Borrowing is a difficult thing to do for most people. While many people, for example, delight in the purchase of new homes, they also continually worry about the new debt that accompanies that purchase – a mortgage – that will have to be serviced and paid monthly for many years. Those thoughts usually bring frowns to the faces of those who have received these mortgages.
Those fiscal analysts who have recently looked at the federal budget also are wearing frowns. The result of an even casual reading of the federal budget clearly shows that the federal government is now borrowing trillions of dollars and is planning to borrow trillions more to help the country survive a pandemic-lead recession.
As a recent article by Jim Tankersley in the New York Times concludes, borrowing by the federal government in April through June of this year is expected to be $3 trillion, a record amount. As he states: “In April alone, the United States recorded a larger budget deficit in a single month than it did for all of the 2017 fiscal year, a total of $738 billion.” Consider that these April bor-rowing numbers of $738 billion are larger than the 2019 GDP of countries like Switzerland, Sweden, Norway, and Argentina. While these sums are huge, equally as huge is the change in thinking concerning deficits and their effects on the economy. Various fiscal experts on deficits and federal government borrowing would have harshly condemned these huge increases in government borrowing which they would predict would lead to galloping inflation and oppressive tax hikes.
With more than 30.3 million unemployment claims made in the last two months, and state and local governments continuing to contend with falling tax revenues, more calls for increased spending to reduce the fiscal injuries produced by the response are heard. While the federal government has encouraged businesses to reopen, others have warned that these re-openings can very well produce an increase in the number of new cases of this dreaded virus. If we do experience an increase in new cases, this will likely mean that there will be new calls for businesses to shutter their doors, lead-ing to additional economic anguish. As more businesses doors are shut, you can expect that the economy will once more show the effects of reduced levels of economic activity such as increasing unemployment claims and a growing budget deficit.
Once viewed as a threat to the economy, the change in the thinking about deficits is best reflected in the opinions of Jerome H. Powell, chairman of the Federal Reserve. In the face of growing support for more borrowing and larger fiscal budget deficits, Powell has repeatedly urged the federal government to expand borrowing and has urged the Fed itself to purchase more government bonds to provide banks with increased levels of liquidity. Those increased deficits and the thinking that they should continue for now, represent a significant change in the way that economists think about them.
Of course, rising debt levels also bring problems, such as increasing competition for funds, that can result in increasing interest rates and make it harder for private enterprise to access needed capital.
I hope, as many others do, that we will make social, fiscal and monetary policies that will guarantee a return to lower unemployment, higher economic growth and an end to the pandemic.
Author and educator Dave Kaplan writes from his home in Santa Barbara. Calif.