Unrivaled spending not exactly a stimulus

When Andrew Jackson became president in 1829, the national debt was $58.4 million, and Old Hickory was as frugal as he was disagreeable — very — so his Treasury Department announced that Jan. 1, 1835, the debt would be zero. Almost: It was $33,733.05.

In today’s dollars, that would be about $1 million, which is what the federal government this fiscal year will pay in interest on the national debt every 1.4 seconds. If the government were not paying nearzero interest rates on its borrowing, then rolling over the $21.8 trillion national debt, which recently rose above 100% of GDP, might be a severe challenge. At whatever interest rate, the debt threatens to crowd out crucial spending for national defense, science, etc.

The numbers involved in the federal government’s finances have suddenly become radically unlike anything in the nation’s prior peacetime experience. The Manhattan Institute’s Brian Riedl notes that in combating the Depression after the stock market crash of October 1929, Presidents Herbert Hoover and Franklin D. Roosevelt increased federal spending between 1930 and 1940 by 6% of GDP. In recessions between 1945 and 2008, Riedl says, “stimulus legislation typically approximated 1% of GDP.” Between 2008 and 2013, the cumulative $1.7 trillion in stimulus measures was approximately 3% of the multiyear GDP. This year, if Congress adds, as Democrats desire, another $1.9 trillion to the $3.4 trillion already passed, this spending would amount to 26% of GDP in just 12 months.

Riedl, a student of ancient (or so it suddenly seems) U.S. fiscal history, remembers the 2009 stimulus included a $25 addition to weekly unemployment checks. In 2020, Democrats wanted $600 bonuses, and Republicans were considered skinflints because they favored only $300 — 12 times the 2009 sum. In previous deep recessions, state and local governments received up to $200 billion in federal aid. Today Democrats want to add $350 billion to the $360 billion approved last year.

Just 13 years ago, President George W. Bush, who was not notably averse to spending, vetoed a farm bill because it increased spending by $20 billion. Today, Republican frugality is expressed in wanting to add only $600 billion to the $3.4 trillion enacted last year.

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% from 2010 to 2019. Since February 2020, however, the quantity of money has increased 26%.

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 trillion seconds ago was 31,710 years ago, which was 31,709 years before Congress decided it is safe to increase federal spending in trillion-dollar tranches. Remember Ernest Hemingway’s last line of “The Sun Also Rises”: “Isn’t it pretty to think so?”

The surge in the saving rate signals pent-up demand poised to erupt.