better than him, although some of his previous creditors might disagree, depending on your definition of what it means to do “good” vis-à-vis debt.
Jokes aside, there are a couple of things worth noting here.
First, the fiscal help delivered thus far cannot properly be described as “stimulus” right now. There’s nothing to stimulate — the economy is shuttered. All we’re doing is staving off the day when a liquidity pinch (for businesses both small and large) becomes a solvency crisis.
Second, there’s more spending in the cards. The CRFB projections are from last week. On Tuesday, the Senate cleared $484 billion in additional spending (it will be passed by the House) and that’s not counting the “phase four” virus recovery bill that is guaranteed to be enacted at some point later this year.
The CRFB disingenuously feigns sympathy for the plight of… well, let’s face it, for the plight of damn near everybody in the country. Because that’s the best way to describe the scope of the economic collapse that’s currently unfolding.
“Combating this public health crisis and preventing the economy from falling into a depression will require a tremendous amount of resources — and if ever there were a time to borrow those resources from the future, it is now”, CRFB president Maya MacGuineas said late last month. “Now is not the time to worry about near-term deficits”, she conceded.
But the commentary that accompanies the latest projections from the organization strikes a different tone, despite quoting MacGuineas’s message from March.
For example, it uses bombastic, bolded titles for the subsections like “Debt Could Exceed the Size of the Economy This Year” and “Deficits Might Quadruple This Year”. To the general public (which, of course, knows little to nothing about any of this), those are scary-sounding declarations, and the CRFB surely knows it. Here’s some additional shrill-sounding rhetoric from the group:
If policymakers end up spending another $1 trillion per year over the next three years on additional stimulus measures, debt as a percentage of GDP would be about 12 percentage points higher by 2025. If policymakers use the current crisis as an excuse to enact a number of permanent and unrelated policies, debt could grow even higher and larger deficits would persist in perpetuity. At some point, such high and rising deficits and debt levels will prove unsustainable, and corrective action will be needed.
I certainly hope it’s not lost on readers that these kinds of declarations and implicit warnings almost never define what “unsustainable” actually means.
I implore you to take note of that latter point. It’s likely one of the more important things I’ve ever said to readers in these pages.
“Unsustainable” is a totally amorphous concept in the vast majority of deficit and public debt fearmongering. I can attest to this from personal experience, having been previously employed in the service of doing precisely this kind of hawkish deficit analysis.
I, myself, frequently resorted to the cheap tactic of punctuating hawkish diatribes with some derivation (and there are many) of the same sentence the CRFB uses in the last excerpted passage above. It’s in the unwritten fiscal hawk playbook: Use a series of nebulous terms to describe an always undefined future state, during which there is some manner of fiscal reckoning.
Must-use phrases and words include (but are not limited to): “At some point”, “eventually”, “in the long-run”, “everyone knows”, “borrowing from the future”, “unsustainable”, “come home to roost”, “one day”, “years from now” and, everyone’s favorite, “shifting the burden to our grandchildren”.
I have some bad news for those of you who have, for years, bought into that kind of cheap rhetoric: It’s false. And in some cases, deliberately so.
The reality (as hard as this is for many folks to wrap their heads around) is that, as Stephanie Kelton puts it, “a monetary sovereign does not need to tax or borrow in order to spend and any interest paid on bonds it chooses to offer is a policy variable”. Note the emphasis on “chooses”.
It’s a shame that so many people continue to deny that reality, even as it plays out before their very eyes in 2020. The crisis is providing Americans with a rare opportunity to see the myriad aspects of the deficit myth exposed in real time. There’s more here.
As for what happens when the policy response is inadequate, Kelton has an answer for you in the form of a chart, which she posted to Twitter on Wednesday. “If we get it wrong again, we’ll get a similar (but uglier) series of downward revisions”, she warned.
This is what happens when the policy response is inadequate. If we get it wrong again, weâ€™ll get a similar (but uglier) series of downward revisions. pic.twitter.com/ta7AvC222A
— Stephanie Kelton (@StephanieKelton) April 22, 2020
Ultimately, it’s up to you. You can listen to the good folks at places like The Committee for a Responsible Federal Budget which is, to quote the organization’s mission statement, “committed to educating the public”.
Or, you can see fiscal propaganda for exactly what it is – propaganda.
Finally, I would note that if you want to chat with anybody over at the CRFB about this, you’ll need to do it via e-mail or, perhaps, a teleconference.
Because, as MacGuineas explained on March 24, “the Committee for a Responsible Federal Budget has closed its physical offices… throughout this crisis”.