The dark side of stimulus

The COVID-19 pandemic has turned the world upside down with massive disruptions in virtually every aspect of human life. With some notable exceptions, humanity has pulled together to vanquish this silent killer. It’s amazing how quickly both the private sector and public health experts have moved to confront this serious threat. For this, we can all be thankful.

But politics is politics and the controversies over government’s response to the crisis are legion and will continue long after the virus disappears. At the international level, China must be held accountable to the rest of the world for both its actions and omissions that led to the spread of the virus.

In the United States, debates swell over whether our response was too slow. Many of the same critics of President Trump’s handling of the crisis by underestimating the severity of the pandemic are the same people who criticized his barring of international flights into the country. In hindsight, both the administration as well as America’s health-care experts failed to respond in a timely manner.

When our political leaders reacted, they did so with a sledge hammer, essentially shutting down the economy with strict shelter-in-place orders. Whether this was an overreaction will only become clear in the future when we know more about this particular virus, but the government-imposed shutdown was based on the best information we had at the time.

Nonetheless, the nationwide shutdown has come with its own huge negative impacts on the economy and employment. And because it was government that ordered society and the economy to come to a screeching halt, it had the obligation to make individuals, businesses and institutions whole — or as close to whole as possible.

And here is where it gets sticky. So far, Congress has passed more than $2.68 trillion in rescue assistance, including the most recent agreement to spend another $484 billion. This is a staggering amount of money. Almost from the outset, the battle over who was going to get this money lined up along the deep political divides in our nation.

The first phase of the federal stimulus response was a relatively non-controversial $8.3 billion for coronavirus vaccine research and development. Phase 2, about $192 billion, focused on providing paid emergency sick leave for some workers, as well as boosting aid for state unemployment insurance and food assistance. Phase 3 is where the fireworks started. At $2 trillion, 10 times what Phases 1 and 2 cost, all semblance of bipartisanship evaporated, with recriminations hurled in both directions.

The fight was over whether the stimulus bill would be used to advance a list of progressive policies having little, if anything, to do with responding to the virus and the economic havoc it was wreaking. Fortunately, the effort to use the stimulus to impose elements of the Green New Deal, restructure corporate boards of directors and implement new voting procedures were quickly dropped in the face of public outrage.

With the stimulus providing direct cash payments to most Americans, some complain that individuals with an AGI of $99,000 or more are denied any relief. That amount of money is a lot in many parts of the country but in some urban areas, a total household income of $90,000 meets HUD’s definition of low income for a family of give.

Another brewing controversy is whether banks were allocating the funds intended to assist small businesses to large businesses that were their important clients, leaving small businesses with nothing as the initial payouts were quickly exhausted. Shake Shack was shamed into returning federal dollars. Harvard University, with an endowment of over $40 billion, was excoriated for taking $8.7 million in rescue funds.

Small local government entities are likewise crying foul. In California, federal dollars are being distributed to local jurisdictions under the CARES Act only to those with populations of more than 500,000.

We can also look forward to huge fights between red states and blue states over whether the latter should receive even more federal dollars to bail out failing public employee pension funds. Fiscally prudent states will argue that profligate states should not be rewarded for mismanagement.

Call this “stimulus envy.” Whenever government starts handing out vast amounts of money there will always be inequities — either real or imagined.

But unfairness in the distribution of federal funds isn’t the only problem with a stimulus that exceeds $2.6 trillion. America had a huge debt problem even before the virus came to our shores. Now it is much, much worse and few are raising it as a concern.

We fully understand that our house is on fire and that we have to hose it down with cash. But as Milton Friedman was fond of saying, there’s no such thing as a free lunch, and young Americans and their children will be paying for all this for generations to come.

Moreover, what if the next crisis isn’t as severe as what we are facing now? Will there be an automatic default position of “Well, let’s just spend more money?”
Recall that when he was running for president, Barack Obama called George W. Bush’s $12 trillion national debt “unpatriotic.” But then he himself took the national debt close to $20 trillion. And President Trump has shown no inclination to take the national debt seriously. This is a recurring character flaw that infects elected officials in both parties.

It is my hope, but not my expectation, that once the virus is substantially contained and the economy can begin to recover, we can start a national conversation about moving toward a balanced budget. It won’t happen overnight, but unless it is taken seriously, there is a real threat of worldwide economic collapse. And that would make our current problems with COVID-19 seem puny by comparison.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.