As a potential economic slide looms due to the effects of the COVID-19 virus, it’s clear that most politicians and politically connected “theorists” should step as far away from the economic policy bar as possible.
Right now, their so-called “answer” to the troubles ahead will make things far, far worse.
As Reason’s Eric Boehm writes, the “big idea” in DC is a federal “stimulus” of demand, and that can come in one, two, or all, of three ways:
With markets tumbling and confirmed cases of coronavirus rising, President Donald Trump is reportedly considering a fiscal stimulus plan. Already the president has urged Congress to pass a payroll tax cut and said the Federal Reserve should cut interest rates beyond what it already has done.
And Trump has gotten it kinda right. Tax cuts are always a good idea, if they’re real tax cuts. But cuts in the payroll tax -- which is comprised of the government tax-theft thrown into the shell-game of Social Security and Medicare “trust funds” -- is cash that is still promised by the feds to retirees and future retirees. So without proportional cuts in those programs, the offset of this frontloaded “stimulus” will have to be made up by higher borrowing (i.e. the selling of more bonded U.S. debt) and higher taxes (or an increased bond-debt spiral) in the future. In other words, if Social “Security” and Medicare aren’t cut proportionately, we’re talking more generational tax-debt slavery.
Another proposal, mentioned on March 6 by the Stamford Advocate, would see the feds “defer” tax charges for certain “effected industries” such as airlines and hotels:
It's not clear how U.S. relief would be administered or whether President Donald Trump's own hotels could be beneficiaries. Administration officials also disagree on the extent to which some of these measures could be done without Congress.
Again, without cuts in spending, this “deferral” can lead to problems similar to those described above and has the added complication of further political tinkering. Should this “deferred” tax-theft be imposed in the future, but the businesses haven’t recovered sufficiently to afford the deferred taxes and the new taxes, Congress will have a lot of power to play favorites with even more businesses, and the U.S. taxpayer will see even more deficit spending.
Of course, if Trump and the reality-hating U.S. Legislative Branch ever wanted to actually DECREASE INCOME TAXES AND DECREASE SPENDING, we’d all be much better off, and so would our yolk-destined progeny.
But that’s unlikely to happen, so let’s return to the core of the D.C. proposals, which, beyond tax “deferrals” and so-called “decreases in the payroll tax,” center around two forms of essentially one thing: creating more worthless money out of thin air to “stimulate demand.”
As Boehm writes:
Others are pushing for even more aggressive actions. In an op-ed published Thursday in the Wall Street Journal, Jason Furman argues that Congress should ‘swiftly’ pass a $350 billion stimulus to counter the ‘mounting economic risks posed by the spread of the novel coronavirus.’
Brilliant. Pretend everyone is wealthier by giving them more colored paper.
Furman, a former economic advisor to President Barack Obama, prefers straight cash. ‘Congress should pass a simple one-time payment of $1,000 to every adult who is a U.S. citizen or a taxpaying U.S. resident, and $500 to every child,’ he argues—an amount that would be even more generous than the 2008 stimulus passed during the Bush administration.
A variation of this idea is to have the Fed continue its Magic School Bus Ride of Quantitative Easing, which is really just the creation of money through lower and lower interest rates that facilitate pyramid upon pyramid of pretend-reserve leveraged liquidity in all U.S. banks.
All of which leads to one result and one major economic lesson we can retain and remember anytime, anywhere.
The result is a skyrocketing of prices, and the lesson is about the simple supply-demand relationship of prices.
See, Mr. Furman (and all others who simply keep us trapped in this cage of government spending and money-printing), inflating the money supply when an economy ISN’T under a supply strain is bad enough. It pumps more units of cash into the system, bids up the prices of all the products out there, and causes all kinds of malinvestments as the first recipients of the cheap money think the economy is booming and think higher demand is natural. This sees new buildings built when they shouldn’t be, new businesses started that shouldn’t be started, and new employees hired for risky and badly-planned industries/projects that normally would not receive investment.
The influx of fake money bids up prices until consumers realize costs are too high to afford, productivity hasn’t kept up, and folks begin to cut back on their spending.
An economic downturn is inevitable.
But it’s even worse if government pumps money into the system when the system is already experiencing supply problems. In a normal economy, a decrease in supply with no corresponding decrease in demand sees higher prices. These prices tend to offset demand and incentivize new entrepreneurs to increase supply until prices drop to reach an equilibrium point.
But if numerous governments and natural dangers forbid people from going to work, supply cannot be increased. And flooding any high-demand, artificially restricted supply chain, system with fake money will do one thing:
Cause skyrocketing prices.
This is very important. These ideas of handing out “stimulus” cash to people, or having the Fed lower interest rates to -100,000,000 percent, are dangerous and as unconstitutional as the idea of the having the federal government battle a virus in the first place. There is absolutely zero enumerated power granted to the feds to hand out “stimulus cash” or license a central bank to print oodles of pretend money. Period.
It would be nice if the politicians and advisors out there bothered to recognize this as they play with our lives and the lives of Americans yet to be born.
But too few understand the U.S. Constitution or economic reality, and it’s unlikely they’ll be cured of this terrible disease.