In his Washington Post column about our present federal spending trajectory George Will does a lot of throat-clearing about big numbers, the history of the national debt, etc. before getting to the meat of his argument:
Writing in the Wall Street Journal, John Greenwood, chief economist at Invesco in London, and Steve H. Hanke, professor of applied economics at Johns Hopkins University, note that by the Federal Reserve’s broadest measure of the quantity of money, the annual growth of the money supply averaged 5.8 percent over the 10 years from 2010 to 2019. Since last February, however, the quantity of money has increased 26 percent. And, they say, “we already know that the money supply will likely increase by at least another $2.3 trillion over the current year†— nearly 12 percent, which is twice as fast as the 2010-2019 average.
Should we call all this “stimulus� The economy’s problem is not inadequate aggregate demand. The surge in the saving rate signals pent-up demand poised to erupt when vaccinations allow the economy to open up and begin supplying demands, from restaurant meals to airplane tickets. A letter writer to the Wall Street Journal illustrates the folly of a gusher of untargeted government spending:
“How can sending checks to a retired couple whose combined income has remained steady at $150,000 a year in any way address the problems we currently are facing? A household with school-age children and adults who are now working at home and drawing the same (if not higher) salaries they did in 2019 would be much better served by programs aimed at getting schools reopened rather than receiving a stimulus check.â€
There are significant constituencies for increased spending and, as we have learned, no constituency whatever for fiscal prudence. The principles that I would advocate using in forming your views on the subject include:
- The best knowledge we presently have is that a public debt overhang impedes economic growth. The debt is right around 100% of GDP right now.
- Our present system in which the Federal Reserve buys most of the bonds from the Treasury and pays for them by expanding their own balance sheet is a perpetual motion scheme. Whatever your theory about why it will work it won’t work.
- Our present system exacerbates income and wealth inequality which I believe has a corrosive effect on society.
- Consumption is not investment. Getting a degree in art history may enrich your life but it’s consumption not investment. A public investment would be making our power grid more resilient or enabling it to serve future needs. I don’t believe that building more interstates is investment. It was in 1960 but now it’s just consumption.
- Increased federal spending distorts economic risks and rewards and impels people to make what would otherwise be unwise judgments, creating deadweight loss. When our economy was growing rapidly we could afford a little more deadweight loss. It isn’t growing rapidly any more and hasn’t been for some time. Also, see above about economic growth.
- What we’re doing now is risky. Maintaining our present course has many constituencies but if the worst happens the most vulnerable of those constituencies will suffer the most and we won’t be able to mitigate that with more spending.






