A Better Policy

Republican Rep. Dan Meuser states the entire meat of his op-ed at The Hill in its opening paragraph:

Simply put, inflation occurs when there is too much money chasing too few goods. In the last 15 months, federal spending on COVID-19 relief totaled $5.9 trillion, a quarter of U.S. GDP. This level of spending, paired with the Biden administration’s unwise fiscal and regulatory agenda, poses risks to our economy in the long run and is a wrong-headed approach at the onset of recovery from the pandemic.

In Keynes’s time stimulating consumer spending using the simple expedient of extending credit to ourselves could be an effective strategy for pulling the economy out of recession not because it promoted aggregate demand but because it promoted aggregate product. That remained true as recently as 40 years ago.

It’s no longer true. Today the net effect of using borrowed or printed money to stimulate consumption is to stimulate the economies of the countries from which we import consumer goods and we import more consumer goods from China by far. While there are reasonable economic and geopolitical arguments for stimulating the Mexican and Canadian economies and even more tenuous arguments for stimulating Japan’s economy, there is no similar geopolitical support for stimulating the Chinese economy. It’s the opposite if anything.

There is no longer any practical way of stimulating the U. S. economy in the near term by increasing consumer spending. It can still be accomplished in the long term using carefully crafted policies that will increase domestic production but that is not apparently within the wheelhouse of today’s elected representatives.